Bangkok--27 Jan--Fitch Ratings
Fitch Ratings has today said, in a just published report, that the majority of the shipping companies it rates in Asia will continue to face significant operating and credit challenges in 2010. Of the seven Asian shipping companies rated by Fitch, three are either on Negative Outlook or on Negative Rating Watch (RWN), including Indonesia's PT Arpeni Pratama Ocean Line Tbk (Arpeni, 'C'); the others are PT Berlian Laju Tanker TBK (BLT, 'B'/RWN) and India's Varun Shipping Company (Varun, 'A(ind)'/Negative). Fitch notes that weakened earnings, high committed capex and restricted access to capital remain challenges for a number of rated shipping companies.
The oversupply of shipping capacity will continue to exert pressure on shipping rates and utilisation levels in 2010. The weak fundamentals in the global shipping markets have even affected domestic revenues of Indonesian and Indian shipping companies that benefit from cabotage laws. Fitch expects pressure on earnings for BLT, Varun and Arpeni in 2010. As for Thailand's Thoresen Thai Agencies Public Company Limited (TTA, 'A-(tha)'/Stable) and India's Essar Shipping Ports and Logistics Ltd (Essar, 'F2+(ind)), the agency expects them to achieve revenue and profit growth in 2010 but as a result of the growth in non-shipping services.
Committed capex weighs on the liquidity of BLT, Arpeni and, to some extent, Varun. Weakened value of shipping assets has reduced the headroom under loan-to-value (LTV) covenants on secured bank facilities; this is especially weak in the case of BLT. Arpeni, Singapore's First Ship Lease Trust (FSLT, 'BB-'/Stable) and Varun also have limited LTV headroom. High debt servicing costs remain an issue for a number of issuers.
Financial leverage of most issuers remains high. At end-September 2009, leverage measured by net adjusted debt to operating EBITDAR was 8.5x for BLT, 5.7x for FSLT, more than 11x for Arpeni and around 8x for both Essar and Varun. Fitch views that BLT's and Varun's leverage can increase further in 2010, whereas leverage is expected to remain broadly stable for FSLT, TTA and Essar.
Fitch provides rating guidance based on credit metrics and other factors. "The headroom under the current ratings is weak or very limited for four of the seven issuers indicating the challenges faced by these shipping companies," notes Buddhika Piyasena, Director of Fitch's Asia-Pacific Corporates rating team; these include FSLT, and issuers on either Negative Outlooks or Watches.
For Arpeni and BLT main rating considerations are their liquidity, which is quite poor. Varun's weak earnings have already pushed its financial leverage beyond the tolerance level for its current rating, and sustained weak results can result in a negative rating action. FSLT needs to reduce its secured debt and increase unencumbered assets to maintain its current ratings.
The full report, "Asian Shipping- Outlook 2010: Sailing in Rough Waters" discusses the main challenges faced by Fitch-rated Asian shipping companies, the direction of earnings and credit metrics in 2010, the headroom under their current ratings and major factors expected during the year.
The report is available on the Fitch Ratings web site 'www.fitchratings.com'.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA', and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets, and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
Contacts: Buddhika Piyasena, Singapore, +65 6796 7223/
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