Singapore — Moody’s Investors Service has affirmed the B1 corporate family rating (CFR) of Soechi Lines Tbk. (P.T.) (Soechi).
Moody’s has also assigned a B1 senior unsecured rating to the proposed
notes to be issued by Soechi Capital Pte. Ltd., a wholly owned
subsidiary of Soechi. The proposed notes will be unconditionally and
irrevocably guaranteed by Soechi and all its material subsidiaries, 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 $184 million of
indebtedness, fund the interest reserve account and other corporate
“The affirmation of the B1 corporate family rating reflects Moody’s
expectation that recent revenue and earnings growth trends will extend
into 2018, as 2017 vessel additions achieve higher utilization levels in
2018,” says Brian Grieser a Moody’s Vice President and Senior Credit
Moody’s expects Soechi’s earnings stability from its shipping business,
supported by increased use of time charters, to maintain adjusted
debt-to-EBITDA of between 4.0x-4.5x over the next 12-18 months
The rating also reflects the high barriers to entry created by cabotage
laws in Indonesia, which mandate the use of Indonesian-flagged vessels
for domestic sea freight transportation, and the benefits of a strong and
long-standing relationship with Pertamina (Persero) (P.T.) (Baa3
positive), who accounted for 62% of revenue during the first nine months
Moody’s also notes that Soechi’s revenue visibility improved in 2017 as
the company increased its exposure to time charters to 95% of its
fleet’s DWT from 85% at the end of 2016.
The rating, however, remains 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 38% of the fleets
dead weight tonnage, significant on-going vessel acquisitions, which have
historically led to negative free cash flow, and the formative stage of
its shipbuilding operations.
“The completion of the planned refinancing will simplify Soechi’s capital
structure, reduce scheduled amortization requirements and reduce
borrowings on its $50 million revolver due 2021 to zero. Together, we
expect cash flows and revolver availability to provide ample liquidity
for Soechi to fund its growth capital expenditures,” added Grieser.
The B1 rating on the proposed notes reflect our expectation that the notes
will represent the large majority of debt in the company’s capital
structure upon application of the proceeds of the notes to repay $184
million of outstanding secured loans.
The stable outlook reflects Moody’s expectation that Soechi will maintain
its longstanding relationship with Pertamina and preserve its good
revenue visibility through its continued use of time charter contracts.
The outlook also takes into account the risks arising from the formative
stage of its 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
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.
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 39 vessels.
The company has also ventured into the 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 remaining 15% publicly held.
The company completed its IPO in December 2014 and is listed on the
Indonesian Stock Exchange.