Singapore, March 13, 2020 -- Moody's Investors Service has affirmed Soechi Lines Tbk.
(P.T.)'s B1 corporate family rating (CFR).
Moody's has also affirmed the B1 senior unsecured rating on the
$200 million notes issued by Soechi Capital Pte. Ltd.,
a wholly owned subsidiary of Soechi.
The outlook remains negative.
RATINGS RATIONALE
"The ratings affirmation reflects Soechi's improved credit metrics,
driven by higher earnings and reduced debt-funded capital spending,"
says Maisam Hasnain, a Moody's Assistant Vice President and
Analyst.
Soechi's adjusted leverage -- as measured by adjusted debt/EBITDA
-- declined to 4.7x for the 12 months ended September 2019
from 5.4x in 2018. Earnings growth was primarily driven
by Soechi's shipping business, which increased vessel utilization
rates to around 92% for the nine months ended September 2019 from
84% in 2018.
Soechi's B1 CFR continues to reflect its stable business profile,
underpinned by time charter contracts that provide strong profitability.
The rating is also supported by barriers to entry, based in turn
on favorable industry regulations, particularly the cabotage laws,
which mandate the use of Indonesia-flagged vessels for domestic
sea freight transportation.
"However, the outlook remains negative as we expect Soechi
to have limited headroom under its B1 ratings. This means any meaningful
increase in borrowings or a reduction in earnings could lead to a ratings
downgrade," adds Hasnain, also Moody's Lead Analyst
for Soechi.
Moody's estimates Soechi's adjusted leverage will remain around
4.7x -- 4.9x over the next 12-18 months,
slightly below the 5.0x downgrade trigger.
Absent the acquisition of additional vessels, which would likely
be partially debt-funded, earnings from Soechi's shipping
business are unlikely to increase materially as Soechi's vessels
are already operating at a high utilization rate.
In addition, while the profitability of Soechi's shipbuilding
business improved in 2019, the segment's contribution to Soechi's
consolidated earnings remains low. The nature of the business also
means earnings are contingent upon new contract wins.
The ratings also consider Soechi's exposure to environmental,
social and governance (ESG) risks as follows.
First, environmental risks are elevated for the global shipping
industry, particularly around fuel usage and carbon emissions.
These include the International Maritime Organization's global lower sulfur
cap on marine fuels that went into effect in January 2020 (IMO 2020).
Most of Soechi's ships are chartered out with the charterer bearing
responsibility for fuel costs. However, Soechi could be indirectly
exposed if its charterers seek to pay lower charter rates to partially
mitigate the higher costs associated with using low sulfur fuel.
Second, Soechi is also exposed to moderate social risks associated
with the shipping industry. The company has implemented a number
of safety initiatives, including ensuring all its vessels meet domestic
and international classification society requirements.
However, some of Soechi's vessels have experienced safety
incidents in the past. Most recently, in February,
one of its small oil tankers experienced mechanical issues while at sea
and needed to be dry docked.
Third, with respect to governance, Soechi's ownership
is concentrated with the Utomo family, which owns around 85%
of the company. However, this risk is somewhat mitigated
by Soechi's listed status and improving financial policies,
including a reduction in debt-funded growth since last year.
While Soechi will have adequate liquidity over the next 12 months,
its internal cash sources will be insufficient to meet a large $72
million bank loan amortization payment in the third quarter of 2021.
Soechi aims to finalize a refinancing plan in the next few quarters.
An inability to proactively refinance debt at least 12 months prior to
the maturity could lead to negative ratings action.
A rating upgrade is unlikely over the next 12-18 months,
given Soechi's negative outlook. However, the outlook could
revert to stable if Soechi maintains a sustained improvement in credit
metrics, while addressing its large debt maturities in 2021.
Specific indicators Moody's would consider for a change in outlook to
stable include adjusted debt/EBITDA below 4.5x and adjusted (FFO
+ interest expense)/interest expense above 2.5x, both
on a sustained basis.
The rating could be downgraded if (1) industry fundamentals weaken,
resulting in lower charter rates or an inability of Soechi to renew expiring
charter contracts; (2) there are adverse changes in cabotage laws;
(3) Pertamina (Persero) (P.T.) (Baa2 stable) shifts management
of its fleet, such that it materially reduces its exposure to Soechi;
(4) Soechi undertakes material debt-funded capital spending or
shareholder returns; or (5) Soechi is unable to refinance its debt
maturities in a timely manner.
Specific indicators Moody's would consider for a downgrade include adjusted
debt/EBITDA above 5.0x or adjusted (FFO + interest expense)/interest
expense below 2.25x.
The principal methodology used in these ratings was Shipping Industry
published in December 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Headquartered in Jakarta, Indonesia and founded in 2005, Soechi
Lines Tbk. (P.T.) provides shipping services primarily
to oil and gas companies, including Pertamina (Persero) (P.T.)
and its associates. Soechi also operates a ship-building
and maintenance business through its 99.99% subsidiary PT
Multi Ocean Shipyard.
Soechi is a family owned business with the members of the Utomo family
holding an approximate 85% stake and the public the remaining 15%.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Maisam Hasnain, CFA
Asst Vice President - Analyst
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
Ian Lewis
Associate Managing Director
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
