Moody's Investors Service has boosted the bond rating of Russian shipowner Sovcomflot (SCF Group) to investment grade due to its increasing importance to the government.

The company has been lifted two levels from Ba2 to Baa3, the lowest rung on the investment grade ladder, with a stable outlook.

The ratings agency said the move reflects the vital role the shipowner plays in large state energy projects in the Arctic and Russian far east.

The "significant development potential" of these projects is increasingly viewed by the state as a key strategic priority for the country, Moody's added.

The tanker and LNG carrier contracts underpin the shipowner's strengthened standalone credit profile, the agency believes.

Moody's also noted an improvement in the company's financial and business profiles, supported by its consistent focus on increasing diversification into stable and high-margin industrial segments like LNG and LPG.

This reduces the group's overall exposure to the volatility in the conventional tanker market, the agency said.

Industrial operations contributed 50% to revenue in 2020, up from 30% in 2016. Sovcomflot is aiming for this figure to hit 70% by 2025. The company has a record contract backlog of $23.5bn.

"The growing share of repeat business with low contract renewal risks has enhanced SCF's earnings visibility and reduced the historical volatility in its financial profile providing the growing buffer against market downturns," Moody's said.

The agency added that the "fairly extensive" debt-funded investment programme is set to pick up from 2022, with a peak in 2023.

All the company's new vessels have long-term contracts attached, with fixed profitability.

Moody's views the financial policy as "fairly prudent", despite what it called an "aggressive" pay-out of $225m in dividends to be paid in 2021, following its initial public offering in Moscow in October 2020.

Control maintained

The group has established access to long-term international bank and capital funding, reinforced by the IPO and the recent partial refinancing of its $900m eurobond due in 2023 through a new issue of $430m in notes due in 2028, the agency said.

"While the public listing of a portion of SCF's common equity in October 2020 will diversify its shareholder base, the government retained a majority stake with its direct ownership in the company reducing to 82.8% from 100%," Moody's added.

The government may further reduce its holding under a privatisation plan that envisages the sale of 25% less one share in Sovcomflot by 2022.