Jul 2, 2011

S&P affirms B rating for Medco Energi

Standard & Poor's Ratings Services (S&P) has affirmed its B long-term corporate credit rating on Indonesia-based oil and gas exploration and production company PT Medco Energi Internasional Tbk. The outlook remains negative. At the same time, S&P affirmed the axB+ ASEAN scale rating on Medco.
S&P maintained the negative rating outlook to reflect Medco's increased investment plans for extending its scope and cost escalation.
"Higher investment cost has negated somewhat the benefits of higher product prices and production," said Standard & Poor's credit analyst Andrew Wong.
The rating on Medco reflects the company's exposure to hydrocarbon price movements, its large investment requirements, and its aggressive financial policy that relies on debt to fund growth.
Medco's favorable location and cost structure, good growth potential in its development and exploration blocks, and some insulation from currency instability and sovereign-debt risk temper these weaknesses.
Medco's credit protection measures have improved with rising oil prices. Nevertheless, Medco's financial risk profile remains aggressive, in our opinion. Medco's business risk profile has improved but it remains weak in our view.
The negative outlook reflects our expectation that the company's financial risk profile will weaken over the next 12 months and execution risks from its major projects will continue. 
"We expect Medco's adjusted debt-to-EBITDA ratio to rise to about 4.5x in 2011-2012 because the company's major investments are predominantly debt-funded and will not generate any cash flow until 2013."

Disclosure: No position at the stock mentioned above.

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