Indonesia's Coal sector can benefit from clearer regulations - Fitch Ratings

Thursday, 08 March, 2012

Fitch Ratings says Indonesia's coal mining sector should continue to see strong growth prospects but can benefit from clearer and more predictable regulations.

"Fitch expects medium term demand supply dynamics for thermal coal to remain well balanced, leading to healthy prices and strong operational cash flows for Indonesian coal miners," says Shahim Zubair, Associate Director in Fitch's Asia-Pacific Energy & Utilities team. Low production costs are a major advantage for Indonesian coal producers.

In a special report, Fitch notes that the regulatory environment of the Indonesian coal industry is in a state of transition. Further clarity is required on certain major aspects, including the proposed ban on low-rank coal exports. If implemented, the ban can hit certain operators who have significant reserves in low-rank coal. Most of the large coal miners in Indonesia are export-oriented and their coal reserves are either below or marginally above this threshold.

"It is a tough act to balance the health of the industry against long-term domestic energy security of Indonesia" says Mr Zubair. "Fitch believes that Indonesia will take a pragmatic approach to industry regulations as failing to do so can have negative consequences for the sector in the long-run."

Fitch notes the sector's rapid expansion of production and acquisition of coal reserves. A number of operators have acquired, and will continue to acquire, green-field projects which generally entail higher operational and financial risks. However, as long as risks associated with such projects are sufficiently addressed and green-field project development exposure contained, these do not necessarily pose a significant threat to credit profiles.

Credit profiles of Indonesian coal miners remain sub-investment grade, owing to limited mine site diversification, evolving mining regulations, debt-funded expansion and, in some instances, corporate governance issues.

The full report "Indonesia: Coal Mining - Strong Medium-term Outlook; Clearer Regulations Highly Desirable" is available at 'www.fitchratings.com'.

(sourced coalspot.com

Fitch afrms Goyal Energy at 'Fitch B+(ind)'

Tue Jan 31, 2012

Jan 31 - Fitch Ratings has affirmed India-based Goyal Energy & Steel Pvt. Ltd.'s (GESPL) National Long-Term rating at 'Fitch B+(ind)'. The Outlook is Stable. A list of additional ratings is provided at the end of this commentary.

The affirmation reflects improvements in GESPL's net financial leverage (net adjusted debt/EBITDA) to 6.2x in the financial year ended March 2011 (FY11) from 9.6x in FY10, as its EBITDA margins increased to 4.7% from 2.5%. This is mainly due to higher average sales realisation per tonne of angles and channels at the company's rolling mill compared with previous year's and also because of partial backward integration through an ingots manufacturing facility.

The ratings, however, remain constrained by the company's tight liquidity position, as reflected through its continuous 100% utilisation and occasional over-utilisation of the fund-based limits by 0.5%-1%. The ratings are further constrained by the price volatility risk because GESPL buys its raw materials from the open market.

Positive rating guidelines include an improvement in GESPL's liquidity position in the next two quarters along with the maintenance of the current financial profile. Negative rating guidelines include any significant debt-funded capex leading to a decline in EBITDA margins and hence deterioration in net leverage to 10x.

In FY11, GESPL reported revenue of INR1,222.9m (FY10: INR1,160.4m). Its total adjusted debt increased to INR367.9m in FY11 (FY10: INR305.0m), while free cash flow (FCF), though improved, remained negative at INR126.5m (FY10: negative INR135.6m). Fitch expects FCF to remain negative in FY12 mainly due to the company's higher working capital requirements because of increased volume of business.

Fitch has also affirmed GESPL's bank facilities as follows:

- INR32.8m term loans: affirmed at 'Fitch B+(ind)'

- INR395m fund-based limits (increased from INR245m): affirmed at 'Fitch B+(ind)'

(sourced Reuters)

Commissioner increases ownership in Adaro

Wed, Jan25, 2011

A commissioner at PT Adaro Energy Tbk (ADRO), Indonesia’s second-largest coal producer, has purchased 300,000 shares of the company at Rp 1,830 per share to increase his ownership of the growing company.

Malaysian national Lim Soon Huat, who has been a commissioner at Adaro since October 2008, made the deal on Friday, Jan. 20, when the firm’s stock price closed at Rp 1,820 a share, according to a file submitted to the Indonesia Stock Exchange (IDX).

