Daily Brief Credit: Morning Views Asia: China Vanke and more

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• China Vanke
• Indika Energy
• Vedanta Resources

Indika Energy’s FY 2023 numbers were soft as projected, owing to lower coal prices and the impact of the new licence for 91%-owned PT Kideco Jaya Agung. While Indika’s financial risk profile deteriorated significantly, the credit metrics remained robust within the rating category. Liquidity stayed sound.

The company should have a more difficult year in FY 2024, with decreased selling prices, revenue and earnings expected. That said, we still believe Indika can generate positive FCF, given its low-cost position.

The company is set to redeem the c. USD 294 mn outstanding USD 5.875% 11/24 notes on May 3rd at par. While the redemption will be leverage neutral, we view the move as credit positive. Indika will only have the USD 2025 bonds remaining after the 2024 notes redemption, and these can be almost fully funded by the holdco’s cash position.

Medco Energi’s FY 2023 numbers were acceptable in our view. The top line and margins softened, weighed down by reduced oil & gas (O&G) selling prices and slightly lower production volumes. FCF was negative and net debt increased, owing to the acquisition of a 20% stake in two O&G blocks at Oman in December. While leverage weakened, Net Debt/EBITDA remained acceptable at 2.5x at FYE 2023.

We believe earnings may continue declining in FY 2024, as management has guided for production to decrease further (mainly driven by lower working interest at Corridor Block PSC). Still, we believe Medco can generate slightly positive FCF in FY 2024 if it does not undertake new acquisitions. Liquidity is sound, and we note positively that the company’s sizeable equity stake in copper and gold mining JV Amman Mineral Internasional (listed on IDX) would provide it with meaningful financial flexibility if needed.

We revise our LARA to “Medium Risk” from “High Risk”, considering Medco’s longer reserve life and track record of proactive debt management.