Indonesian tanker owner Soechi Lines may struggle to refinance the remainder of an outstanding bond coming due early next year, according to Moody’s Investors Service.
As a result, the rating agency has changed the outlook on the 2023 notes issued by subsidiary Soechi Capital Pte from stable to negative.
“The change in outlook to negative reflects the increasing refinancing risk stemming from the remaining $57m outstanding on its bond coming due in January 2023,” said Stephanie Cheong, a Moody’s assistant vice president and analyst.
“While the company expects to upsize its secured loan facility to fully refinance the maturing bond, a binding and definitive agreement has yet to appear.”
Moody’s said Soechi’s unrestricted cash balance of $37m as of 30 September 2021 and expected operating cash flows of around $56m over the next 18 months will be sufficient to cover its debt amortisation payments and maintenance capital spending.
“However, thereafter, there will be insufficient funds to cover the remaining $57m outstanding notes maturing in January 2023. As a result, Soechi is reliant on external funding to address its refinancing needs,” the rating agency said.
Soechi has historically been proactive in managing its liquidity and capital structure, and domestic banks have so far been supportive, it added.
In December 2020, the company obtained a $180m secured seven-year amortising term loan from PT Bank Mandiri (Persero) Tbk and PT Bank Central Asia, which was used to refinance an existing bank loan and buy back $143m of its 2023 bonds through a series of tender offers.
“Funding channels remain limited for Soechi and limited financial flexibility could challenge its ability to raise additional debt to address its maturing bond in a timely manner because Soechi’s entire vessel fleet is already encumbered under its existing bank loans,” Moody’s said.
On the positive side, Soechi has a relatively high revenue visibility, with around 90% of its shipping revenue supported by time charter contracts, most of which are with Indonesia’s state-owned oil and gas company, Pertamina.
Moody’s said the company is further boosted by the high barriers to entry created by cabotage laws, which mandate the use of Indonesia-flag vessels for domestic sea freight transportation.
However, Soechi’s rating remains constrained by its relatively small operational scale compared with its global peers and by its significant reliance on two VLCCs, which account for 40% of the fleet’s deadweight tonnage.
“Given the negative ratings outlook, an upgrade of Soechi’s ratings is unlikely over the next 12 months,” Moody’s said.
“Nevertheless, Moody’s could return the ratings outlook to stable if the company successfully refinances the remaining $57m on its 2023 bond and maintains stable operating performance.”
However, it could downgrade the ratings if Soechi experiences any delays in refinancing its upcoming bond maturity.
The ratings could also be downgraded if industry fundamentals weaken, resulting in lower charter rates or Soechi’s inability to renew expiring charter contracts.