The stock purchase was done for investment, the file said, without disclosing the total shares Soon Huat owned. Soon Huat has over 15 years experience in the financial industry and corporate management in Singapore, Thailand, Malaysia, Hong Kong, China and Indonesia.

Major international ratings agency Fitch Ratings recently said it might upgrade Adaro’s credit rating to investment grade from the current BB+ with stable outlook, on the company’s strong financial fundamentals amid rising demand for coal.

Adaro’s shares traded at Rp 1,840 at 10:23 a.m. on Wednesday, gaining 0.55 percent from the previous day’s close when the broader stock index was in the red.

sourced: The Jakarta Post

Stocks Fall, Euro Erases Gain as Fitch Cuts Credit Ratings of Italy, Spain

Fri,Oct7, 2011
By Rita Nazareth and Cordell Eddings

U.S. stocks fell, halting a three-day rally, and the euro erased earlier gains versus the dollar after Fitch Ratings downgraded the government debt of Spain and Italy. Treasuries retreated, pushing 10-year note yields toward their biggest weekly increase since July.

The Standard & Poor’s 500 Index slipped 1 percent to 1,153.44 at 12:34 p.m. in New York after rebounding more than 8 percent from a one-year intraday low on Oct. 4. The euro lost 0.2 percent to $1.3405 after climbing as much as 0.7 percent. The 10-year note yield increased nine basis points to 2.08 percent and has climbed 16 points in five days.

Faster-than-forecast growth in U.S. employment was overshadowed by concern Europe’s debt crisis will worsen. Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ’AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ The outlook for both is negative.

Government data showed payrolls climbed by 103,000 workers, topping the median forecast in a Bloomberg News survey of economists for a rise of 60,000. The data followed reports earlier this week showing faster-than-estimated growth in manufacturing, construction and service industries, improving retail sales and signs that European leaders were stepping up efforts to tame the region’s sovereign debt crisis.

The 30-year Treasury bond’s yield climbed nine basis points to 3.04 percent and is up 12 points the this week. Two-year yields climbed one basis point to 0.28 percent, up three points on the week.

‘Positive Surprise’

“We saw a positive surprise in payrolls and the market has to respect that and push yields higher on the optimism, but no one is too excited about the data given the uncertainty in Europe,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 20 primary dealers obliged to participate in U.S. debt offerings. “The uncertainty isn’t going away anytime soon.”

The S&P 500 rebounded more than 8 percent from a one-year intraday low on Oct. 4. The benchmark index sank 14 percent in the third quarter and this week came within 1 percent of extending its decline from its April peak to 20 percent on a closing basis, the common definition of a bear market. The slump pushed the index to 12 times reported earnings, the cheapest valuation level since 2009, according to data compiled by Bloomberg.

The S&P GSCI commodities index is poised to snap a streak of four straight weekly declines.

Jobs Revision

The government jobs data also showed hours and earnings both increased and revisions to previous reports added a total of 99,000 jobs to payrolls in July and August. The jobs report last month showed no gain in non-farm payrolls for August.

“This is yet another data point suggesting that the U.S. is not moving toward recession any time soon,” Richard Skaggs, senior equity strategist at Loomis Sayles & Co. in Boston, which manages more than $150 billion, said in a telephone interview. The revisions to prior months “were significant,” he said. “Last month, the unchanged number really sent stocks for a loop.”

The rate by which data on the economy has been trailing forecasts has been decreasing since June, according to the Citigroup Economic Surprise Index. The U.S. gauge, which fell below zero on April 29 as the S&P 500 was peaking, has climbed from a low of minus-117.2 on June 3 to minus-14.7.

Earnings Season

Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.

The Stoxx Europe 600 Index rose 0.8 percent to extend its weekly gain to 2.6 percent. Gauges of energy producers and auto companies climbed more than 1.7 percent to lead gains among 19 industries.

European markets closed before Fitch downgraded Italy and Spain.

The yield on 10-year Italian bonds rose seven basis points to 5.49 percent. The nation said it plans to sell securities maturing between 2016 and 2025 on Oct. 13. Spanish yields fell two points to 4.97 percent.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in Berlin on Oct. 9 to discuss Greece’s debt problems as the nation edges closer to default. It will be their eighth one-on-one summit in 20 months.

