OREANDA-NEWS. Fitch Ratings has revised Russia-based OAO Sovcomflot's Outlook to Stable from Negative and affirmed its Long-term Issuer Default Rating (IDR) at 'BB-'. Fitch has also affirmed SCF Capital Limited's senior unsecured notes, which are guaranteed by OAO Sovcomflot, at 'BB-'.

The Outlook revision reflects the improvement of Sovocmflot's financial profile in 9M14 and our expectations for a stronger than previously forecast performance in 2014 and over 2015-2017, mainly driven by a tanker shipping sector recovery. Our current forecast does not take into account the proceeds of a potential IPO as the IPO timing remains uncertain due to high political risk even though the industry's fundamentals are improving. Should the company proceed with the IPO, the receipt of proceeds is likely to have a material positive impact on its credit metrics.

The company continues to benefit from a strong business profile, which Fitch assess to be in the high 'BB' rating category. Sovcomflot's 'BB-' Long-term IDR incorporates a single-notch uplift for state support to its standalone rating of 'B+'. Fitch continue to align the senior unsecured rating with the company's Long-term IDR.

The Outlook revision reflects our expectations that the company's credit metrics are likely to outperform our previous forecast for 2014 and over 2015-2017, due to a faster-than-expected industry recovery. Sovcomflot's EBITDA rose 35% yoy to USD417.6m in 9M14, paving the way for a solid full year performance.

The expected continuing recovery of the shipping sector will support the improvement of the company's credit metrics over 2015-2017. Fitch forecast funds from operations (FFO) adjusted net leverage to fall to about 5.8x in 2014 from 7.5x in 2013 and to decline further in 2015. Fitch expect FFO fixed charge cover to increase to slightly above 2.5x in 2014 from 2.1x in 2013 and to stay above 2.5x over 2015-2017. This forecast is driven mainly by sector fundamentals and does not take into account proceeds from the potential IPO.
Sizeable Capex to Continue

RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating action include:
- Material improvement of the company's credit metrics, with FFO adjusted net leverage below 5.5x and FFO fixed charge cover above 2.5x on a sustained basis, due to, among other things, strong recovery of the tanker industry, significant downsizing of the capex programme and/or reinvestment of IPO proceeds
- Evidence of stronger state support

Negative: Future developments that could lead to negative rating action include:
- Decline of tanker rates and/or more sizeable capex resulting in further deterioration of the company's credit metrics (eg FFO adjusted net leverage above 6x and FFO fixed charge coverage below 2x on a sustained basis)
- Evidence of weaker state support
- Unencumbered assets falling below 2x of unsecured debt, which would lead to a downgrade of the senior unsecured rating.