Oil Pain Hits China as MIE Debt at New Lows After Rating Cut

  • Fitch Reduces MIE rating to B- from B, under negative watch
  • `Seemingly, time is running out for MIE,' Lucror analyst says

Chinese oil producer MIE Holdings Corp. fell to record lows in the bond market after Fitch Ratings downgraded it further into junk territory citing uncertainty it will be able to renew bank facilities.

The firm’s notes due in 2019 were quoted at a mid-price of 33.50 cents on the dollar and those due in 2018 were at 36.00 as of 09:57 a.m. in Hong Kong, Citic Securities International Company Ltd. prices showed. Fitch cut its rating to B- from B on Jan. 15, and kept it under negative watch, indicating the rating firm could move it into CCC if new bank loans aren’t secured within six weeks. Fitch said MIE has 300 million yuan ($45.6 million) of debt payments due this year.

Brent crude closed below $30 for the first time since 2003 on Jan. 15. A 41.5 percent drop in the price of the commodity over the past year has sparked defaults by oil producers from Colombia to the U.S. and Norway. More pain looms, as Standard & Poor’s and Moody’s Investors Service said in December that a quarter of the firms with significant debt issues are in the energy industry. Other Chinese oil companies have also taken a beating, with dollar notes of Anton Oilfield Services Group sliding to record lows around 27.6 cents.

“Seemingly, time is running out for MIE, which could face serious liquidity issues if its banking facilities are reduced or indeed withdrawn in a couple of months,” said Charles Macgregor, head of Asian high-yield research in Singapore at Lucror Analytics.

Oil Fallout

"The company expects to meet our financial obligations for the year based on our cash, operation performance and access to capital," Kenneth Wong, an investor relations official at MIE, said by e-mail. "We are in the midst of renewing our credit facility with China Construction Bank Corp. and are in discussions with other financial institutions."

Fitch said that there’s a lack of clarity on whether MIE will be able to renew its only bank facility. The credit grader also said operating cash generation will weaken further in 2016 due to low oil prices and a drop in MIE’s production.

S&P, which on Nov. 5 kept the company at B on negative watch, may downgrade it soon as well, Rick Mattila, the head of credit strategy and research at Mitsubishi UFJ Securities, said in a report this morning.

S&P analyst Apple Lo said that, according to internal policy, she can’t say when the company will make a decision on its credit watch and whether it will result in a downgrade. S&P’s standard procedure is to resolve credit watches within three months, Lo said.

Mattila expects the ratio of gross debt to earnings before interest, taxes, depreciation and amortization to jump to double digits this year. He also said a “rough estimate” of expected recovery for bond investors may be as low as 20 cents on the dollar.

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