Feb 25, 2011

Berlian Tanker removed from credit watch

Standard & Poor's Ratings Services said today that it has affirmed its B- corporate credit rating on PT Berlian Laju Tanker Tbk (BLTA) and removed it from credit watch, where it was placed with negative implications on August 26, 2010. The outlook is stable. 
"We also affirmed and removed from credit watch the CCC issue ratings on the US$400 million senior unsecured notes due 2014 and the US$125 million 5-year convertible bonds due 2012 (outstanding of US$0.1 million as at Sept. 30, 2010), both issued by BLT Finance B.V., a wholly-owned subsidiary of BLTA."
S&P also removed the ratings from credit watch after Berlian Tanker signed a US$685 million, 5-year secured syndicated loan. 
The loan refinances US$593 million of the Indonesia-based shipping company's existing debt, reducing debt installments by US$167 million over the next 3 years. 
"The loan will also finance most of BLTA's committed capital expenditure for 2011 and replace some tight covenants that were the reason for the company's CreditWatch listing," said Standard & Poor's credit analyst Manuel Guerena in a press statement.
The rating on BLTA reflects the following weaknesses: The company's aggressive financial profile, evident from a high operating-lease-adjusted ratio of debt to annualized EBITDA of about 7.7x as at Sept. 30, 2010. "While the ratio is better than in 2009, we do not expect it to improve significantly in the next few quarters, given the supply-demand balance in the shipping sector and the bunker-raising costs."
The competitive, capital-intensive and cyclical nature of the shipping industry. S&P expects revenues and margins to remain under pressure in the next few years.
The following factors, however, support the rating such as good competitive position. The recent economic slowdown affected the chemical tanker segment less than other shipping sectors. In addition, BLTA's stainless steel, double-haul IMO II and III parcel tankers are in a good position, given the phasing out of single-hull vessels, as required by the International Maritime Organization.
Earnings stability and downside protection through contracts of affreightment and charters. These deals provide little more than 50% of BLTA's revenues.
Favorable local cabotage regulation for all intra-Indonesian seaborne transportation, which is to be carried by Indonesian-controlled -and flagged vessels.
BLTA's liquidity position is adequate. Cash and short-term investments were US$161 million as of Sept. 30, 2010. "In addition, we expect BLTA's annual funds from operations to exceed US$200 million during 2010. The new loan will refinance most of BLT's short-term debt and its offshore bank loans. The company's additional sale and lease-back contracts should finance its remaining capital expenditure commitments."
As at September 30, 2010, Berlian Tanker managed 95 tankers, representing 2.2 million deadweight tonnage, with a weighted average age of 7.5 years. 
The company's key businesses are operation of chemical and oil tankers, which provide about 74% and 19% of BLTA's revenues, respectively.

Disclosure: No position at the stock mentioned above.  

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