Fitch Assigns 'BBB(ind)'/'F2(ind)' to Pratibha Shipping's Bank Loans

Fitch Ratings has today assigned India's Pratibha Shipping Company Limited (PSCL) a National Long-term rating of 'BBB(ind)'. The Outlook is Stable. The agency has also assigned a 'BBB(ind)' rating to PSCL's term loans of INR 3,049m.

The ratings are primarily derived from the strength of the client contracts. This in turn has helped the company maintain comfortable leverage metrics over FY09 despite a challenging H2. Fitch notes that leverage over FY10 also will remain comfortable as majority of the revenues are under contracts with strong counterparties. Contracts for the usage of ships for a fixed duration have been signed mainly with Indian Public sector (PSU) clients (such as Indian Oil Corporation Ltd (IOCL), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation (BPCL)), while PSCL also has a contract of affeightment with the government of Mauritius for three years.

The rating also reflects the company's presence in the coastal shipping segment, which is dominated by small regional players. This has also resulted in a continuous revenue growth (64% in FY09) the company has witnessed over the last five years, as well as stable EBITDA margins of over 40% during this period (57% in FY09). The ratings are also supported by the company's robust order book and its relatively smaller size of seven vessels, for which it has enough utilisation for the next year

PSCL's ratings are constrained by the weak outlook for the ship transportation industry and the decline in demand (though this is somewhat mitigated by the fact it has signed up client contracts for all its ships for at least the next year), by its presence in only one category, that is oil tankers transportation, and by the relatively moderate age of its ships. Fitch notes that the company is able to raise leverage upto 1.4x of the asset value, although this is partly due to the presence of debt free ships which grants additional security to the lenders.

The ratings are supported by the fact that PSCL's operating EBITDA to interest and Net debt/EBITDA levels are comfortable though they are constrained by the relatively smaller size (30,000 to 50,000 DWT) of the ships of the fleet. The net debt/EBITDA for FY09 was 1.8x, while the interest cover remains fairly comfortable at 5.0x. An increase in the net debt/EBITDA of over 5.0x due to acquisition of new ships would act as a negative trigger to the ratings.

In FY09, revenues increased 64% to INR 2836.3m with an EBITDA margin of 57.1%. The debt levels in the company remain high with Total debt/Total Capitalisation at about 60% in FY09; Net Debt/EBITDA levels remain low at 1.8x in FY09. These have been below 2.0x over the last five years of operations. The free cash flow for the company has remained negative, over the last four years, due to the high amount of capex involved in the purchase of new ships, as well as in the conversion of ships from single hull to double hull.

PSCL was incorporated in 1995 and is a closely-held public limited company. The Company has total strength of 35 people in the office and about 400 Officers / Crew members on rotation & contractual basis on the Ships owned by the Company.

Fitch Ratings currently maintains coverage of approximately 6,000 financial institutions, including over 3,200 banks and 2,200 insurance companies. Finance & leasing companies, broker-dealers, asset managers, managed funds, and covered bonds make up the remainder of Fitch Ratings’ financial institution coverage universe.

Fitch India has Five rating offices located at Mumbai, Delhi, Chennai, Kolkata and Bangalore. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.