Stellar global rating agency Standard & Poor's Ratings Services (S&P) today lowered its long-term corporate credit rating on Indonesia-based shipping company PT Berlian Laju Tanker Tbk (BLTA) to B- from B and placed it on credit watch with negative implications.
At the same time, S&P downgraded Berlian Tanker's foreign currency issue rating to CCC from CCC+ on the US$400 million senior unsecured notes due 2014 and the US$125 million 5-year convertible bonds due 2012 by BLT Finance B.V., a wholly owned subsidiary of Berlian Tanker. These ratings have also been placed on credit watch with negative implications.
"Our BLTA downgrade is driven by the company's high leverage and weak liquidity," said Standard & Poor's credit analyst Manuel Guerena in a press statement.
Despite successfully getting funding (local currency bonds, sale-and-leasebacks, bank loans, convertible bonds, and two right offerings) for a total of approximately US$730 million since 2009, BLTA's leverage has not improved materially and its liquidity remains weak, given its tight cash flow generating capacity and aggressive capital expenditures, he said.
The credit watch placement reflects the high probability of Berlian Tanker breaching its EBITDA-related debt covenants in the next few quarters, given prospects of softer margins in the second half of the year and their very tight compliance headroom currently, a test of covenant compliance in June 2010 showed it was close to being in breach.
"The two unsecured notes are rated two notches lower than BLTA's issuer credit rating due to the substantial amount of secured debt that ranks ahead of the unsecured notes," Guerena said.
Resolution of the credit watch will depend on how Berlian Tanker deals with covenant pressure. A failure to address the potential covenant breach could trigger a further downgrade.
However, if the company increases the headroom in its covenant compliance and there are no near-term refinancing difficulties, S&P will remove the ratings from CreditWatch and revise the outlook to negative or stable, depending partly on the shipping industry outlook.
Berlian Tanker is highly leveraged, as evident from its ratio of operating-lease-adjusted debt to annualized EBITDA of approximately 7.5x as at June 2010.
While that is better than in 2009, we believe further improvement will be limited in the near term, due to the pressure on the company's profitability for the rest of 2010 and its aggressive capital expenditure program.
Berlian Tanker's key business is the operation of chemical tankers, which together contributes approximately 74% of revenue and 70% of EBITDA.
The company plans to grow its business by participating more in the Indonesian market under the new cabotage rules, likely by bidding for Pertamina's oil and gas tankers and other offshore vessels.
Disclosure: No position at the stock mentioned above.
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