Medco Energi to price $150M bond

JSX listed oil and gas company PT Medco Energi International expects to price a five-year $150 million Eurobond early next week at a reoffer yield of 10.5 percent, sources told Dow Jones Newswires Thursday.

The coupon is expected to be lower than the reoffer yield, as the bond will likely be priced at a small discount.

A company source said that it has received a strong response during its roadshow in Jakarta, Singapore, Hong Kong and London.

Demand is said to come from pan-Asian and European investors, including interest from funds, asset managers and private banks.

Medco's deal is the second Indonesian offshore bond offer since 1997, after government-owned P.T. Bank Mandiri sold $125 million of five-year floating rate notes with three-year put and call options last December.

But a number of investors who have looked at Medco's offer have declined to take part, citing a challenging environment for creditors in Indonesia.

Investors said that finding anyone to take a five-year risk on Indonesian assets at the moment will be challenging. Another investor noted that "in the context of Indonesia, Medco is not too bad (as a credit)," but the Indonesian context is the problem.

"We have collateralized (Indonesian) bonds, but we can't get to the collateral," the investor said.

The deal, which will be issued by Medco's wholly owned subsidiary MEI Euro Finance Ltd. and guaranteed by Medco, is rated B+ by Standard & Poor's.

The company achieved a rating higher than Indonesia's sovereign foreign-currency ceiling of CCC, thanks to a recent stake purchase by a unit of Thailand's state oil company, PTT PCL.

Medco's proposed notes' B+ rating reflects "risks relevant to the credit of all Indonesian entities," S&P said in a statement.

Indonesia's sovereign foreign currency debt is rated CCC because of severe economic and political uncertainties plaguing the country since the 1997-98 Asian crisis. (*)