Fitch downgrades Geo Energy Resources

FITCH ratings has downgraded Geo Energy Resources' long-term issuer default rating and the rating on its subsidiary Geo Coal International's outstanding senior unsecured guaranteed notes from B- to CC.

The ratings downgrade reflects the view that a default is probable within the next 12 months, given its weak operating profile and deteriorating liquidity, Fitch said in a statement on Wednesday.

"We believe Geo faces significant risk in refinancing the US dollar unsecured notes in light of its deteriorating liquidity and persistent negative free cash flow due to our expectation of weak coal prices," Fitch said.

The company's operating profile as also "weakened significantly" on the back of weak coal prices and falling reserves. It is hence expecting Geo to experience material cash shortfall with little possibility to access new funding.

The likelihood of Geo's proposed acquisition of a 51 per cent stake in two Indonesian coal mines has also declined, given that the company has extended the long date to the agreement twice, "signalling execution uncertainty". With the absence of acquisitions, Geo's declining reserves is "likely to challenge the continuity of its operations".

Refinancing would thus continue to be a challenge for the company, especially when its US dollar notes mature in October 2022.

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Fitch also said that Geo has one of the weakest energy-adjusted cost positions among Fitch-rated Indonesian coal miners, and with the recent revision of coal prices by Fitch, will lower unit profitability to US$2.50/tonne from around US$3/tonne last year and US$10/tonne in 2018.

Furthermore, with Geo's high exposure to China, which contributed 50 per cent of its 2019 sales, it will be exposed to the slowdown in coal demand amid the Covid-19 outbreak.

Geo shares were up 1.3 per cent to S$0.08 on Wednesday.