Fitch Assigns First Container Terminal's Notes Final 'BB' Rating
OREANDA-NEWS. Fitch Ratings has assigned First Container Terminal's (FCT) RUB5bn notes a final local currency senior unsecured rating of 'BB' with Stable Outlook. The rating of the notes is aligned with the Long-term Issuer Default Rating (IDR) of parent Global Port Investment Plc (GPI), which provides a public irrevocable offer to repurchase the notes.
GPI is rated at Long-term IDR 'BB' (see 'Fitch Rates Global Port 'BB'; FCT's Proposed Notes BB (EXP)' dated 8 December 2015 at www.fitchratings.com)
KEY RATING DRIVERS
The bond bears a coupon of 13.1% per year and has a maturity of 10 years with a mandatory call option for FCT to buy back the bond in February 2021 effectively reducing the maturity to five years. On the closing date, FCT swapped the rouble-denominated bond into USD.
GPI's Op Co to Issue Bonds
FCT is one of GPI's main operating subsidiaries. In December 2015, FCT issued a RUB5bn bond and has now issued an additional RUB5bn notes as part of its plan to issue three series of RUB5bn notes under a RUB30bn domestic bond programme. FCT is a 100%-owned GPI subsidiary, fully consolidated in the group accounts, and generates 35% of GPI's operating cash flow. Outside of the GPI group, FCT is a small player with little market power and exposed to competition. Under Fitch rating case, we expect FCT's leverage at the end of the forecast period in 2020 to remain close to a high 4x, although we expect GPI's consolidated leverage to decline to 1.5x.
Bondholders benefit from an irrevocable offer by GPI. Under this offer, GPI irrevocably and publicly undertakes to purchase the bond following non-payment of interest or principal. This obligation ranks pari-passu with all other direct, unsecured GPI obligations.
If and when the bondholders accept the offer, it turns into a sale and purchase agreement of the bond where GPI is obliged to pay principal, coupon and accrued interest on the 13th business day after non-payment of the rated bond. Under this structure, the parent is strongly incentivised to financially support the issuing entity before it defaults. The probability of default of the rated bond is therefore linked to that of GPI, in our view. As a result, Fitch has aligned the local currency senior unsecured rating of the notes with GPI's Long-term local currency IDR.
Bonds Proceeds for Refinancing
The bonds' proceeds are being used to refinance FCT's outstanding bank loans. GPI's consolidated leverage will therefore not increase as a result of this transaction.
The rating of the notes is credit-linked to the Long-term IDR of GPI; future development that could lead to negative rating actions on both GPI and the FCT bond include:
-Dividend distributions impacting GPI's expected deleveraging profile
-Fitch-adjusted GPI's consolidated debt/EBITDA remaining above 3.0x over a three-year horizon to 2018 in the Fitch rating case
-Adverse policy decisions or geopolitical events affecting the port sector
-Failure to maintain adequate liquidity to cover GPI's debt service maturities
-Failure to comply with covenants at op cos and consolidated levels
-An unbalanced mix between bullet and amortising debt and/or a potential change in shareholder structure with the co-controlling shareholder APMT disposing partly or entirely its stake in GPI, which may affect our analysis of some rating factors such as refinancing risk and potentially GPI's ratings.
Rating upside potential is currently limited. We do not expect improvement in the Russian economy in the near term, as indicated by the Negative Outlook on Russia's sovereign rating.