(The following was released by the rating agency)
JAKARTA/HONG KONG/SINGAPORE, December 16 (Fitch) Fitch
Ratings has affirmed PT Bukit Makmur Mandiri Utama's (BUMA)
Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-',
and National Long-term rating at 'AA-(idn)'. The Outlook remains
BUMA's ratings reflect its position as the second-largest
coal mining contractor in Indonesia, with an estimated market
share of 17%, reciprocal established relationships with some of
Indonesia's largest coal producers, and the visibility of its
Indonesia's mining contractors benefit from substantial
ongoing coal production capacity increases, as about 80% of
domestic coal mining and over-burden removal is contracted out
to mining contractors. Fitch expects BUMA's overburden removal
volumes to increase by 20% in 2012 to 400mmbcm.
BUMA's ratings, however are constrained by indirect exposure
to commodity cycles, and by the highly capital intensive nature
of its operations. Although long term contracts for work provide
a fair degree of earnings visibility, its volume of work can be
affected by a sustained downturn in the coal mining industry.
Furthermore, despite its capex being very granular, the long
lead times for equipment purchases, typically ranging from six
months to two years, reduces flexibility in relation to capex.
Strong industry growth prospects have necessitated BUMA to incur
substantial expansionary capex in 2011 in order to maintain its
Following a change of ownership in 2009, BUMA's new
management has taken steps to improve efficiencies, partly by
intensifying capex on enhancing its equipment fleet. This has
resulted in BUMA's capex to be higher through 2012, than Fitch's
initial capex expectations.
The company's EBITDA margins (excluding fuels costs, which
are a pass through) have also fallen, to 35% in the nine months
to September 2011 (2010: 40%). This is partly due to one-off
costs incurred during the period, such as an increase in staff
in preparation for a ramp-up of production, and new maintenance
contracts for its equipment. As such, financial leverage, as
measured by debt net of cash to EBITDA, weakened to 3.6x at
September 2011 (2010: 2.9x).
However, the Stable Outlook on BUMA's ratings reflect
Fitch's expectation that, by 2013, its financial measures can
improve to levels that are acceptable for its current ratings,
when capex declines and its cash generation begins to benefit
from higher investments in fleet over 2011-2012. BUMA's capex
spend is expected to exceed its CFO in 2011 and 2012, which will
lead to negative free cash generation thus requiring additional
As at end-October 2011 the company had access to about
USD220m of, mostly, vendor financing credit lines; BUMA's
liquidity profile benefits from cash reserves of USD42m. In
addition a substantial portion of the USD140m raised via the
recent rights issue of its parent, PT Delta Dunia Makmur Utama,
is expected to fund BUMA's capex.
Covenants imposed by BUMA's main banking line restrict its
cash dividend payment to USD10m per annum until the maturity of
the loan in 2018. Fitch may take a negative rating action if
total net debt/EBITDA does not fall below 2.5x post-2012 due to
sustained high capex, sustained weakening of margins from an
inability to pass-through cost increases, and a failure to
retain market share and volumes. The agency does not expect a
positive rating action in the short- to medium-term.