Russian shipowner Fesco has received an upgrade from Fitch Ratings, but the agency still has concerns about its finances in the pandemic.
The rating agency moved the company's long-term issuer default rating up to CCC from restricted default, and its senior unsecured rating to CC from C.
This reflected improved financial flexibility following the restructuring of the company's debt, but weak liquidity, expected covenant breaches and foreign exchange losses remain risks, Fitch said.
Fitch is also expecting Fesco to be hit by weaker demand caused by the coronavirus-related lockdown, with gradual improvements from 2021, when economies re-open and demand returns.
Clarksons lists the owner with 25 ships, including boxships, a bulker and MPPs.
Fesco last week revealed a net loss of RUB 1.84bn ($26.4m) for 2019, compared to profit of RUB 7bn in 2018.
The companyblamed this on exchange differences for intra-group liabilities in volatile currency markets.
Volumes to decline
Fitch is expecting negative free cash flow before disposals of RUB 3.4bn for 2020.
"This is more conservative than management's estimates and based on more significant volumes decline," the rating agency's analysts said.
The company lists RUB 32.6bn of loans and RUB 6.4bn of lease liabilities, as well as RUB 252m remaining in bonds.
At the end of 2019, its cash and cash equivalents of RUB 1.2bn and net proceeds from asset sales and leasebacks of vessels totalling RUB 4.7bn in 2020 were insufficient to cover short-term maturity of RUB 6.1bn, the ratings agency said.
Most of the short-term maturity is related to a VTB Bank loan repayment.
Fitch said Fesco is considering re-negotiating this facility and expects the extension of final loan maturities from 2022 to 2024, with a significant decrease in the US dollar-denominated portion of loan.
But it sees the financial profile deteriorating this year as a result of the Covid-19 pandemic, which could pressure the VTB loan covenant through to 2022.
This includes a net debt to Ebitda ratio of 4 to 4.5 times, as well as an Ebitda to interest ratio of 2.2 to 2.5 times.
Bonds to be repaid
In 2017 and 2018, the company repaid its outstanding Eurobonds and most of its ruble bonds, including coupons, with the secured loan from VTB.
"Fitch understands that Fesco is able and ready to fully repay the bonds as soon as it becomes technically possible," Fitch added.
This is expected by the end of the year.
Volumes will fall in 2020, affecting Ebitda and credit metrics, the agency said.
"We estimate the Covid-19 pandemic will impact both local and Asian markets consumption, which could affect the majority of company's import-export and transit operations," Fitch said.
Its conservative estimate is that container and general cargo will fall by between 15% and 20%.
Fesco also has ports, rail and logistics interests. It has been contacted for comment.
