Moodys Lifts SCFs Outlook from Negative to Stable

SCF Rating agency Moodys has changed from negative to stable the outlook on the Ba2 corporate family rating (CFR) and the Ba2-PD probability of default rating (PDR) of Russian shipping company Sovcomflot PAO (SCF). The stabilisation of the outlook on SCFs Ba2 CFR follows Moodys decision to change the outlook on Russias Ba1 government bond rating to stable from negative on 4 December 2015. At the same time, Moodys upgraded to Ba3 from B1 SCFs senior unsecured issuer rating and the senior unsecured rating of the $800 million Eurobond issued by SCF Capital Limited on the back of improvements to the companys standalone credit quality and subsequent strengthening of its position within the current Ba2 rating category. The outlook on these ratings is stable. Moodys said that the outlook change has been attributed to the stabilisation of the outlook on the sovereign rating of the Russian Federation, the companys support provider, as well as the companys strengthened standalone positioning. As part of the action, Moodys has raised SCFs BCA to b1 from b2, reflecting material improvement in the companys operating environment, its financial performance and financial metrics. SCFs b1 BCA is supported by favourable dynamics in the crude oil and oil products marine shipping segment, the companys market position as the worlds number two owner of tankers in terms of the number of vessels, and the companys young fleet with an average age of eight years; material improvements in time charter equivalent (TCE) revenue and margins thanks to higher rates and lower bunker fuel costs. This is also supported by good cash flow visibility as two-thirds of revenue originate from long-term charters as opposed to the spot market;  relatively moderate fleet maintenance costs; and  revenue growth potential from fleet additions and growing diversification into the liquefied natural gas (LNG) shipping and offshore services. The companys revenue in the last 12 months ended 30 September 2015 increased by 17% and Moodys adjusted EBITDA and cash flow from operations (CFO) by 80% compared with 2013. The companys leverage measured by adjusted debt/EBIDA decreased to 4.0x and retained cash flow/debt improved to 19.3% as of end-September 2015 from 6.9x and 12% as of end-2013, respectively. Given that tanker fleet additions slowed down and should remain moderate in 2016-17, and market demand in the tanker segment should remain steady in the next 12 months driven by the low oil prices and increased refining activity, Moodys expects the metrics to further improve based on full-year 2015 results and remain sustainable in 2016-17.