Collapse in coal prices distresses Indonesian miners, reports Bloomberg

Bonds from the country’s financially weak miners have suffered more than their peers in other areas of Asia due to a lack of diversification and state backing that many competitors enjoy.

Prices of thermal coal – the kind burned by power plants – have slumped about 33% this year, and at least four US firms have gone bankrupt.

Bharat Shettigar, head of Asia ex-China Corporate Credit Research at Standard Chartered PLC, said: “Among the Indonesia coal names, some are facing severe stress. If prices stay depressed for the next 12 - 18 months, there could be restructuring of some US dollar bonds in the Indonesia coal sector.”

Bonds sold by Indonesia coal miners Geo Energy Resources Ltd., PT ABM Investama and PT Bumi Resources have slumped in the past six months.

Geo Energy Resources, which has operations in Kalimantan, faces a potential early redemption of its bonds in April 2021 if it fails to meet certain minimum coal-reserve conditions.

According to Trung Nguyen, analyst at Lucror Analytics, that will be a ‘crucial liquidity point’ for the company.

Geo Energy said by email that its cash balance was US$199.6 million as of 30 June, and it only needs to generate US$100 million from its mines in 3 years to repay the US$300 million bonds due in October 2022. The company stated that it needs a minimum 120 million t of coal reserves to prevent early redemption, and had around 78 million t as of June 30 and a proposed acquisition of mines will bring the total to 109 million t.

Coal investment

ABM Investama will be able to repay and refinance its bonds, and the company is focusing on cost reductions and operational efficiencies across the value chain, Adrian Erlangga, a Director at the company said. He carried on to say he expects coal prices will increase in the long term because investments to build coal-fired power plants are outpacing those for new coal mines.

Bumi Resources expects its coal sale volume to increase to 87 - 90 million t in fiscal 2019 from 80.3 million t the previous year, said Dileep Srivastava, a Director at the company. He said demand for the fuel is rising sharply in India while demand in Asia is normal.

A push among governments and large companies to shift to renewable power poses a threat to fossil fuels such as coal.

Paul Lukaszewski, Head of Corporate Debt for Asia and Australia at Aberdeen Standard Investments, said: “Investors are starting to ask questions about the long-term prospects for thermal coal miners.”

Read the article online at: https://www.worldcoal.com/coal/21102019/collapse-in-coal-prices-distresses-indonesian-miners-reports-bloomberg/