PEFINDO: PT Medco Energi Internasional Tbk rated “idA+”, outlook revised to stable

(January 13, 2021)--PEFINDO has affirmed its “idA+” ratings for PT Medco Energi Internasional Tbk (MEDC), its Shelf Registration Bond III Year 2018-2019, and Shelf Registration Bond II Year 2016-2017. Outlook for the corporate rating is revised to “stable” from “negative” following the recovery trend in the commodity prices particularly oil and gas prices after a significant drop in the second quarter of 2020 amid the rise of the COVID-19 pandemic. We are of the view that this trend should improve MEDC’s projected EBITDA and strengthen its capital structure and cash flow protection measures. The initiatives taken in anticipation to the impact of COVID-19 pandemic that have been set by the Company has demonstrated debt reduction with relatively stable profitability amid the unfavorable market condition.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors. The Plus (+) sign indicates that the rating is relatively strong within the respective rating category.

The rating reflects MEDC’s diversified assets, favorable oil and gas reserves, and good operating management. The rating is constrained by its moderate capital structure, moderate cash flow protection measures, and inherent risks related to the commodity-based sectors.

The rating may be raised if MEDC significantly improves its capital structure as reflected by debt to EBITDA at less than 3.5x on a sustainable basis, supported by its deleveraging plans and potential improvement in its profitability on the back of efficiency efforts and expected improved commodity prices, in addition to portfolio rationalization and strategic partnerships to finance its further development of PT Amman Mineral Nusa Tenggara. The rating could be lowered if MEDC fails to execute its corporate actions and initiatives and/or it incurs higher than projected debt without being compensated by a stronger business profile, which could weaken its capital structure and cash flow protection measures on a sustained basis. The rating could also be under pressure if commodity prices decline substantially and on a prolonged basis, which could 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. During the first nine months of 2020 (9M2020), 85.6% of its revenue was generated from oil and gas, followed by the power business at 14.1%, and other services at 0.3%. At the end of September 2020, its shareholders were PT Medco Daya Abadi Lestari (50.6%), Diamond Bridge Pte Ltd (21.6%), PT Medco Duta (0.2%), management (1.3%), and public (26.3%). (ends)