The BSE India Sensitive Index, or Sensex, added 2.8 percent after Citigroup raised its rating on the nation to “neutral.” The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong advanced 3.7 percent. Benchmark indexes gained more than 2.6 percent in Russia and South Korea.

(sourced Bloomberg)

Moody's warns Greek default almost certain

Mon Jul 25, 2011
By Ingrid Melander and George Georgiopoulos

ATHENS (Reuters) - Moody's cut Greece's credit rating further into junk territory on Monday and said it was almost certain to slap a default tag on its debt as a result of a new EU rescue package.

It was the second rating agency to warn of a default after euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal that offers Greece more cash and easier loan terms to keep it afloat and avoid further contagion.

"The announced EU programme along with the Institute of International Finance's statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent," Moody's said in a statement. Bank lobby IIF, which led private sector negotiations, aims to attract 90 percent investor participation in the bond exchange plan which comes on top of the EU's new 109 billion euro bailout.

Moody's cut Greece's rating by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed debt exchanges.

Greece now has the lowest rating of any country in the world covered by Moody's, which, like Fitch last week, said it would review Greece's rating after the debt swap is completed.

"Once the distressed exchange has been completed, Moody's will reassess Greece's rating to ensure that it reflects the risk associated with the country's new credit profile, including the potential for further debt restructurings," it said.

However, whereas Fitch pledged to quickly give Greece a higher, "low speculative grade" after its bonds had been exchanged, Moody's said it could not forecast when the rating would change or how.

"It all depends how quickly the debt exchange takes place," said Alastair Wilson, Moody's Managing Director for EMEA Credit Policy. "Once we have greater visibility over that, we will reassess the credit profile quite quickly. Whether the rating will change, that's a different question," he told Reuters.

A senior EU official said on Saturday that the aim was to start a voluntary swap of privately-held Greek bonds in late August and conclude it in early September.

Greek bank shares and the broader stock market were unfazed by Moody's action. Analysts said the downgrade and the default warning were priced in and less worrying following assurances provided by the EU deal.

"The EU Council last week effectively secured Greek banks' continued access to ECB liquidity, even in the case that PSI (private sector involvement) triggers a selective default," said Platon Monokroussos, an economist at EFG Eurobank.

The government has repeatedly criticised ratings firms for their downgrades and its spokesman threatened on Monday to end its subscriptions to these agencies as the new rescue package means Greece will not issue new bonds for years.

"All governments pay a subscription to these agencies. We, I think, do not need the reviews anymore. They have no practical value," Elias Mosialos told Radio 9. "Perhaps the finance ministry should end its subscription."

CONTAGION CONTAINED ... FOR NOW

Moody's said it would take into account the possibility of a second default while reassessing Greece's rating.

"Our experience is that relatively small restructurings have often been followed by deeper defaults," Wilson said, adding that he could not say if this would be the case for Greece.

The rescue package for Greece benefits other euro zone countries by containing near-term contagion risks but it was not necessarily positive in the longer run as it set a precedent for private sector involvement in rescue deals, Moody's said.

"The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece. The impact of Thursday's announcement for creditors of Ireland and Portugal is therefore likely to be credit-neutral," it said.

The cost of insuring most peripheral euro zone government debt against default rose on Monday on market doubts that the fresh aid package for Greece agreed last week will protect bigger economies from contagion.

Standard & Poor's and Fitch rate Greece CCC, broadly in line with Moody's rating. S&P has not yet said how the EU summit deal will affect Greece's rating.

(sourced Reuters)

Moody’s Cuts Ireland Rating Two Levels, Outlook Negative

Apr 15, 2011 1:19 PM GMT+0530
By Finbarr Flynn and Dara Doyle

Ireland’s credit rating was cut two levels by Moody’s Investors Service to the lowest investment grade as the government struggles to lower the budget deficit and restore economic growth.

Moody’s reduced the rating to Baa3 from Baa1, leaving the country’s outlook on negative, according to an e-mailed statement today. That’s the same rating as Iceland, Tunisia, Romania and Brazil. Standard & Poor’s on April 1 cut Ireland’s rating one level to BBB+ with a stable outlook.

Irish taxpayers may spend as much as 100 billion euros ($145 billion) trying to solve Europe’s worst banking crisis as the country draws funds from last year’s bailout. Ireland is trying to convince investors at home and abroad it has finally plugged the hole in its lenders after four failed attempts following the collapse of the country’s property boom in 2007.

