PEFINDO: PT Medco Energi Internasional Tbk (MEDC) and its outstanding bonds ratings raised to idAA- with stable outlook

(June 13, 2022)--The ratings upgrade reflects our expectation that MEDC’s financial leverage to improve as measured by projected debt to EBITDA ratio at below 3x in the near to medium term from 4.6x in 2021, as a result of Corridor PSC’s full year consolidation aside of enjoying oil price increase, while maintaining good debt management and debt-funded capital expenditures (capex). We view Corridor PSC will strengthen MEDC’s asset portfolios with energy mix to 78% from gas from currently 64%, with additional annual production of 60-70 thousand barrels of oil equivalent per day (mboepd). Corridor PSC’s long-term fixed price gas sales agreements will contribute a stable EBITDA generation against oil price volatility. We project its debt coverage ratio to be at a strong level in the near to medium term with projected funds from operations (FFO) to debt ratio at 20%, improves from 7.9% in 2021, includes assumption of oil price at USD90/barrel in the remaining of 2022 and gradually downward in 2023-2025, and capex of around USD275-350 million per year in 2022-2025 for oil and gas segment.

The rating reflects MEDC’s diversified assets, favorable oil and gas reserves, and good operating management. However, the rating is constrained by its moderate financial profile and inherent risks related to the commodity-based sectors and exposure to energy transition risk.

The rating may be raised if the Company’s continuous deleveraging efforts will result to a conservative financial profile. This should be bolstered by the endeavor to improve its reserve life while maintaining financial leverage (excluding power segment) at below 2x. The rating may be downgraded if it incurs higher than projected debt without being compensated by a stronger business profile, which may weaken its financial profile on a sustained basis. The rating may also be under pressure if commodity prices significantly below our anticipation, which may adversely affect its revenue and profitability.

MEDC is a publicly listed, integrated energy and natural resources company, with three main businesses in its core business of oil and gas exploration and production (E&P) activities in Indonesia, the Middle East, North Africa, and Southeast Asia; power generation; and mining. 82.4% of its revenue was generated from oil and gas in 2021, followed by the power business at 9.2%, trading 7.2%, and others 1.1%. At the end of 2021, its shareholders consisted of PT Medco Daya Abadi Lestari (51.88%), Diamond Bridge Pte Ltd (21.62%), PT Medco Duta (0.12%), PT Multifabrindo Gemilang (0.03%), management (0.68%), and the public (25.67%). (ends)