Nov 2, 2010

Energi Mega to issue US$275 mio notes

Standard & Poor's Ratings Services (S&P) today assigned its B- issue rating to the proposed US$275 million guaranteed senior secured notes to be issued by EMP International Holdings Pte Ltd, EMP and some of its operating subsidiaries guarantee the notes, which mature in 2015.
In a press statement from S&P obtained by Bisnis today, the rating agency also assigned B- for long-term corporate credit rating to PT Energi Mega Persada Tbk (EMP). The outlook is stable.
The rating on EMP reflects the company's highly leveraged financial risk profile, exposure to hydrocarbon price movements resulting from a cyclical industry and the company's limited integration, large investment requirements, and execution risk with its major projects.
These weaknesses are offset to an extent by the company's good growth potential in its development blocks and the favorable outlook for energy demand in Indonesia, particularly for gas.
The corporate credit rating on EMP assumes the successful bond issuance and refinancing of existing loans.
The rating on the proposed notes is subject to finalization of issuance documentation, including confirmation of amounts and terms.
The notes proceeds will be used predominantly for loan refinancing and funding working capital.
In determining the issue rating, Standard & Poor's bases its assessment on the continuity of the consolidated corporate entity of EMP, including all restricted subsidiaries.
"EMP's financial risk profile is highly leveraged, in our opinion, and we expect its ratio of adjusted debt to EBITDA to be above 10x for the fiscal year ending December 2010," said Standard & Poor's credit analyst Andrew Wong.
EMP has substantial capital investment plans over the next five years, over 90% of which is for the development blocks given EMP's focus on increasing production.
The company expects to partially fund these investments internally; therefore, the potential for improvement in EMP's financial risk profile is dependent on the successful commercialization of its existing development blocks--the Bentu PSC and Kangean PSC.
"EMP's new investments have execution risk although we note the involvement of solid joint venture partners mitigates some of this risk," Wong said.
"We have factored in some delays in production growth in our forecast scenario and expect the company's financial risk profile to remain highly leveraged in the next one to two years."
EMP's business risk profile is vulnerable and reflects the company's low production levels and high exposure to hydrocarbon price movements, given volatile oil prices and limited integration.
The stable outlook on the corporate credit rating reflects our expectation of improving cash flows in 2011 from increased gas production although this improvement is outside the current outlook horizon.
The outlook also factors in resolution of outstanding covenant compliance issues through refinancing of existing bank loans from the proposed bonds' proceeds.

Disclosure: No position at the stock mentioned above.
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