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BUMI’s rating cut amid irregularities probe

Major international rating agencies Standard & Poor’s and Moody’s Investors Service downgraded their long-term corporate ratings of Indonesia’s largest thermal coal producer PT Bumi Resources (BUMI) on Wednesday amid investigations into irregularities within the company

Raras Cahyafitri (The Jakarta Post)
Jakarta
Thu, September 27, 2012

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BUMI’s rating cut amid irregularities probe

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ajor international rating agencies Standard & Poor’s and Moody’s Investors Service downgraded their long-term corporate ratings of Indonesia’s largest thermal coal producer PT Bumi Resources (BUMI) on Wednesday amid investigations into irregularities within the company.

The two rating agencies said that the investigation of the alleged irregularities could weaken BUMI’s ability to refinance its mounting debts.

S&P said it lowered its long-term corporate rating of BUMI by one step to “B+” from “BB-”. Meanwhile, Moody’s Investors Service revised the outlook on the company to negative from stable.

“The negative outlook reflects Moody’s concern that the lingering corporate governance issues at Bumi Resources will impact its ability to refinance its scheduled loan maturities of over US$300 million in 2013,” Moody’s vice president and senior analyst Simon Wong said in a statement.

Both rating agencies highlighted BUMI’s ability to repay debts following the decision of the company’s parent company, Bumi Plc., to investigate alleged irregularities regarding so-called development funds.

“In our view, the investigation could weaken Bumi Resources’ position in the capital markets, test its ability to refinance its debt maturities and increase funding costs over the next 12 months,” S&P credit analyst Xavier Jean said in a statement.

“The investigation comes at a time of slower production growth over the next 12 months than we earlier expected and continued subdued coal prices that further constrain the company’s cash flows and weaken its debt-servicing ability and credit ratios,” S&P added.

Commenting on the ratings downgrade, BUMI director Dileep Srivastava said that they were influenced by negative outlook amid the global downturn.

“Any negative news is disproportionately punished and positives are ignored,” Srivastava said in a text message.

Bumi Plc., a 29.2 percent holder in BUMI, announced on Monday that it had commissioned an independent investigation to probe allegations concerning “potential financial and other irregularities” in BUMI.

Bumi Plc., which is listed on the London Stock Exchange, also said that it would investigate the writedown of about $637 million of so-called development funds and exploration assets.

Moody’s estimates BUMI has total debt of $3.95 billion, $300 million of which falls due in the next 12 months. S&P estimates the debt that will mature within the next 12 month to be $400 million.

BUMI said in a file submitted to the Indonesia Stock Exchange (IDX) on Wednesday that it had received no advance notice of either the investigation or the press release from Bumi Plc.

The Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) also seemed to be seeking details over alleged irregularities in BUMI. Srivastava visited the Bapepam-LK’s office on Wednesday.

“We had a regular courtesy call. There’s nothing more to say,” Dileep said after the meeting, declining to comment further.

Bapepam-LK acting chairman Ngalim Sawega said on Wednesday that he had made a call to BUMI’s president director Ari Saptari Hudaya on Tuesday evening.

“He [Ari] said Bumi Plc. was only conducting a regular audit into his company. I think it is just a normal thing to do by a parent company,” Ngalim said.

He said that Bapepam-LK would await the result of the audit by Bumi Plc. “Our domain is the capital markets. If there is no breach or it’s just an internal spat, it’s not a problem for us. However, if the spat causes losses to the public, we will step in,” Ngalim said.

BUMI shares dropped 2.9 percent to Rp 670 (7 US cents) amid reports of the alleged irregularities. The share price has declined 70 percent this year.

Meanwhile, Bumi Plc.’s shares fell 11 percent to 149 pence on Wednesday. The price has dropped 80 percent year-on-year. (tas)

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