Standard & Poor's Ratings Services said today that it had revised the outlook on Indonesia-based oil and gas exploration and production company PT Medco Energi Internasional Tbk. (to negative from stable, and affirmed the B long term corporate credit rating on the company.
At the same time, we lowered the ASEAN scale rating on Medco to axB+ from axBB-. In addition, S&P withdrew the 'B' issue ratings on the US$176.9 million convertible bonds due May 12, 2011, issued by Medco CB Finance B.V. and the US$325.4 million guaranteed notes due May 22, 2010, that are guaranteed by Medco, following their repayment.
The negative outlook reflects the potential execution risks associated with Medco's major projects and our expectation that the company's financial risk profile will weaken further over the next two to three years. Nevertheless we believe Medco will maintain adequate liquidity to meet its short-term obligations.
"We affirmed the rating to reflect Medco's exposure to hydrocarbon price movements, the company's large investment requirements, and its aggressive financial policy that relies on debt to fund future growth," said Standard & Poor's credit analyst Andrew Wong.
"We affirmed the rating to reflect Medco's exposure to hydrocarbon price movements, the company's large investment requirements, and its aggressive financial policy that relies on debt to fund future growth," said Standard & Poor's credit analyst Andrew Wong.
"These weaknesses are mitigated by Medco's favorable location and cost structure, good growth potential in its development and exploration blocks, and a degree of insulation from currency instability and sovereign-debt risk."
Medco's financial risk profile is aggressive, in our opinion. Medco's cash flow protection measures were weaker than our expectations for the year ended Dec. 31, 2009, because of lower oil prices and lower-than-expected production. Its ratio of debt to EBITDA weakened to 4.3x in 2009 from 1.4x in 2008.
Medco's financial risk profile is aggressive, in our opinion. Medco's cash flow protection measures were weaker than our expectations for the year ended Dec. 31, 2009, because of lower oil prices and lower-than-expected production. Its ratio of debt to EBITDA weakened to 4.3x in 2009 from 1.4x in 2008.
Although oil prices and cash flow protection measures have recovered somewhat in 2010, we expect Medco's financial risk profile to remain aggressive with a debt-to-EBITDA ratio above 4.0x in the next one to two years.
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