(Singapore, August 26, 2025) -- Moody's Ratings (Moody's) has upgraded the corporate family rating (CFR) of Medco Energi Internasional Tbk (P.T.) to Ba3 from B1.
We have also upgraded to Ba3 from B1 the ratings on the outstanding backed senior unsecured bonds issued by Medco's wholly-owned subsidiaries. These bonds are unconditionally and irrevocably guaranteed by Medco.
We also changed the outlook on all ratings to stable from positive.
A full list of affected ratings can be found at the end of this press release.
"The upgrade to Ba3 from B1 reflects Medco's improved capacity to absorb future acquisitions given its enhanced scale. It also incorporates our expectation that the company will maintain its strong credit metrics with debt/EBITDA leverage below 3.5x and EBITDA/interest coverage exceeding 3.5x," says Rachel Chua, a Moody's Ratings Vice President and Senior Analyst.
RATINGS RATIONALE
The Ba3 CFR takes into account (1) Medco's consistent ability to deleverage swiftly following each acquisition; (2) its revenue visibility from fixed-price natural gas sales agreement, which accounts for around 50% of its production; (3) its relative moderate production scale when compared with some of the larger peers and very good liquidity. The CFR also considers the company's judicious deployment of financial policies while pursuing its acquisition strategy.
Medco will generate an annual EBITDA of $1.1-$1.2 billion over the next two years, based on our medium-term oil price assumption of $55-$75 per barrel. Given that fixed-price gas account for around 50% of Medco's production, oil price volatility will not affect Medco to the same degree as it will for its peers.
Our ratings are based on Medco's consolidated financials which include its 100%-owned power subsidiary, Medco Power Indonesia (PT) (MPI). MPI has a growing importance in Medco's energy transition plan and is one of the pillars within the group.
The company's proactive liability management with a focus on prepayment along with refinancing continue to support its credit metrics and lengthen its debt maturity profile. Since 2022, Medco has bought back around $1.7 billion of US dollar bonds through a tender offer and subsequent secondary market repurchases, using a mixture of cash and new borrowings.
These strengths are counterbalanced by the company's growth appetite through acquisitions and capital investments, limited reserve life and exposure to cyclical commodity prices.
The company has spent around $2.5 billion on acquisitions since 2020. This includes the 54% acquisition of Corridor block in South Sumatra in 2022 and Blocks 48 and 60 in Oman in 2023. We note that despite these acquisitions, the company has a track record of acquiring oil and gas fields that are immediately EBITDA accretive.
Medco's latest acquisition of Repsol's 24% stake in the Corridor block for $425 million in July 2025 was funded through a mix of debt and cash. Similar to previous acquisitions, the acquisition will immediately add to EBITDA. We also note that Medco's growing scale enhances its financial capacity to absorb such transactions.
As of 30 June 2025, the company has proved oil and gas reserve life of 6.9 years. We expect it will likely continue to spend on acquisitions and investments. In line with historical transactions, we expect future acquisitions to be at a reasonable scale and for the funding structure to be a mix of cash and borrowings. Most of the company's acquisitions were funded with a mix of 70% debt and 30% cash. We also expect future acquisitions will be on producing or near-producing oil and gas fields, which will not require significant development cost.
Large-scale, aggressively debt-funded acquisitions or acquisitions of oil and gas fields which require significant development cost will be credit negative and may weigh on the rating.
Medco's liquidity is very good over the next 12-18 months. As of 30 June 2025, the company had cash and cash equivalents of $824 million, restricted cash of $58 million and undrawn multi-year credit facilities of $1.2 billion. Medco does not have any near-term liquidity issues and will generate sufficient operating cash flow to address its spending requirements.
The stable rating outlook reflects our expectation that Medco will maintain very good liquidity and that its credit metrics will remain strong over the next 12-18 months. We also expect the company will continue to maintain financial discipline even as it pursues growth.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A ratings upgrade would require greater clarity around the scale and pace of its longer-term growth plans. Despite its focus on inorganic growth, the company would also have to demonstrate a consistent track record of acquisitions that are modest in scale, immediately earnings accretive and prudently funded.
Upward rating momentum would also require a consistent improvement in its credit metrics such that adjusted debt/EBITDA remains below 2.5x, adjusted EBITDA/interest above 4.5x-5.0x and retained cash flow/ net debt above 20%-25%. We would also expect the company to be free cash flow positive, with good liquidity.
Downward rating pressure would emerge if the company pursues aggressive debt-funded inorganic growth.
Quantitative metrics indicative of downward pressure include adjusted debt/EBITDA rising above 3.5x or adjusted EBITDA/interest expense falling below 3.5x-4.0x.
LIST OF AFFECTED RATINGS
..Issuer: Medco Energi Internasional Tbk (P.T.)
Upgrades:
.... LT Corporate Family Rating, Upgraded to Ba3 from B1
Outlook Action:
....Outlook, Changed To Stable From Positive
..Issuer: Medco Bell Pte. Ltd.
Upgrades:
.... Backed Senior Unsecured (Foreign Currency), Upgraded to Ba3 from B1
Outlook Action:
....Outlook, Changed To Stable From Positive
..Issuer: Medco Cypress Tree Pte. Ltd.
Upgrades:
.... Backed Senior Unsecured (Foreign Currency), Upgraded to Ba3 from B1
Outlook Action:
....Outlook, Changed To Stable From Positive
..Issuer: Medco Laurel Tree Pte. Ltd.
Upgrades:
.... Backed Senior Unsecured (Foreign Currency), Upgraded to Ba3 from B1
Outlook Action:
....Outlook, Changed To Stable From Positive
..Issuer: Medco Maple Tree Pte. Ltd.
Upgrades:
.... Backed Senior Unsecured (Foreign Currency), Upgraded to Ba3 from B1
Outlook Action:
....Outlook, Changed To Stable From Positive
..Issuer: Medco Oak Tree Pte. Ltd.
Upgrades:
.... Backed Senior Unsecured (Foreign Currency), Upgraded to Ba3 from B1
Outlook Action:
....Outlook, Changed To Stable From Positive
The principal methodology used in these ratings was Independent Exploration and Production published in December 2022 and available at https://ratings.moodys.com/rmc-documents/396736. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
The net effect of any adjustments applied to rating factor scores or scorecard outputs under the primary methodology(ies), if any, was not material to the ratings addressed in this announcement.
Established in 1980, Medco Energi Internasional Tbk (P.T.) is a Southeast Asian integrated energy and natural resource company that is headquartered in Jakarta. It is listed in Indonesia with three key business segments -- oil and gas, power and mining. (ends)
