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I AGREE
15 Jan 2018
Singapore, January 15, 2018 -- Moody's Investors Service has affirmed the B2 corporate family rating
(CFR) of Medco Energi Internasional Tbk (P.T.) (Medco).
Moody's has also affirmed the B2 rating on the $400 million
backed senior unsecured bonds issued by Medco Strait Services Pte.
Ltd., a wholly-owned subsidiary of Medco.
Moody's has revised the outlook on Medco and Medco Strait Services
Pte. Ltd. to positive from stable.
At the same time, Moody's has assigned a B2 rating to the
proposed USD-denominated backed senior unsecured bonds to be issued
by Medco Platinum Road Pte. Ltd., a wholly-owned
subsidiary of Medco. The proposed bonds are irrevocably and unconditionally
guaranteed by Medco and some of its subsidiaries. The outlook on
Medco Platinum Road Pte. Ltd. is positive.
RATINGS RATIONALE
"The change in the ratings outlook to positive reflects our expectations
that Medco's credit metrics will continue to improve over the next
12 months, underpinned by a combination of strong cash flow generation
from its oil and gas business and the company's debt reduction plan,"
says Rachel Chua, a Moody's Assistant Vice President and Analyst.
Moody's expects that Medco's adjusted net debt/EBITDA (net
of cash in escrow earmarked for debt repayment) will be around 4.5x
in 2017 and further improve to 4.0x-4.2x over the
next 12 months from 6.7x in 2016.
For 2018, its EBITDA interest coverage will be around 4x and retained
cash flow (RCF) to adjusted net debt at 16%.
Moody's projections incorporate expectations that Medco's
oil and gas sales volume in 2018 will be maintained at around 80 thousand
barrels of oil equivalent per day (excluding service contracts),
thereby supporting EBITDA generation of $440-$460
million compared to $294 million in 2016.
Moody's also expects management to continue to deliver on its deleveraging
plan, such that adjusted net debt declines by around 4% in
2018.
Medco's B2 CFR takes into account the company's modest but
improving scale of production, as well as its reserves of oil and
natural gas, which are in various stages of production and development.
The rating also reflects a modest degree of visibility on Medco's
cash flow coming from fixed-price natural gas sales agreements,
which will account for 25%-30% of the company's
total production volume over the next 2-3 years.
At the same time, the rating remains constrained by Medco's
weak but improving leverage and liquidity profiles, exposure to
the cyclicality of commodity prices, as well as execution risk associated
with its investment plan of around $1 billion over the next four
years.
"The positive ratings outlook reflects Medco's improved liquidity
profile, following its successful rights issuance exercise in December
2017," adds Chua, who is also Moody's Lead Analyst
for Medco. "The net proceeds of $195 million will
be used for debt repayment over the next few months; thereby alleviating
liquidity pressures."
Alongside the rights issuance, Medco has also issued warrants that
shareholders can exercise in 2018-2020, which should bring
in equity proceeds of around $200 million.
As of 30 September 2017, Medco had cash and cash equivalents of
$450 million compared to $300 million of debt maturing over
the next 12 months. Moody's believes its cash balance,
proceeds from its rights issuance and operating cash flow generation will
sufficiently fund the company's capital investment plan and debt
maturities through 2018.
Moody's continues to assume that Medco will not provide financial
support in the form of equity injections, shareholder loans or loan
guarantees to its power and mining companies. Moody's also
does not expect meaningful dividend contribution from these businesses
over the next 2-3 years.
The $375 million acquisition loan at Medco's 41.1%-owned,
mining associate, Amman Mineral Nusa Tenggara (AMNT), which
was partly guaranteed by Medco was fully prepaid in December 2017.
As such, Medco no longer guarantees any of AMNT's loans.
Medco's CFR could be upgraded after the completion of its debt-reduction
plan, if the company's: (1) adjusted debt/EBITDA falls
below 4.5x, RCF/adjusted debt increases above 15%,
and EBITDA/interest expense increases above 4.0x; or cash
and cash equivalents cover at least the amount of debt maturing over the
next 12 months, all on a sustained basis.
Given the positive outlook, a rating downgrade is unlikely.
Nonetheless, the rating outlook could be revised to stable if Medco:
(1) fails to execute its deleveraging plan, or if there are material
delays in implementation; (2) makes any material debt-funded
acquisitions before completion of the debt reduction exercise; or
(3) provides funding support to its mining or power businesses.
Specific credit metrics that Moody's would consider to revise the
outlook to stable include adjusted debt/EBITDA between 4.5x-5.5x,
RCF/adjusted debt between 10%-15%, and EBITDA/interest
expense below 4x.
The principal methodology used in these ratings was Independent Exploration
and Production Industry published in May 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Established in 1980 and headquartered in Jakarta, Medco Energi Internasional
Tbk (P.T.) is predominantly an oil and gas exploration and
production company, with additional operations in downstream oil
and gas activities, power generation, and copper, gold
and coal mining.
Medco reported proved developed reserves of 169.4 million barrels
of oil equivalent (mmboe) at 30 September 2017, and oil and gas
production volumes of 80 thousand barrels of oil equivalents per day (mboepd)
(excluding service contracts) for the nine months ended 30 September 2017.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Rachel Chua
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
No Related Data.
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