Moody’s: SCF’s Rating Up Despite Negative Outlook

Russian maritime shipping company Sovcomflot PAO (SCF) has seen its corporate family rating (CFR) upgraded to Ba1 from Ba2 and probability of default rating (PDR) to Ba1-PD from Ba2-PD, according to Moody’s rating agency.

Additionally, Moody’s upgraded to Ba2 from Ba3 SCF’s senior unsecured issuer rating and the senior unsecured rating of the USD 800 million Eurobond issued by SCF Capital Limited and guaranteed by SCF on the back of improvements to the company’s standalone credit quality.

“The upgrade takes into consideration that the company is proactively addressing its liquidity management, notably the refinancing of USD 800 million bond maturity in 2017. The outlook on all ratings is negative,” Moody’s said.

SCF’s Ba1 corporate family rating is driven by a combination of its baseline credit assessment (BCA) of ba3, the Ba1 government bond rating of Russia, with a negative outlook, the low default dependence between SCF and the Russian government, and the strong probability of provision of state support to the company in the event of financial distress.

As part of the action, Moody’s has upgraded SCF’s BCA to ba3 from b1, reflecting material improvement in the company’s financial performance and “the expectation that liquidity will be managed prudently,” according to Moody’s.

The company’s revenue in the last year ended March 31, 2016 is roughly at the level of 2011, a year when Moody’s started a series of downgrades of the company’s ratings from the Baa3 level triggered by a prolonged industry downturn.

Moody’s however notes material improvement in cash flow generation and profitability, as during the period SCF’s adjusted EBITDA and cash flow from operations were 56% and 125% higher than in the full year of 2011.

The rating agency believes that the currently positive balance of supply and demand in the tanker market remains fragile, and tanker fleet additions in 2016-17 will weigh on charter rates pushing them down from the elevated levels of 2015-Q1 2016.

However the agency expects market demand in the tanker segment to remain steady in the next 12 months driven by the low oil prices and increased refining activity, potentially paving way some further marginal improvements in SCF’s credit metrics in 2016.

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