Release: :S&P affirms PT Medco Energi Internasional rating
Tuesday, December 19 2006 - 03:53 PM WIB
"The rating reflects Medco's short to medium proved reserve life and single block concentration on the Rimau producing block, which carries reserve replacement risks, execution and operation risks, and an aggressive financial risk profile from an aggressive debt-funded capital expenditure program," said Standard & Poor's credit analyst Wee Lee Cheng. "Nevertheless, the rating benefits from company's position as a low-cost producer in Indonesia."
"The negative outlook on Medco reflects the company's weaker financial profile due to its increased debt burden to fund its aggressive capital expenditure. Medco will need one to two years to translate these capital expenditures into incremental revenue for the company," said Mr. Cheng.
"In addition, the contingent expenses due to the Brantas mud flow problem is still under dispute with the operator, PT Lapindo Brantas, with uncertainty over the final liability cost. This may negatively affect Medco's current rating if its cash outflow on this liability is significantly higher than our current expectation of US$56 million-US$60 million as the total cash outflow cost to the company, based on a total estimated cost of US$180 million for Lapindo Brantas," he said. Medco owns 32% of Lapindo Brantas.
Standard & Poor's also notes that the company faces refinancing risk in 2008 when bondholders of its 2010 Eurobond can exercise its put option. Although the company is currently negotiating with banks for a standby refinancing facility, this refinancing risk will remain until a firm commitment is in place.
Medco's total debt to EBITDA and funds from operations to total debt for 2005 is 1.6x and 32%, respectively, and this is likely to weaken further in the short to medium term as the company embarks on its aggressive capital expenditure program.(end of release)