Medco’s Rights Issue Rp1.93 Trillion, Change in Ownership?

Photo by MedcoEnergi

JAKARTA (TheInsiderStories) – Shares of oil and gas producer PT Medco Energi Internasional Tbk (IDX: MEDC) fell 1.74 percent to Rp2,260 per share on Thursday. Year to date, MEDC share has gained 72 percent, but has fallen 37% from its peak at Rp3590 in April 2.

Trading flat during January, MEDC started its substantial gain in February, then facing correction since early April. MEDC had ever reached its lowest at Rp705 in Dec. 31, 2015.

Investors now watch on Medco’s corporate actions, mainly its planned rights issue this year. This rights issue has been approved by shareholders.

In 2016, Medco acquired two major companies. And it continues allocates funds for acquiring other assets in the coming years. Medco in mid June offered bonds worth Rp1.27 trillion as some of that funds will fund the said acquisition plan.

Medco will also use its bond funds for paying bonds debts scheduled to mature in December this year and March next year and for funding capital expenditure. On the rights issue plan, initial scheduled for this month, it is interesting to see whether the rights issue will lead to ownership change in the Company, which has aggressively acquired resources assets in the past two years.

Samsul Hidayat, Director of the Indonesia Stock Exchange (IDX), told reporters on Thursday (July 6) that Medco will in the second half this year launch the rights issue for 1.3 billion shares, also warrants, at par value of Rp100. The exercise price will refer to its market price at last trading day.

Siendy K Wisandana, Medco’s corporate secretary, said shareholders will also get 3 warrants for 1 new shares, but the rights issue will be launched after the Company split its stocks from current 341 billion units with ratio of 4-to-1.

So at the current price of Rp2260, Medco is expected to raise Rp1.92 trillion from its rights issue program after stock split. Acting as underwriters for Medco’s rights issue are Mandiri Sekuritas, CLSA, and Samuel Sekuritas.

Hilmi Panigoro, President Director of PT Medco Energi Internasional Tbk, earlier said that “This stock split reflects our confidence in the underlying value of our assets and will be followed later this year by a rights issue that will confirm our commitment to return value and reward our shareholders.”

Medco has also informed its plan to launch the initial public offering (IPO) for its newly acquired gold-copper producer PT Amman Mineral Nusa Tenggara (formerly Newmont Nusa Tenggara/NNT). This IPO funds might be aimed to repay the matured debts, also debt used to acquire Amman Mineral.

Medco has capacity to serve its existing debt as it booked annual revenues of U$583 million, with Ebitda of $274 million. But Medco needs huge funding to build the smelter.

The huge debt will challenge Medco on smelter project, the very important project. Then Medco should have generated funds or capital for building the smelter in five years time to export concentrate. Or Medco might also cooperate with Freeport on building smelter.

Medco is optimistic that IPO of Amman Minerals will attract high buying appetite of investors, as Amman has large asset size while the capital market is improving and stabilising.

The Company booked net profit of $184.8 million last year, but attributable to US$551.7 million gain on bargain purchase of assets, including Batu Hijau gold-copper mine ($467.2 million) and South Natuna Sea Block B from ConocoPhilips ($25.6 million gain). This gain was enough to cover $311.93 million loss on impairment of assets, which expanded from $217.25 million in 2015.

Medco’s gross profit grew 15 percent, while operating expenses declined 12.5 percent, but finance cost jumped almost 38 percent to $106.5 million related to new loans used to finance acquisition of new assets, including Batu Hijau mine. Medco recorded net loss of $31.24 million from its 50% shares in PT Amman Mineral Investama, immediate parent of Amman Minerals.

But overall, Medco’s oil and gas business posted 30.5 percent growth in sales revenue, while gross profit increased by 10.7 percent last year. Medco will see stronger contribution from South Natuna Sea Block B this year, including effect of recent acquisition of additional shares from Inpex Ltd (Japan).

Who controls Medco? Mitsubishi Corp might have restructured its ownership in Medco. List of shareholders in December 2015 pointed to Encore Energy Pte Ltd holding 51.26 percent shares, but then declined to 36.44% by Dec 2016.

At the same time, Mitsubishi UFJ Bank held 15.28 percent shares. A substantial block of 21.15 percent shares were held by Credit Suisse AG on behalf of trust account client. (CS)