MEDC sees for large funds from stock market

JAKARTA. PT Medco Energi Internasional Tbk (MEDC) has prepared the expansion agenda in 2017. This oil and gas producer is targeting to raise funds from the stock market and issuing bonds to settle its debts and fund the expansion in 2017.

MEDC is preparing about US$ 150 million-US$ 180 million capital expenditure (capex) for 2017. This is higher than the 2016 capex that amounted to US$ 100 million- US$ 145 million. As of September 2016, MEDC has absorbed a total of US$ 87 million capex.

Director of MEDC Ronald Gunawan said that the capex will be allocated to maintain MEDC productions in the next year. “The amount of the capex has not included the acquisition funds,” Ronald said, Wednesday (14/12). He added that the acquisitions include the acquisition of South Natuna Sea Block B PSC and others.

If the price of oil next year could be at the level of US $ 60 per barrel, MEDC can finance a third of its capital expenditure (capex) from the profit of the oil prices rise. MEDC will also pay a debt of US $ 60 million next year. Ronald said that MEDC will obtain as much as US$ 45 million additional cash from every increase in oil prices of US $ 10 per barrel. These funds will be allocated to settle MEDC debts.

Aside of focusing on the development of existing oil and gas blocks, MEDC is also going to focus on developing the strategic asset Amman Mineral PT Nusa Tenggara, which was previously owned by Newmont.

Director and Chief Executive Officer Roberto Lorato MEDC said, MEDC will sell the new shares of its subsidiary through Initial Public Offering (IPO). "Probably in the next year or 2018, depend on commodity prices," said Roberto.

MEDC acquired the assets of the Newmont gold mine for US $ 2.6 billion and is controlling a 82.2% of shareholders of PT Newmont Nusa Tenggara. MEDC obtained an amount of US$ 750 million acquisition funds from three state-owned banks. These loans must be repaid within two years.

Sonia Ayudiah, Head of Investor Relations MEDC said that the company is reviewing to issue global or domestic bonds to settle the loans. However, the bonds will be issued under Amman Mineral, not by MEDC.

He says, in fact, Newmont can score EBITDA to US $ 600 million through the assets of Batu Hijau mine. Therefore, Newmont has the ability to settle its debts. "But we are still considering issuing bonds to maintain the cash, while the IPO aims at developing Amman to be more bankable for the next development,” he said.

Director of Investa Saran Mandiri Hans Kwee said that the acquisition of Newmont is advantageous for MEDC. The prediction of the oil price at US$ 60 per barrel confirms this assumption. Hans is optimistic that the oil price will not drop to under US$ 50 per barrel.

Hans estimated that the debt-financed expansion of MEDC is an appropriate strategy. "It does not matter, as long as it can cover loan interest margin," said Hans. He recommends ‘buy’ for MEDC shares, with a target price of Rp 1,950 per share in the next year. MEDC closed at Rp 1,385 per share on Tuesday (14/12).

(Muhammad Farid/Translator)