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Risks remain for Indonesian coal
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Indonesia’s coal sector — much like the industry throughout the region — has seen a turbulent time in the wake of lower prices. (Shutterstock/File)
I
ndonesia’s coal sector — much like the industry throughout the region — has seen a turbulent time in the wake of lower prices.
However since the middle of 2016, there has been a global rebound in thermal coal prices, leading to strong balance sheets for many coal players within ASEAN, including Indonesia.
Within Indonesia, we see potential for growing coal demand. There is a gap in the electrification ratio — a measure of how many households are connected to the power grid — and the government has flagged the addition of about 35 gigawatt of new capacity as a response. Thus the power sector’s consumption of coal could double.
This may accumulate with a number of other coal-powered projects in various stages of planning or construction, potentially boosting Indonesian coal exports. All of which would likely exert upward pressure on the coal price.
In looking at 20 of the largest listed thermal coal-producing companies across ASEAN, we find that aggregated gross debtto-EBITDA (earnings before interest, tax, depreciation and amortization) was 1.7 percent in September 2017, a 35 percent drop in a period of 12 months.
In many other industries, such healthy leverage ratios could indicate ratings above the speculative single ‘B’ category, where we continue to rate the bulk of coal companies in Indonesia and wider Southeast Asia.
This is in recognition of the circumstances that much of Indonesia’s coal sector face.
