JAKARTA (TheInsiderStories) – Moody’s Investors Service has downgraded the shipping operator issuer, PT Soechi Lines Tbk (IDX: SOCI)’ corporate family rating to B2 from B1 with outlook remains negative. The agency also downgraded the senior unsecured rating on the US$200 million notes issued by Soechi Capital Pte. Ltd., a wholly owned subsidiary of the issuer with the same level .
“The downgrade reflects our expectation that the Soechi’ credit metrics will remain materially weaker than we had previously expected, driven by persistent losses at its shipyard operations. The negative outlook reflects the refinancing risk associated with Soechi’ outstanding $83 million syndicated loan due August 2021,” says Stephanie Cheong, an analyst from Moody’s on Tuesday (08/11).
She continued, 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. Soechi Lines‘ 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 the company’ shipyard business to continue generating operating losses through 2020 – 2021, as the operator struggles to replenish its order book with profitable orders amid the coronavirus outbreak. In addition, the agency 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 its 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 previous expectation of 4.7x-4.9x and inconsistent with the previous B1 ratings.
Soechi Lines‘ 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 scheduled debt amortization payments of around $15 million and $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 the issuer to be reliant on external funding to address its debt maturities. In terms of environmental, social and governance factors, Moody’s has considered the governance risk stemming from Soechi’ concentrated ownership by the Utomo family, who owns around 85 percent of the company and the remaining hold by public.
Headquartered in Jakarta, Soechi Lines provides shipping services primarily to state run oil and gas companies, including PT Pertamina and its associates. The operator also operates a ship-building and maintenance business through its 99.99 percent subsidiary PT Multi Ocean Shipyard.
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