Medco unit to sell bonds, launch IPO to repay debts

Amman Mineral Investama (AMI), the newly acquired subsidiary of IDX-listed oil and gas company PT Medco Energi Internasional Tbk, expects to issue bonds worth US$750 million and launch an initial public offering (IP0) next year to refinance debt and expand its business, The Jakarta Post reported on Thursday.

Medco recently acquired 50 percent of AMI, which indirectly controls an 82.2 percent stake in gold and copper mining firm PT Amman Mineral Nusa Tenggara, formerly known as PT Newmont Nusa Tenggara (NNT).

Three state-owned lenders - Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI) - issued $360 million, $240 million and $150 million in loans, respectively, to back Medco in the $2.6 billion deal.

?We aim to issue bonds worth $75 million in 2017 to repay loans from those state lenders and hold an IPO to service other debts and finance our development, as the 1PO will make AMI more bankable,? Medco head of investor relations Sonia Ayudiah said on Wednesday.

Medco plans to allocate one third of its 2017 capital expenditure, estimated at $150 million to $180 million, to repay debts. ?We also aim to allocate $100 million to $150 million in 2018 to service our debts, assuming the oil price will hit around $70 per barrel by the time,? she said.

Medco CEO Roberto Lorato said the IPO schedule had yet to be fixed, as the company still, needed to go through several discussions. ?It?s possible to do it next year. Nonetheless, it?s not going to be later than 2018,? he said. ?I?m optimistic that the IP0 can be very good, because it?s a very good asset we have.?

NNT currently operates the Batu Hijau mine, the country?s second largest copper and gold mine in Sumbawa, which produced 109,000 tons of copper and 300,000 ounces of gold last year.

Aside from debt refinancing, extra cash is necessary for Medco to build a new smelter to obtain an export permit. For the sake of comparison, gold and copper miner Freeport Indonesia has allocated $2.2 billion in capital expenditure for its new smelter in Gresik, East Java.

?We?ve been doing comprehensive studies for the smelter development, so that we can soon decide its location and the start of construction,? Medco president director Hilmi Panigoro said, without disclosing further details.

The government?s decision to ban raw mineral exports, slated to take effect on Jan. 12, 2017, is expected to encourage smelter development and strengthen the downstream mining sector.

Medco is also struggling to service debt from its recent acquisitions, including the acquisition of ConocoPhillips Indonesia (CITL), a subsidiary of US oil and gas giant ConocoPhillips (COP), which operates the South Natuna Sea Block B PSC with 40 percent participation rights.

As of September, Medco?s total liabilities stood at $2.27 billion; up 31.3 percent year-on-year, its cash dropped by 19.2 percent to $181 million. However, it booked $22.3 million in net profit, a significant swing from a $511 million net loss in the same period last year.

The positive trend was attributed to the company?s various efficiency measures throughout this year, including portfolio rationalization and internal cost reduction.

In its core business, the company targets oil and gas production to reach 70 million barrels of oil equivalent per day (mmboepd) by year end and 75 to 80 mmboepd in 2017. (*)