Singapore, August 11, 2020 -- Moody's Investors Service has downgraded Soechi Lines Tbk.
(P.T.)'s corporate family rating (CFR) to B2 from
B1.
Moody's has also downgraded to B2 from B1 the senior unsecured rating
on the $200 million notes issued by Soechi Capital Pte.
Ltd., a wholly owned subsidiary of Soechi.
The outlook remains negative.
"The downgrade reflects our expectation that Soechi's credit
metrics will remain materially weaker than we had previously expected,
driven by persistent losses at its shipyard operations," says
Stephanie Cheong, a Moody's Analyst.
"The negative outlook reflects the refinancing risk associated with
Soechi's outstanding $83 million syndicated loan due August
2021," adds Cheong, who is also Moody's Lead Analyst
for Soechi. "While the company is currently negotiating refinancing
arrangements for its syndicated loan, the timing of any refinancing
is uncertain until a firm agreement is in place."
RATINGS RATIONALE
Soechi's adjusted leverage, as measured by adjusted debt/EBITDA,
increased to 5.6x for the 12 months ending 30 June 2020,
as operating losses at its shipyard business weighed on earnings.
Moody's expects Soechi's shipyard business to continue generating
operating losses through 2020-21 as the company struggles to replenish
its order book with profitable orders amid the coronavirus outbreak.
In addition, Moody's expects shipping revenues to decline
slightly in 2020 on the back of higher dry docking days, while poor
domestic demand for fuel could potentially hinder the timely renewals
of Soechi's time charter contracts.
As a result, Moody's estimates its adjusted leverage will
remain elevated at 5.3x-5.9x over the next 12-18
months, which is higher than Moody's previous expectation
of 4.7x-4.9x and inconsistent with the previous B1
ratings.
The company's total cash balance of $62 million at 30 June
2020 and estimated free cash flows of $27 million will not be sufficient
to cover its debt maturities of around $98 million over the next
18 months, which includes (1) scheduled debt amortization payments
of around $15 million and (2) $83 million outstanding under
its syndicated loan due August 2021, which relates to a $50
million revolving credit facility and a $33 million amortizing
term loan. As a result, Moody's expects Soechi to be
reliant on external funding to address its debt maturities.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered the governance risk stemming from Soechi's
concentrated ownership by the Utomo family, who owns around 85%
of the company. These governance concerns are partially balanced
by Soechi's listed status and improving financial policies,
including a reduction in debt-funded growth since last year.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade is unlikely over the next 12-18 months,
given the negative outlook.
However, the outlook could revert to stable if Soechi improves its
credit metrics and addresses its large debt maturities in 2021.
Specific indicators Moody's would consider for a change in outlook to
stable include adjusted debt/EBITDA below 5.5x and adjusted (FFO
+ interest expense)/interest expense above 2.0x, both
on a sustained basis.
The rating could be downgraded if (1) Soechi is unable to refinance its
debt maturities by December 2020; (2) industry fundamentals weaken,
resulting in lower charter rates or an inability to renew expiring charter
contracts; (3) there are adverse changes in cabotage laws; (4)
Pertamina (Persero) (P.T.) (Baa2 stable) shifts management
of its fleet, such that it materially reduces its exposure to Soechi;
or (5) Soechi undertakes material debt-funded capital spending
or shareholder returns.
Specific indicators Moody's would consider for a downgrade include adjusted
debt/EBITDA above 5.5x or adjusted (FFO + interest expense)/interest
expense below 2.0x.
The principal methodology used in these ratings was Shipping Industry
published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1100802.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Jakarta, Indonesia, 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 further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Stephanie Cheong
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
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Ian Lewis
Associate Managing Director
Corporate Finance Group
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Releasing Office:
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