Fitch: MIE Rebalancing Capital Structure and Asset Profile to Manage Liquidity
OREANDA-NEWS. MIE Holdings Corporation (MIE, B-/Rating Watch Negative (RWN)) has announced a sale of its stakes in Sino Gas & Energy Limited (SGE) and Emir-Oil during the past 60 days. Fitch Ratings views MIE's recent announcements in asset disposals as action to rapidly rebalance its assets profile and capital structure. The RWN continues to reflect the uncertainty in MIE's credit profile during this rebalancing process - that is, refinancing risks for its debt maturities in the medium term, along with a smaller asset base to support its debt obligations.
MIE faces significant debt maturities when its USD700m of US dollar bonds mature in 2018 and 2019. The planned disposals, of around USD380m on aggregate, would only cover slightly more than half of its debt-refinancing obligations, barring any of these proceeds being deployed as capex at its other projects or acquisitions. The remaining portion of the debt refinancing will be required to come from operating cash flow and other means of financing.
MIE announced it plans to sell its 51% stake in SGE for a consideration of USD220m on 27 April 2016, in addition to receiving USD60,000 in management fees per month in 2016 until the transaction completes in 3Q16. MIE acquired SGE in July 2012, and the company has in total invested approximately USD148m in SGE, inclusive of the original purchase price of USD100m. SGE had generated negative EBITDA in 2014 and 2015. MIE uses equity accounting to account for its investment, and does not consolidate SGE.
On 7 March 2016, MIE announced its intention to sell its 60% equity interest in MIE's subsidiary holding Emir-Oil - which holds the company's operations in Kazakhstan - for a consideration of USD155m. MIE acquired Emir-Oil in 2012 for USD170m, and the company has since invested approximately USD110m in Emir-Oil. Emir-Oil had been profitable until 2015.
The sell-down of its stakes not only provides an immediate inflow of cash - which improves financial flexibility but also reduces the capex requirements, as both SGE and Emir-Oil still require heavy investment in the near term.
Upon completion of both transactions, MIE would have a significantly smaller asset base. SGE and Emir-Oil accounted for 62,645 and 38,526, respectively, of MIE's proved reserves of 113,851 barrels of oil equivalent (boe) at end-2015. MIE's management will also consider acquiring assets to strengthen its operating scale, upon the completion of the announced asset sales.
Fitch will resolve the RWN on MIE's ratings once these transactions are completed and use of proceeds confirmed. This would also entail a review of the Recovery Ratings on its senior unsecured debt, based on the asset and liability profile of the company after factoring in these developments.