(Singapore, May 05, 2025) -- Moody's Ratings (Moody's) has assigned a B1 rating to Medco's proposed backed senior unsecured bond to be issued by Medco Cypress Tree Pte. Ltd., a wholly-owned financing subsidiary of Medco.
The rating outlook is positive.
RATINGS RATIONALE
Medco's B1 ratings reflect revenue visibility from the company's fixed-price natural gas sales agreements, accounting for around half of its production volume, which provides a degree of protection in today's volatile crude price environment.
The ratings continue to reflect Medco's commitment to deleverage post-acquisition, its moderate production scale and very good liquidity. These strengths are balanced by the company's inorganic growth strategy.
We project Medco will generate an annual EBITDA of $1.0-$1.2 billion over the next two years, based on our medium-term oil price assumption of $55-$75 per barrel. Given that fixed-price gas will account for around 50% of Medco's production, oil price volatility will not affect Medco to the same degree as it will for its peers.
We expect the company will maintain its strong credit metrics with leverage below 3.5x and interest cover exceeding 3.5x.
Our ratings are based on Medco's consolidated financials which include its 100%-owned power subsidiary, Medco Power Indonesia (PT) (MPI). MPI has a growing importance in Medco's energy transition plan and is one of the pillars within the group.
Medco's liquidity is very good over the next 12-18 months. As of 31 December 2024, the company had cash and cash equivalents of $637 million, further restricted cash of $60 million and undrawn multi-year credit facilities of $235 million. Medco does not have any near-term liquidity issues and will generate sufficient operating cash flow to address its spending requirements and commitments.
The positive outlook reflects our view that Medco's credit metrics will remain strong over the next 12 months. We also expect Medco to maintain very good liquidity and financial discipline even as it pursues growth.
A comprehensive review of all credit ratings for the respective issuer(s) has been conducted during a rating committee.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
We could upgrade Medco's ratings if (1) the company maintains its strong credit metrics and very good liquidity profile; and (2) provides greater clarity on the scale and pace of its longer-term growth plans.
Credit metrics supportive of an upgrade include adjusted debt/EBITDA below 3.0x-3.5x, adjusted EBITDA/interest expense above 3.5x-4.0x, and retained cash flow/net debt above 25%.
Given the positive outlook, a downgrade is unlikely. However, we could return the company's outlook to stable if its credit metrics weaken on the back of a sustained reduction in commodity prices or if its liquidity deteriorates. Debt-funded acquisitions could also result in downward pressure on the company's rating.
Quantitative metrics indicative of such downward pressure include adjusted debt/EBITDA rising above 3.0x-3.5x, adjusted EBITDA/interest expense falling below 3.5x-4.0x, or retained cash flow/net debt below 25%.
The principal methodology used in this rating was Independent Exploration and Production published in December 2022 and available at https://ratings.moodys.com/rmc-documents/396736. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Established in 1980, Medco Energi Internasional Tbk (P.T.) is a Southeast Asian integrated energy and natural resource company that is headquartered in Jakarta. It is listed in Indonesia with three key business segments -- oil and gas, power and mining. (ends)
