Release: Moody's reviews medco's B3 rating for possible upgrade
Approximately US$250 million of debt securities affected
Tuesday, December 23 2003 - 07:50 PM WIB
Rating agency Moody's Investors Service on Friday placed on review for possible upgrade the B3 senior unsecured long-term rating of the US$ Notes issued by MEI Euro Finance Ltd and guaranteed by PT Medco Internasional Tbk (Medco). Medco's foreign currency issuer rating of B3 has also been placed on review for possible upgrade.
Moody released the rating action following announcement that Medco will make a full and unsolicited bid for Novus Petroleum Ltd, an Australian listed company . The takeover bid, which is subject to regulatory and shareholder approval, comprises A$1.74 in cash for each Novus share and values Novus at around A$326 million.
Moody's says the review for upgrade reflects the growth potential arising from the proposed acquisition, given the embedded decline in Medco's own production base. The acquisition of Novus - if successful - would diversify Medco's production and reserves beyond the scope of its Indonesian operations. In addition, the proposed acquisition, if successful, would end the uncertainty surrounding Medco's E&P investment strategy. Such uncertainty had been incorporated into Medco's B3 rating.
The review will focus on the quality of Novus' reserves and its capital requirements. It will further focus on the consequent integration challenges, particularly given Medco's limited experience of the operating environments in the US and Middle East, locations where Novus has a large part of its operations.
In addition, the review will consider potential refinancing risk as Novus' existing US$80 million bonds due 2007 incorporate provisions that allow bondholders to seek early repayment in the event of a change in control.
Concurrently, Moody's views Medco's own long-term credit profile to be favourable, with the its competitive cost position, strong oil prices, and currently low financial leverage offsetting the decline in oil production. These positive factors will also be considered in Moody's review.
PT Medco Energi Internasional Tbk (Medco Energi) is predominantly an independent Indonesian E&P company with total proved reserves of approximately 168 million BOE. The company also maintains oil service operations and a methanol plant in Indonesia.
Novus is a small Australian-listed exploration & production company based in Sydney with proved and probable reserves of around 107 million barrels of oil equivalent (MMBOE) and annual production of around 6.8 MMBOE. It has interests in production properties in Indonesia, Australia, Oman and the US, and its strategy is focused on natural gas, particularly in the US. (*)