Investing.com -- Moody’s Ratings has revised the outlook for Indika Energy Tbk (P.T.) from stable to negative. The Ba3 corporate family rating (CFR) and the Ba3 rating on its senior secured notes due 2029 have been reaffirmed.
The revision in outlook is based on the anticipation that Indika’s credit metrics will worsen over the next year due to debt-funded capital expenditure and weaker earnings in the face of declining coal prices, according to Maisam Hasnain, a Vice President and Senior Credit Officer at Moody’s Ratings.
In 2025, Indika’s consolidated debt is expected to rise to around $1.2 billion, up from $1 billion in 2024. This increase is primarily due to capital spending on the Awak Mas gold mine project, which has experienced higher costs and weather-related delays over the past year.
Indika has plans to commence gold operations in the second half of 2026. Earlier in the year, the company signed a long-term contract worth AUD463 million with mining service contractor Macmahon Holdings Limited for the operation of the mine. Indika anticipates the Awak Mas mine to yield 100,000 – 140,000 ounces of gold annually for a period of 15 years.
However, significant earnings from gold mining are not expected until 2027. Until then, Indika’s credit quality will be sustained by its 91%-owned subsidiary, Kideco Jaya Agung (P.T.), even though Kideco’s earnings are projected to decrease this year due to lower coal prices.
Operating costs and mine stripping ratios at Kideco are not expected to significantly decrease during 2025-2026 as the company continues to mine and explore additional higher calorific value coal reserves at its existing concessions.
Indika’s leverage, as measured by Moody’s adjusted debt/EBITDA, is expected to rise to 4.7x in December 2025 from an estimated 3.8x in December 2024 due to higher debt and lower earnings. Although earnings are expected to slightly improve in 2026 due to modest earnings growth from non-coal business, leverage will likely remain above 4.0x, exceeding Indika’s downgrade trigger.
The projections do not include potential benefits from possible changes in Indonesia’s mining regulation that might lower royalty rates for Izin Usaha Pertambangan Khusus (IUPK) license holders like Kideco. The final form and timing of these regulations are still uncertain.
Over the next 12-18 months, Indika is expected to maintain good liquidity, with its cash balance and projected operating cash flow sufficient to meet its planned cash needs during this period. After the early repayment of its 2025 notes in the fourth quarter of 2024, Indika does not have a significant debt maturity until its $455 million notes mature in 2029.
A ratings upgrade is unlikely given the negative outlook. However, the outlook could be revised to stable if the company improves its credit metrics through earnings growth and debt reduction, while maintaining good liquidity. Specific indicators for stabilizing the outlook include adjusted debt/EBITDA below 4.0x and adjusted EBIT/interest above 2.0x on a sustained basis.
Conversely, the ratings could be downgraded if Indika’s credit metrics deteriorate further, or if its internal cash sources are insufficient to meet its cash needs over the subsequent 12-18 months, or if the company engages in aggressive investments or shareholder distributions. Specific indicators for a downgrade include adjusted debt/EBITDA above 4.0x or adjusted EBIT/interest below 2.0x on a sustained basis.
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