Medco sells US$100m seven-year bond

Medco sells US$100m seven-year bond

Jill Wong, Reuters, Hong Kong

Indonesia's oil and gas company PT Medco Energi Internasional
sold US$100 million of seven-year bonds, only the second dollar
bond issue from the country since the regional financial crisis
of 1997/98.

The bonds, carrying a coupon of 10 percent, were priced at
98.093 late on Tuesday to give a yield of 10.5 percent and a
spread of 585 bps over five-year U.S. Treasuries.

The size of the bond was scaled down from US$150 million, but
the issuer saved 40 bps against initial guidance of 625 bps.

The deal was lead managed by Credit Suisse First Boston
(CSFB), which has financial links to Medco, and sold mostly to
institutional investors in Asia.

A CSFB official told Reuters that 18 investors, mainly Asian
institutional investors from Hong Kong and Singapore, bought the
Medco bonds.

Funds bought 49 percent of the deal, banks took 45 percent
while insurance companies and private banking accounts took the
remaining six percent.

"The deal sets a new benchmark for Indonesian credits," the
CSFB official said. "The bonds will be better traded in the
secondary market."

The last Indonesian firm to tap the international bond market
was PT Bank Mandiri, which sold US$125 million of five-year
floating rate notes in December 2001.

Medco is an independent oil and gas exploration and production
company of modest size, with total revenue over the 12 months to
September 2001 of an estimated US$419 million.

A 34 percent stake in Medco was recently acquired by
Thailand's PTT Exploration and Production Public Co Ltd (PTTEP),
which said last month it would increase its holding through its
New Links Energy unit.

New Links -- owned by PTTEP, CSFB and Encore International --
already owns 85.44 percent of Medco.

Spreads on Indonesia's illiquid sovereign dollar bonds due
2006 have tightened by a massive 105 bps in the past week on
hopes for banking and corporate reform and on political factors
after the government appeared to renew efforts to stamp out
corruption.

But some analysts say the spread tightening has been overdone
and much of it was driven by investors rushing to cover short
positions.

Spreads on high grade Asian dollar bonds snapped tighter on
Wednesday as emerging market investors stepped up buying of the
papers after the recent weakness in U.S. Treasuries.

"U.S. Treasuries are getting hammered pretty hard which brings
out the cash price buyers. So high grade spreads particularly in
Malaysia and South Korea have been very strong," said a senior
bond dealer with a U.S. investment bank in Tokyo.

A rise in U.S. Treasury yields results in narrower spreads of
Asian dollar bonds and a perception of a lower risk in investing
in these assets.