Fitch: MIE Eases Funding Strain; Sector Headwinds Persist
Fitch placed MIE on Rating Watch Negative on 6 August 2015 following the announcement of its acquisition of a 49.3% stake in Long Run, an upstream oil & gas company. MIE was exploring various options to fund the CAD201.5m upfront payment, plus another CAD99.2m for attached warrants.
MIE announced a JV arrangement for the acquisition on 11 November 2015, and a revision of the acquisition terms. Fitch believes the new arrangement and terms have substantially reduced MIE's up-front funding needs and potential near-term pressure on its financial profile.
A 60% JV partner would co-invest with MIE for a 38.7% stake in Long Run. The total acquisition consideration is reduced to CAD100m. Another CAD100m is payable, should MIE and its JV partner decide to exercise the 12-month warrants in full to raise their stake to 52.15%. The transaction is likely to complete by 30 January 2016, later than the company's previous expectation of end-November 2015.
MIE's immediate funding needs would be reduced significantly. To complete the transaction, MIE needs to pay HKD232.8m for its 40% share in the stake in Long Run to be acquired. Another payment of about HKD230m is needed if the warrants are exercised. Under the original transaction terms, the acquisition consideration would be equivalent to a much higher HKD1.2bn, with another CAD99.2m payment (equivalent to about HKD590m) if the warrants are exercised.
Fitch does not expect MIE's net debt to increase substantially from its June 2015 position, at HKD4bn, as a direct result of the acquisition with the revised funding structure. MIE's other near-term funding requirement is to retire a maturing USD35m bank facility (equivalent to about HKD273m) before end-November 2015. MIE raised net proceeds of HKD245m from issuing equity in October 2015. Including these proceeds, it has unrestricted cash of around HKD650m. MIE also has an undrawn revolving facility of CNY498m, which will mature in December 2015, and the company states that it has commenced the renewal process.
The new transaction structure is favourable for MIE's near-term liquidity position, while MIE has an option upon completion of the acquisition (at its discretion) to increase its stake in the JV from 40% to 76% between the seventh and 30th month after the transaction closes. In addition, its JV partner has an option, during the 36th month after completion, to put back its entire investment amount to MIE at a price which would deliver the JV partner a 13% return per annum, which would be close to the final maturity of MIE's USD500m 2019 bonds.
Fitch will resolve the Negative Rating Watch after the transaction is consummated. We will take into consideration the final funding structure for the acquisition, and the operating and liquidity situation at Long Run - including its ability to reduce debt and maintain adequate debt facilities to sustain its operations without support from its owners, including MIE. The low-oil-price environment means that we expect no substantial dividends from Long Run to its shareholders in the next 12-24 months.
MIE's financial profile continues to be affected by low oil prices. Fitch revised down its 2016 oil price assumption on 9 November 2015, reflecting the near-term pressure on oil prices and the agency's view that the market is unlikely to reach an equilibrium until 2H16 at the earliest. Without Long Run, we expect MIE's credit metrics to remain stretched in 2015-2016, with FFO net leverage at 6.5-7.5x and FFO gross interest coverage at around 2x (negative rating guidelines: above 3x and below 4.5x, respectively, on a sustained basis), indicating pressure on MIE's 'B' ratings.
Комментарии