Singapore, May 16, 2017 -- Moody's Investors Service has affirmed the B1 corporate family rating
(CFR) of Soechi Lines Tbk. (P.T.) (Soechi).
At the same time, Moody's has assigned a senior unsecured bond rating
of B1 to the guaranteed senior notes to be issued by Soechi Capital Pte.
Ltd., a wholly owned subsidiary of Soechi. The proposed
notes are unconditionally and irrevocably guaranteed by Soechi and its
subsidiary guarantors, who own all of Soechi's vessels and
its shipyard.
The outlook on the ratings is stable.
Proceeds from the notes issuance will be used to repay all outstanding
indebtedness and fund the interest reserve account.
Ratings on proposed notes are subject to review of final terms and conditions
of the notes indenture.
RATINGS RATIONALE
"The affirmation of the B1 corporate family rating reflects Moody's
expectation that recent vessel acquisitions and a high exposure to term
vessel charters will restore revenue and earnings growth in 2017 and support
the maintenance of financial leverage, as measured by adjusted debt-to-EBITDA,
between 4.0x-4.5x over the next 12-18 months,"
says Brian Grieser a Moody's Vice President and Senior Credit Officer.
"The rating also reflects positively the high barriers to entry
created by cabotage laws in Indonesia (Baa3 positive), which mandate
the use of Indonesian-flagged vessels for domestic sea freight
transportation, and the benefits of a strong and long-standing
relationship with Indonesia's national oil and gas company, Pertamina
(Persero) P.T. (Baa3 positive)," added Grieser
As one of the larger tanker owners in Indonesia, Soechi has benefitted
from the 2008 cabotage laws, increasing its fleet size to 1.6
million dead weight tonnes (DWT) as of 30 March 2017 from less than 1
million DWT in 2010. This increased scale and the company's
ongoing relationship with Pertamina, where Pertamina accounts for
roughly 50% of shipping revenues and 50% of the company's
DWT on time charters, support Soechi's earnings and cash flow
prospects. Further, roughly 79% of all DWT capacity,
or 24 vessels, are on time charters.
However, the rating is constrained by Soechi's relatively
small scale of operations globally, its significant reliance on
its two very large crude carriers (VLCC), which account for roughly
40% of its DWT, significant on-going vessel acquisitions,
which have historically led to negative free cash flow, and the
formative stage of its shipbuilding operations.
In 2012, Soechi began operations on its shipbuilding business and
has since won eight newbuild orders, three of which are from Pertamina.
One ship has been completed in 2016 and delivered while another has been
launched and will be delivered in 2017. The company launched its
floating dry dock in 2017 to provide repair and maintenance services to
its fleet and external parties. As such, this business has
yet to start contributing meaningfully to earnings and will likely weigh
on the company's margins over the next 12-18 months.
While Soechi has historically used debt to fund its growth, we expect
capital expenditures to decline due to the completion of build-out
related to the shipyard, and going forward to be mainly driven by
the acquisitions of second-hand vessels. As such,
we do not expect Soechi to materially increase its debt levels in 2017
and 2018.
The B1 rating on the proposed unsecured notes reflect our expectation
that the notes will represent the only debt in the company's capital
structure upon application of the proceeds of the notes to repay all outstanding
debt. Further, Moody's expects minimal usage of the
senior secured $50 million revolving credit facility due 2021 over
the next 12-18 months.
The stable outlook reflects Moody's expectation that Soechi will
maintain its longstanding relationship with Pertamina and maintain 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 overall earnings.
The rating could be downgraded if the company materially raises debt levels
to fund new tanker acquisitions over the next 12-18 months or if
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 if: (1) any legislative
developments arise that loosen cabotage laws; (2) Pertamina shifts
management of its fleet such that it reduces its exposure to Soechi;
or (3) either of Soechi's two VLCC's are out of service for an extended
period.
Credit metrics that could lead to a downgrade include debt-to-EBITDA
leverage exceeding 4.5x or interest coverage -- as measured
by (FFO + interest) to interest expense -- falling
below 2.25x.
The rating could be upgraded if management continues to successfully grow
its shipping business and increase profit contribution from its Shipyard
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 of over 4.0x before
considering an upgrade.
Furthermore, an upgrade is unlikely before its shipyard business
develops a track record of executing orders in a timely and profitable
manner while sustaining a modest order backlog.
The principal methodology used these ratings was Global Shipping Industry
published in February 2014. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Soechi, headquartered in Jakarta, Indonesia, is mainly
engaged in the business of providing crude oil, petroleum products
and liquefied petroleum gas (LPG) shipping and shipyard services principally
to companies operating in the domestic oil and gas and chemical sectors
in Indonesia. Soechi operates a fleet of 38 vessels comprising
23 oil tankers, 10 chemical tankers, 3 gas tankers and 2 Floating
Storage & Offloading Units (FSO) having a total capacity of 1.57
million DWT.
The company has also ventured into the ship-building and maintenance
business through its 99.99% subsidiary PT Multi Ocean Shipyard.
Soechi has developed a shipyard in Karimun, in the Malacca strait
in close proximity to Singapore. The shipyard is located in a free
trade zone with an investment of $181 million since its inception
in 2009. Operations began in 2014 with $20 million of revenue.
Through December 2015, the Company has obtained 8 vessel construction
contracts from tanker charter customers and the Government of Indonesia
(Baa3 positive).
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 completed its IPO in
December 2014 and is listed on the Indonesian stock exchange.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Brian Grieser
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
