MIE Holdings Corp. Downgraded To #CCC# From #B-# On Heightened Refinancing Outlook Negative

Stocks and Financial Services Press Releases Tuesday April 11, 2017 17:37
HONG KONG--11 Apr--S&P Global Ratings

HONG KONG (S&P Global Ratings) April 11, 2017--S&P Global Ratings said today that it had lowered its long-term corporate credit rating on MIE Holdings Corp. to 'CCC' from 'B-'. The outlook is negative. We also lowered our long-term issue rating on the company's senior unsecured notes to 'CCC' from 'B-'.

At the same time, we lowered our long-term Greater China regional scale rating on MIE and its notes to 'cnCCC' from 'cnB-'. MIE is a China-based oil and gas exploration and production company.

"We lowered the rating to reflect our view that MIE's liquidity is likely to remain weak and the company faces heightened refinancing risk on its outstanding U.S. dollar notes," said S&P Global Ratings credit analyst Danny Huang. "The downgrade also reflects our expectation of a heightened risk of debt restructuring, given MIE's unsustainable debt level."

We believe MIE could face a material liquidity deficit over the next 12 months because the company's cash on hand is unlikely to cover debt due in the coming 12 months, including a US$200 million bond due in February 2018. We have revised our assessment of MIE's liquidity to weak from less than adequate.

Despite our expectation of a moderate recovery in oil prices and stabilization of MIE's production volume, we believe the improvement in the company's cash flows would not be sufficient to cover its large debt maturities. We do not expect a material improvement in liquidity in the next 12 months unless MIE can secure other funding sources, such as new bank loans, or sell assets.

"We have low visibility on MIE's successfully refinancing of its debt," said Mr. Huang. "The company is yet to come up with a concrete refinancing plan even though the US$200 million notes are due in less than a year, and the US$476 million notes are due in April 2019. We believe this indicates challenges the company faces in refinancing its large debt maturities."

We believe Boston Power Inc.'s timely repayment of a loan due June 2017 is uncertain. Therefore, we do not include the receipt of the US$30 million loan in our liquidity assessment. Nonetheless, MIE's liquidity is unlikely to materially improve even if the loan is repaid on time.

In our view, MIE's business remains vulnerable due to its small scale. We expect MIE's production volume in China to be flat in the next two to three years because the company's asset size has shrunk following asset disposals (Emir Oil and Asia Gas & Energy Ltd.) in 2016. Given that MIE's oilfields in China are aged, we expect the company's capital expenditure to maintain production to be Chinese renminbi (RMB) 110 million-RMB120 million each year in 2017-2018.

We expect MIE to remain highly leveraged. We anticipate that the company will maintain a conservative approach to capital expenditure amid the current market conditions and refinancing pressure. We therefore expect debt to remain   high but relatively flat.

The negative outlook over the next 12 months reflects MIE's unsustainable debt leverage and the lack of a concrete refinancing plan. We expect the company's operating cash flow will not be sufficient to repay debt even after factoring in a moderate recovery in oil prices. The negative outlook also reflects our view of an increased risk of debt restructuring, considering the current market price of MIE's outstanding notes and the company's unsustainable capital structure.

We could lower our rating on MIE if the company cannot come up with a concrete refinancing plan within the next few months or we believe the likelihood of debt restructuring has increased.
We could revise the rating outlook to stable if we have greater visibility on MIE's refinancing plan.

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