The global collapse in coal prices this year has dealt a particularly heavy blow to miners in Indonesia, the top exporter and one of the largest producers of the fuel.
Bonds from the country’s financially weak miners have suffered more than peers elsewhere in 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.
As some lenders look to stop financing coal power plants and investors are under more pressure to “go green,” companies that mine or use coal are left with fewer funding options.
“Among the Indonesia coal names, some are facing severe stress,” said Bharat Shettigar, head of Asia ex-China corporate credit research at Standard Chartered Plc. “If prices stay depressed for the next 12 to 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.
That will be a “crucial liquidity point” for the company, according to Trung Nguyen, analyst at Lucror Analytics.
Geo Energy said by e-mail that its cash balance was $199.6mn as of June 30, and it only needs to generate $100mn from its mines in three years to repay the $300mn bonds due in October 2022.
The company needs a minimum 120mn tonnes of coal reserves to prevent early redemption, and had around 78mn tonnes as of June 30 and a proposed acquisition of mines will bring the total to 109mn tonnes, it said.
ABM Investama was cut to B+ by Fitch Ratings earlier this year, reflecting its weakening business profile due to the loss of coal mining contracts with one of its customers, while Bumi Resources’ first-half net income fell by 47%.
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, director at the company, said by email. He said 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 87mn to 90mn tonnes in fiscal 2019 from 80.3mn tonnes 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 powerposes a threat to fossil fuels such as coal.
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