Fitch dials up debt rating on Sovcomflot amid growth of industrial business



Fitch has upgraded its long-term issuer default rating on Russian shipowner Sovcomflot (SCF Group) at a time the company has set a target to follow the state back to investment grade.

The ratings agency upgraded from 'BB'/'Positive’ to 'BB+' in part due to the expansion of the company’s industrial project business in gas and offshore and forecasts for improved profitability.

Fitch said: “The rating also incorporates SCF's large scale of operations, fairly young and specialised fleet, diversified customer base and exposure to market risks through conventional business.”

It noted the shipowner generated 57% of revenue from its industrial business in 2018, up from one third in 2016.

Fleet growth and an improving tanker market are expected to aid the shipowner’s financial performance in the coming years.

“We expect SCF will generate healthy cash flow from operations in 2019-2022, but that its FCF will be negative in 2019, and neutral to slightly positive in 2020 on an increase in EBITDA following the introduction of seven new vessels over 2019-2020,” Fitch said.

Sovcomflot posted a profit of $70.1m in the first three months of 2019, a marked improvement over the $16.1m loss reported for the same period last year.

The swing was pushed by a recovery in the crude and product tanker businesses.

Nikolay Kolesnikov, chief financial officer of Sovcomflot, told TradeWinds in March it was looking to follow the Russian state back into investment grade territory.

Moody’s dialled Russia back up to investment grade in February this year and the state-backed shipowner aims to follow suit in the medium term.