MIE Holdings Corp. #CCC-# Rating Affirmed Following Notes Outlook Issue Rating Lowered To #CC#

Stocks and Financial Services Press Releases Tuesday February 13, 2018 18:26
HONG KONG--13 Feb--S&P Global Ratings

HONG KONG (S&P Global Ratings) Feb. 13, 2018--S&P Global Ratings affirmed its 'CCC-' long-term corporate credit rating on China-based oil and gas producer, MIE Holdings Corp. (MIE). The outlook is negative. At the same time, we lowered our long-term issue rating on the company's senior unsecured notes due 2019 to 'CC' from 'CCC-'.

We affirmed the rating on MIE to reflect our view of the company's high non-repayment risk in the next six to 12 months. MIE's liquidity is weak and we believe the company is highly dependent on favorable business and financial conditions to meet its principal and interest obligations.

We believe MIE's capital structure remains unsustainable despite the company's repayment of its US$181 million notes due in February 2018. MIE's ability to service interest payments in the next six to 12 months is highly vulnerable owing to volatility in oil prices, in our opinion. We believe the company's average borrowing cost has materially increased after its debt-financed acquisition of CQ Energy Canada Partnership in the fourth quarter of 2017 and the repayment of the 2018 notes.

We expect MIE to continue to face a material liquidity deficit over the next six to 12 months. The company's ability to generate operating cash flow has improved following the CQ Energy acquisition. However, we expect its free cash on hand and free cash flows from its two key assets--Daan oilfield and CQ Energy--to be insufficient to cover interest and principal payments due in the period.

We lowered the issue rating because we see an increased subordination risk after MIE used a substantial amount of secured debt to fund the CQ Energy acquisition and repay the 2018 notes. Under the current capital structure, we estimate that more than 50% of the company's debt is either secured or issued at the subsidiary level. We view such debt as having priority over the senior unsecured notes issued at the parent level.

In our view, MIE will need to restructure its debt profile for its capital structure to be sustainable. However, the company has limited flexibility to raise new funds for refinancing because the majority of its assets are already pledged.

The negative outlook on MIE reflects our view that the company's non-repayment risk remains high over the next six to 12 months in the absence of any unanticipated significantly favorable changes in the company's circumstances. We believe MIE's debt leverage is unsustainable and liquidity pressure is high despite the repayment of the 2018 notes.

We could lower our rating on MIE if: (1) we believe the company is almost certain to default on the principal or interest payment of its debt; or (2) the company announces a debt restructuring plan that we view as a distressed exchange.

We could upgrade MIE if the company's liquidity improves such that we do not see any non-repayment risk over the next six to 12 months.

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