Russian owner Far-Eastern Shipping Company's new financing deal has received backing from Fitch Ratings after a stronger 2020.
The boxship and multipurpose player's corporate credit rating has been upgraded to B+ from CCC, with a stable outlook, the ratings agency said.
In April, Fesco signed a loan agreement with domestic lender VTB Bank worth RUB 25.8bn ($323m) to refinance most of its existing debt.
This will leave the company "more comfortable", Fesco said, with a decrease in interest rates and a longer maturity up to 2027.
There will also be a change in the currency composition that will ensure lower foreign exchange risks.
Fitch said the upgrade reflects improved liquidity, a smooth repayment schedule and the "significantly lower" foreign exchange exposure at 21% of total borrowings, down from 84% in 2015.
Robust operations
The shipowner is also continuing to deleverage following a robust operating performance across various business segments in 2020, the agency added.
Fesco's net profit last year hit RUB 1.8bn, compared to a loss of RUB 8.3bn in 2019.
The shipping division's Ebitda was up 29% at RUB 1bn, mainly as a result of adding new multipurpose vessels to the fleet and successfully completing an expedition to Antarctica for the supply of Indian research stations.
Fitch directors Dmitry Doronin and Elina Kulieva, and rating analyst Josef Pospisil, estimate the owner's free cash flow at $41m last year.
"However, we assume it will turn negative from 2021 due to increased capex on further recent acquisition and terminals development," the agency said.
Fitch is forecasting average capex of RUB 6bn per year up to 2024, compared with RUB 3.5bn on average in 2019 and 2020.
Volumes normalising
The agency's "conservative" prediction is for a gradual normalisation of container volumes.
"We expect volume growth to continue in 2021 but at a slower pace," the analysts said.
"This is driven by the continued containerisation of freight in Russia, optimised containers handling and loading time, as well as general lack of capacity on international lines and high rates on the deep sea (Suez Canal) routes, which led to alternative ways of delivering goods through Russia."
One concern is corporate governance limitations, however, Fitch said.
There is ongoing litigation involving Fesco's key shareholder Summa Group, which owns 32.5%.
Embezzlement case
In 2018, Summa co-owner Ziyavudin Magomedov, was arrested in Russia on charges of embezzling more than $35m.
The billionaire has denied the charges, but as of March 2021 was still in jail.
In November 2020, Fesco fully changed its nine-member board of directors. There are now no Summa representatives sitting as directors.
And Fitch said that, despite an improvement in recent years, Fesco has a weaker financial profile than peers due to higher leverage and a higher foreign exchange mismatch between debt and revenue.
Short-term maturities of RUB 2.8bn are sufficiently covered by cash and cash equivalents of RUB 6.2bn, however.
Clarksons lists the owner with 24 ships, including boxships, a bulker and multipurpose vessels.