Irish debt restructuring is not a “plausible scenario,” Dietmar Hornung, a Frankfurt-based analyst at Moody’s, said in a telephone interview today. The country has a “good track record of delivering” fiscal consolidation, while the negative outlook reflects the “unbalanced risks” facing the nation.
‘Significant Threats’

The extra yield investors demand to hold Irish rather than German 10-year bonds has narrowed to 596 basis points from 687 basis points since central bank Governor Patrick Honohan disclosed on March 31 how much additional capital the country’s lenders need.

Fitch Ratings yesterday affirmed Ireland’s BBB+ rating and removed the threat of a downgrade, calling latest efforts to resolve the banking crisis “credible.” The ratings company maintained a negative outlook, citing “significant threats to an economic recovery and fiscal consolidation.”

Ireland’s central bank yesterday forecast gross domestic product to rise 0.9 percent this year, saying consumer demand will remain “subdued” as the government cuts spending. The European Central Bank last month projected the 17-member euro- region economy will expand about 1.7 percent in 2011.

“The country’s weak economic growth prospects are driven by the fiscal consolidation process, the ongoing contraction in private-sector credit, and a more adverse interest-rate environment,” Moody’s said. “The Irish government’s financial strength could decline further if economic growth were to be weaker than currently projected, or if fiscal adjustment were to fall short of the government’s planned consolidation path.”
‘Uncomfortable’ Place

Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London, said in an e-mailed note today that Ireland is now in the “most uncomfortable of places to be on the ratings scale, one false step from junk.”

Ireland’s government has injected about 46 billion euros into banks and taken majority stakes in four of them. Honohan said on March 31 it is realistic to expect Bank of Ireland Plc and Irish Life & Permanent Plc, the two lenders not already owned by the government, to fall under state control.

Finance Minister Michael Noonan said last month Ireland can sustain mounting debt levels if it fixes its lenders and maintains economic growth.

Other euro-region governments are also seeking ways to lower budget deficits and restore investor confidence. S&P last month cut Portugal for the second time in a week to the lowest investment-grade rating of BBB-. The country last month became the third euro nation after Greece and Ireland to ask for aid.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that a debt restructuring in the euro region could cause a “chain reaction through the banking sector,” calling the environment still “fragile.”

“The downgrade is disappointing to say the least,” Bloxham Stockbrokers analysts including Dublin-based Alan McQuaid said in an e-mailed note today. “However, given the ongoing uncertainty over Ireland’s fiscal position, it is not altogether surprising.” (sourced Bloomberg)

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Costs the key for Europe steel outlook-Fitch

Thu Mar 31, 2011 3:45pm GMT

* Non-integrated steel makers face higher raw material costs
* Auto, engineering demand healthy, construction weaker
* Fitch sees European steel demand up 5-6 pct in 2011

PARIS, March 31 (Reuters) - The performance of European steel makers this year will be shaped by their ability to pass on higher raw material costs and by contrasting growth in the industries they supply, a Fitch analyst said on Thursday.

"Possibly the biggest issue for steel producers this year is their ability to pass through costs," Peter Archbold, European head of basic materials at Fitch Ratings, told reporters.

The price of most mining commodities was expected to be higher on average this year because of supply tensions, with coking coal expected to be the most bullish following floods in Queensland, Australia, that have cut output, he said.

"There is going to be some margin pressure for non-integrated companies," he said, stressing that steel demand was not as strong as in 2006-08 when producers were in a better position to pass on rising raw material costs.

However, conditions for steel makers would also depend on demand from different industries, he said, noting that while Thyssenkrupp (TKAG.F: Quote) did not have integrated mining activities it was benefiting from brisk demand from the German car industry, one of Thyseenkrupp's main outlets.

Fitch expected steel demand from the automotive sector in Europe to rise by 5-6 percent this year, in line with its outlook for overall growth in European steel demand.

Demand growth would be faster in mechanical engineering, a key sector in Germany, at 7-8 percent but much weaker in construction at 1-2 percent, he said.

Fitch sees 2011 global steel demand rising by 6-10 percent.

The European steel sector as a whole was expected to continue this year its "progressive recovery", which has seen output climb back up to 80 percent of 2007 levels, lagging the global market which has already reached pre-crisis levels, driven by Chinese production, Archbold said.

