PEFINDO raises the ratings for PT Aneka Tambang Tbk and its bond to “idA”

(12 September 2019)--PEFINDO has raised the ratings for PT Aneka Tambang Tbk (ANTM) and its Shelf-Registration Bond I/2011 to “idA” from “idA-”.

Upgrade in ratings were due to our expectation that ANTM’s credit profile, particularly its cash flow coverage ratios, will improve to levels that we believe are commensurate with an A rating category following increased nickel production capacity from its Pomalaa and Halmahera plants, the latter of which is nearing completion and is expected to commence plant operation phase in 2020, as well as ANTM benefitting from having a relatively low cash costs position. We are also of the view that the acceleration on nickel ore export ban by 2020, two year earlier than initially indicated, will improve nickel prices given the fact that Indonesia is the world’s largest nickel ore producer, accounting for about 25% of global nickel ore supply in 2018, hence, compensating for the loss in revenue from ANTM’s nickel ore exports which accounted for about 7% of revenue. In early September 2019, nickel price rose to USD17,685 per ton, its highest since 2015. ANTM however, is still allowed to export bauxite ore, from which it has secured around 3.3 million metric tons of export quota in 2019, an increased from 850,000 metric tons in 2018. Such an increase in export quota arises from its plan to add a smelter grade alumina refinery plant in Mempawah, West Kalimantan, which will be jointly developed with its parent, PT Indonesia Asahan Aluminium (Persero) (Inalum). The outlook for the corporate rating is “stable”.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors.

The corporate rating reflects ANTM’s diverse mining products backed by a sizable amount of resources and reserves, its vertically integrated mining operation, and improved cash flows. However, the rating is constrained by its relatively high financial leverage for the rating category, although the number has been improving over the past years, as well as its exposure to fluctuating commodity prices.

We could raise the rating if ANTM improves its business profile, reflected by increase in revenue and EBITDA, while maintaining a conservative financial leverage level on a sustained basis. The rating could also be raised if there is evident of stronger support from Inalum, such as in the form of capital injection, shareholder loan, and/or business synergy. We may lower the rating if ANTM’s capital structure and cash flow protection measures deteriorate as a result of lower-than-expected commodity prices, particularly nickel, rise in fuel price, which may increase its cash cost position, and if it fails to meet the targeted sales volume of its products.

The rating could also be under pressure if ANTM incurs higher-than-projected debt and fails to complete its expansion projects as scheduled.

Founded in July 1968, ANTM is a state-owned mining company in Indonesia producing nickel ores and ferronickel, gold, bauxite, and coal. As of June 30, 2019, ANTM was 65% owned by Inalum, which is wholly owned by the Government of Indonesia, and the rest was held by the public (35%). (ends)