Fitch: More Tanker Shipping IPOs Likely

Improving market fundamentals are likely to present an opportunity for more tanker shipping companies to tap equity markets, Fitch Ratings says. This should help them cover the funding gap resulting from banks' continued caution about their exposure to shipping. But Russia's Sovcomflot may further delay its IPO due to the difficulties created by US and EU sanctions.

Belgium's Euronav raised USD229m through an IPO at the end of January, having increased the size of the offering from USD166m due to high demand. Tankships Investment Holdings also plans to raise up to USD100m in a NASDAQ listing. We believe other tanker shipping companies may follow suit with an IPO or other equity issuance. This should help them at least partially repair weak balance sheets caused by falling profitability and continued high capex through the industry downturn.

Fitch said:

"We expect a better supply/demand balance for tanker shipping in 2015. Slower growth in capacity should lead to a gradual tightening in the tanker market, especially in the crude tanker segment, which will support higher capacity utilization rates. Crude tanker tonne-mile demand should increase by about 2% a year in 2014-2015. We expect the net global tanker fleet to grow by about 1% in 2014 and 2% in 2015, mainly in the product tanker segment. But we forecast crude tanker fleet growth to remain flat.

The drop in oil prices is likely to strengthen shipping companies' financial profiles. Oil tanker rates should be supported by the "contango" structure in oil prices, where crude for future delivery is more expensive than current prices. This may prompt higher demand for tankers used for floating storage. Lower fuel costs should also help boost profitability.

The Russian government, as Sovcomflot's sole shareholder, made the necessary preparations for the company's IPO in 2014. But it was postponed amid volatile financial markets, and we expect it to be further delayed.

In our previous financial forecasts, we assumed the recapitalization associated with the IPO would take place in 2015, but our latest forecasts do not take proceeds from the potential IPO into account, as its timing remains uncertain. Nevertheless, we revised the Outlook on its 'BB-' rating to Stable from Negative in November 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.

An IPO would be likely to materially improve Sovcomflot's credit metrics and could lead to a positive rating action, provided shipping sector fundamentals remain in line with expectations."