The pushing through of production costs should support steel prices in Europe, he added.
(Reporting by Gus Trompiz, sourced :Reuters)

Fitch says likely to downgrade Portugal if no bailout

Wed Mar 30, 2011 1:08pm BST

ATHENS (Reuters) - Fitch is likely to cut Portugal's credit rating soon if it does not ask for an EU/IMF bailout, while the EU's new bailout fund puts increased pressure on Greece's junk rating, the firm said on Wednesday.

In a report assessing the rating implication of last week's EU summit, Fitch also said that the main short-term risks to Ireland's sovereign rating remained the recession and possible additional bank support costs.

(Reporting by Ingrid Melander)

FITCH: short-term increase in Japanese demand for AUS thermal coal

Mon Mar 21, 2011 1:13am GMT

March 20 (Fitch) Ratings said today that electricity capacity shortfalls at Japan's nuclear plants will be met in the short term by coal and fuel oil fired generation. However, in the medium term, additional gas-fired capacity is the natural substitute for nuclear power. Australia's thermal coal and liquefied natural gas (LNG) export industries are well positioned to meet Japan's changing primary fuel requirements.

"Japanese gas-fired electricity generators were operating at high capacity prior to the earthquake and have limited ability to further increase production. This will limit the increase in demand for spot LNG cargos," says Arnon Musiker, Director in Fitch's Energy & Utilities team. "Fitch estimates that Japan lost up to 11GW of nuclear-fired baseload energy after the earthquake. Replacement of Onagawa, Fukishima, Daichi and Daini by new gas-fired generation could increase LNG demand by nine million tonnes per annum," added Mr Musiker.

Fitch's analysis indicates that only the Japanese coal and fuel-oil fired generators have sufficient capacity to substantially increase electricity production. This suggests that Japanese demand for Australian thermal coal may increase significantly over the next two to three years.

Gas-fired generation is the likely choice for new capacity given its relatively low carbon emission intensity and speed of construction. Moreover, the Japanese LNG import network appears to have spare capacity for additional imports and was reported as undamaged by the International Energy Agency after the earthquake and subsequent tsunami.

Fitch believes that Japanese utilities will seek to maintain a policy of diversifying gas supply, which could result in sufficient support for one to two new LNG trains in Australia. This is on the basis that 11GW of nuclear capacity is replaced by gas-fired generation, and 60% of the incremental gas demand is sourced from Australia. Likely beneficiaries include Browse and Pluto expansions, subject to securing gas reserves, which are promoted by Woodside Petroleum Ltd ('BBB+'/Negative), and Asia-Pacific LNG, promoted by Origin Energy Ltd ('BBB+/Stable') and ConocoPhillips ('A'/Stable).

Several countries have announced a review of planned nuclear generators, including China, which has an ambitious nuclear expansion programme to meet demand growth. Fitch estimates that one additional LNG train will be required for every five GW of nuclear generation capacity that is replaced by gas.

"If the outcome of the reviews leads to widespread cancellation of new nuclear capacity, there could be sufficient demand for Australian LNG to support those projects which are not yet fully contracted," added Mr Musiker. (Reuters)

India not as corrupt as China and Russia: Fitch

NEW DELHI: India is not as corrupt as China and Russia, according to the global credit rating agency Fitch.

Mar 6, 2011, 07.26pm IST |AFP

The country, however, suffers from excessive regulation and tax laws, which is concern for foreign investors, Fitch Group managing director for Corporate Rating Richard Hunter told PTI in an interview.

"We will certainly rank India well below Russia and China when it comes to concerns about corruption. Really big concern about India is regulation and tax treatment," he said.

These comments come at a time when the nation is facing a plethora of corruption cases relating to allocation of 2G spectrum, conduct of Commonwealth Games , allotment of flats in Adarsh Housing Society and Devas-Antrix deal.

Hunter further said that the recent corruption cases have not dent the confidence of investors in India, adding that "Corruption is certainly not a specialty in which India will win the gold medal."

However, he said, domestic and foreign investors are concerned about the burdensome regulatory regime in India.

"Corruption is something that does deter investors much more in China. There is respect for Indian legal system," he said.

Hunter said the rating outlook for most Indian companies is stable for the current year.

Tags : corruption, Indian legal system