Moody's assigns definitive B1 to Soechi; Outlook stable
Wednesday, July 13 2016 - 12:29 PM WIB
Moody's has also withdrawn the provisional (P)B1 rating on the proposed $200 million senior unsecured notes of Soechi Capital B.V., a wholly owned subsidiary of Soechi, because the notes were not issued.
Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.
Soechi is a small player in the global shipping sector but is a market leader in the niche shipping sector in Indonesia (Baa3 stable). Soechi's relationship with Pertamina (Persero) P.T. (Baa3 stable), the national oil company of Indonesia, and the protections afforded by the cabotage principle, which requires intra-island sea carriage to be performed by Indonesian flagged vessels, create high barriers to competition.
"The B1 rating reflects Soechi's solid market position in Indonesia's domestic oil & gas shipping sector, the visibility of revenues driven by its use of long-term charter contracts and its longstanding relationship with Pertamina" says Brian Grieser a Moody's Vice President and Senior Credit Officer and lead analyst for the company.
The company has demonstrated a prudent approach to growth marrying second hand vessel purchases with long-term charter contracts to ensure a solid return on investment. As a result, the company generates high margins, with EBITDA margins of 47% for the twelve months ended 31 March 2016.
The company has managed to successfully grow its fleet in recent years while maintaining debt-to-EBITDA leverage around 3.5x.
However, Soechi's rating reflects its high customer and vessel concentration, with Pertamina accounting for over 50% of revenues in 2015 and it's two Very large Crude Carriers (VLCC) accounting for an estimated 25% of shipping revenues.
The rating also reflects Soechi's weak liquidity profile driven by its dependence on short term loans and its high capital spending levels. This is partly mitigated by a track record of refinancing its bank loans with relationship banks.
The stable outlook is supported by the expectation that Soechi will maintain its longstanding relationship with Pertamina and will have good revenue visibility from its time charter contracts. The outlook also takes into account the risk factors arising out of the formative stage of the capital intensive shipbuilding business and its relatively small contribution to the overall earnings.
The rating could be upgraded if management continues to successfully grow its shipping business while lowering leverage. Given Soechi's small scale and customer and vessel concentration, Moody's would expect leverage, as measured by debt-to-EBITDA to be around 3.0x on a sustainable basis and interest coverage measured as (FFO + Interest)-to-Interest Expense of over 4.0x before considering an upgrade.
Furthermore, an upgrade is unlikely before its shipyard business can demonstrate its ability to execute its orders in a timely and profitable manner as well as sustain a modest backlog.
The rating could be downgraded if the company materially increases debt levels to fund new tanker acquisitions over the next 12-18 months or its shipbuilding business fails to meet its new build terms and is required to reimburse any installment payments to customers.
Furthermore, downward pressure on the ratings could build should: 1) any legislative development arise that loosens cabotage laws; 2) Pertamina shifts management of its fleet such that it reduces its exposure to Soechi; 3) either of Soechi's 2 VLCC's are out of service for an extended period.
In terms of credit metrics, debt-to-EBITDA leverage exceeding 4.5x or interest coverage below 2.25x could lead to a downgrade.
The principal methodology used in these ratings was Global Shipping Industry published in February 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
Soechi is engaged in the business of providing crude oil, petroleum products and liquefied petroleum gas shipping and shipyard services principally to companies operating in the domestic oil and gas and chemical sectors in Indonesia. Soechi operates a fleet of 35 vessels comprising 19 oil tankers, 10 chemical tankers, 3 gas tankers and 3 Floating Storage & Offloading Units (FSO) having a total capacity of 1.46 million dead weight tonnage. The tanker fleet includes the only two Indonesian flagged VLCC's in the market,
Soechi is a family owned business with the members of the Utomo family having majority ownership(approximately 85%) while 15% of the stock is publicly held. The company recently completed its IPO in December 2014 and is listed on the Indonesian stock exchange. (ends)