PT ABM INVESTAMA TBK
Fitch Ratings has affirmed
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,
Key Rating Drivers
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
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
Weakening Coal-Mining Profitability: We forecast the profitability (EBITDA/ tonne) of the coal mining segment to plunge to around
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
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.
Derivation Summary
ABM's closest peer is
BUMA, as
Key Assumptions
Newcastle coal price in line with Fitch's price deck: 2023:
OB volume to reach 270mbcm by 2024 and decline by 5% in 2025
Coal mining sales volume to remain around 12MT over the medium term
Cumulative capex of around
Average annual dividend pay-out of 35% of previous year's net income until 2024
Recovery Rating Assumptions:
The recovery analysis assumes that ABM would be re-organised as a going concern in bankruptcy rather than liquidated. We assume a 10% administrative claim.
ABM's going-concern EBITDA is based on the average EBITDA we expect during 2025-2026 derived using mid-cycle coal price assumptions of Fitch, which is stressed by 15% to reflect the operational risks that can mainly arise from a steep decline in OB removal volumes.
An enterprise value/EBITDA multiple of 3.0x is applied to the going-concern EBITDA to calculate a post-reorganisation enterprise value.
We assume net additional value from the minority stake in GEMS of around
There will be structural subordination for the notes as per Fitch's criteria, as the acquisition loan is secured by GEMS' shares and the dividend distribution waterfall under the loan agreement ensures dividend income from GEMS will first be utilised for servicing the acquisition loan before being accessible to ABM.
In the distribution waterfall, we have assumed prior-ranking debt, including a short-term loan of
The assumptions result in a recovery rate corresponding to a Recovery Rating of 'RR3'. However, ABM operates in
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A sustained improvement in ABM's coal mining or contracting business driven by larger scale and better customer profile, while maintaining an appropriate financial profile, and
Evidence of access to diversified sources of funding on a sustainable basis.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in the company's core operating segment, including failure to retain major customers.
Earning generation falling short of our expectations, leading to a sustained deterioration in credit metrics, including EBITDAR adjusted net leverage at above 3.0x (2022: 1.4x) or EBITDAR/interest + rent expense at below 2.0x (2022: 5.8x).
Evidence of weakened external funding access.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Near-Term Liquidity Comfortable; Tightening Funding Access: ABM's liquidity benefits from a well spread-out debt maturity from the amortising nature of most of its debt. Its annual debt maturity will remain below
The tightening funding access for coal companies due to rising ESG concerns is likely to affect ABM over the medium term, especially for refinancing its
Issuer Profile
ABM is an Indonesian integrated company with businesses spanning coal mining, mining contracting, and logistics, engineering and fuel services. It is majority-owned and controlled by the Hamami family, with about 21% of its shares listed on the
Criteria Variation
We applied a variation from our Corporate Rating Criteria by using multiple-based lease-adjusted credit metrics to assess ABM's rating instead of unadjusted ratios, as defined in the criteria, to better reflect ABM's financial profile, given its strategy of using operating leases for core assets in its mining contracting business.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
ABM's ESG Relevance Score for GHG Emissions & Air Quality was raised to '4' from '3' due to its revenue concentration in thermal coal. Thermal coal's heavy carbon footprint weakens demand growth in the medium term and diminishes the company's access to funding, which have negative impact on ABM's credit profile and is relevant to the rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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