Fitch Ratings has affirmed PT ABM Investama Tbk's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+'.
The Outlook is Stable. Fitch has also affirmed ABM's outstanding senior unsecured US dollar notes at 'B+' with a Recovery Rating of 'RR4'.
The affirmation reflects our expectation that ABM's business profile will remain in line with its rating. ABM benefits from increasing overburden (OB) removal volumes at its coal-contracting subsidiary, PT Cipta Kridatama (CK), although this is partly offset by declining profitability of its coal mining segment. We expect ABM's financial profile to remain strong for its rating, with net leverage, measured by net adjusted debt/EBITDAR, remaining below 2.0x (2022: 1.4x) over the medium term, based on our coal-price assumptions.
Rising OB Volume: Fitch expects CK's OB volume to reach about 270 million bank cubic metres (mbcm) by 2024 (1H23: 131mbcm; 2022: 203mbcm), on clients' higher planned output and a potential new contract by end-2023. We expect CK's OB volume to benefit from ABM's 30% stake in PT Golden Energy Mines Tbk (GEMS, BB-/Stable). GEMS' key mine, PT Borneo Indobara (BIB), has a competitive cost position and we expect it to drive GEMS' annual coal output to 50 million tonnes (MT) by 2025 (1H23: 20.4MT; 2022: 38.4MT). We expect BIB to make up 25% of CK's OB volume from 2024 (2022: 7%).
ABM expects CK's OB volume to continue rising after reaching 300mbcm in 2024. Fitch's lower volume forecasts are based on expectations that as coal prices moderate, coal miners with higher cost positions will not be able to sustain the volume addition seen in the last two years, when commodity prices were at record highs. Some of CK's key customers, excluding GEMS, operate mines with relatively high costs. That said, miners may have flexibility to modify plans to manage costs when coal prices are weak.
Strong Financial Profile Despite Expansion: We expect ABM's cashflow to be adequate to support its investments and strong financial profile. ABM plans capex of USD360 million at CK in 2023-2024 (2022: USD240 million), including expansion and maintenance, for which it raised USD170 million of new debt in 1H23 and a USD125 million bank loan in 2022. We believe ABM's expansion plan is supported by relationships with affiliates, including PT Trakindo Utama, a long-term distributor of Caterpillar Inc. (A+/Stable), which provides most of the equipment, spare parts and servicing for ABM's coal-contracting business.
Weakening Coal-Mining Profitability: We forecast the profitability (EBITDA/ tonne) of the coal mining segment to plunge to around USD6 from a multi-year high of USD26 in 2022 due to falling coal prices and reserve depletion at ABM's PT Tunas Indi Abadi (TIA) mine by 2024. ABM's other mines - PT MIFA Bersaudara and PT Bara Energi Lestari (BEL) - have reserve lives of around 20 years, but produce lower calorific value coal, resulting in lower profitability. We expect production volume to remain at about 12MT (1H23: 6MT, 2022: 12.7MT), with higher volume at MIFA and BEL offsetting TIA's decline.
ABM's investment plans include acquisition of coal mines to augment its coal mining segment. Fitch will treat such acquisitions as event risk.
Regulatory Risk Manageable: There are risks to growth in ABM's coal mining segment because MIFA and BEL may not be able to comply with domestic market obligations (DMO) to supply 25% of their coal locally given their low calorific value coal and remote geographic location, which results in poor domestic demand. However, we believe the risk is manageable and ABM pays a penalty for non-compliance in line with the regulations.
Consistent Dividends from GEMS: Fitch expects ABM to receive annual dividends of USD90 million-125 million from GEMS over the medium term. GEMS has consistently paid a minimum of 80% of its free cash flow as dividends. Fitch expects the dividend income from GEMS to comfortably cover servicing of the amortising bank loan raised by ABM to buy a 30% stake in GEMS in 3Q22.
Integrated Business Model: ABM benefits from the synergies created by its integrated business model, with four businesses across the value chain: coal-mining contracting, coal mining, logistics and engineering. However, the majority of earning are linked to thermal coal, with the coal-contracting business and coal mines together accounting for more than 75% of EBITDA.
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Source: www.marketscreener.com/Fitch Affirms ABM Investama at B Outlook Stable
