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.