Berlian Laju Tanker (BLTA), Company Visit Note - Lowering Its Leverage - OSK Nusadana

Berlian Laju Tanker at a glance. Berlian Laju Tanker (BLTA), established in 1981, is one of the largest chemical tanker operators in the world. The company owns 105 tankers comprising chemical tankers, oil tankers, gas tankers and FPSO tankers, with an average age of 7.5 years. BLTA has 7 tankers under construction, of which 3 chemical tankers and one gas tanker will be operated in 2011, and 3 gas tankers for 2012. As of 9M10, its main revenue contributors were chemical bulk (78%) and oil (14%). Its owned vessels account for 80% of its operating revenue while chartered vessels make up the remaining 20%.

Subsidiary on board for public listing. BLTA’s subsidiary, Buana Listya Tama, which is currently 100%-owned, plans to float via an IPO to raise USD150m in May 2011 by offering for public subscription some 40% of its shares. The proceeds would be used to purchase 9 tankers and some 25-30% to pay its loans. Strategy-wise, the IPO will benefit the parent company as BLTA would be able to focus on its international routes, thus giving Buana Listya Tama (non-chemical transporting vessels) the chance to flap its wings and focus on the domestic routes. According to the company’s management, Buana Listya Tama contributes 13% of BLTA’s total assets and 27% of EBITDA. Post-IPO its debt would be minimal while it has 90% revenue coming from long term contracts with relatively higher charter rates compare to international market rates.

Easing debt burden equals better credit profile. As of 9M10, BLTA’s debt to assets ratio stood at 69%, while its net gearing was 200%. After the IPO, its net gearing level will drop to 140% in 2011 on a consolidated basis. BLTA has embarked on US$685 million refinancing facilities which has boosted its credit profile where it has:

1. Reduce 10 different bank loan facilities to only 1 facility;
2. Lengthen the maturity period of its bank loans from 5 years to 10 years, which reduces its principal installment burden by US$166mil for the next 3 years.

Cabotage & LPG demand the catalyst. Most of BLTA’s chemical, oil and gas and its offshore tankers are categorized as B vessels, therefore are not part of category C currently being reviewed by the government for exemption. This means that the cabotage ruling will open up many opportunities for the company. Furthermore, Indonesia’s shift to LPG usage from kerosene would also bolster BLTA’s gas transportation revenue (7.5% revenue contribution in 9M10). It is worth noting that LPG demand has grown 23x to 460k cubic m in the last 2 years.

Hopes of a better future. Despite its high leverage, BLTA owns quality assets and is able to sustain gross profit and margin growth. The company’s 9M10 net loss of USD36m was an improvement over the 9M09 loss of IDR177bn. The losses were mainly due to non-cash items treated as other expenses, which negatively affected its bottom-line. Based on market consensus, BLTA is trading at 6.8x – 6.2x 2011-12 EV/EBITDA.