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Moody's assigns B1 rating to FESCO; stable outlook

February 14, 2008 | Сbonds

First-time rating

Milan, February 14, 2008 -- Moody's Investors Service has today assigned a
B1 Corporate Family Rating ("CFR") to Far Eastern Shipping Company plc
("FESCO"). The rating outlook is stable.

The B1 CFR reflects: (i) FESCO's strong position in the Far East Russian
shipping market; (ii) its exposure to non-shipping-related activities,
such as railways and container terminals, both of which benefit from a
lower risk profile than shipping activities and good profitability; and
(iii) Moody's positive outlook on the Russian container market. However,
the rating is constrained by: (i) FESCO's weak credit metrics; (ii) its
limited size; and (iii) some residual integration risk.

"Since 2004, FESCO has been undergoing a transition from a pure shipping
company to an integrated logistics player, in order to better exploit the
business opportunities offered by the expansion of container business in
its domestic market. This process is now complete," says Marco Vetulli, a
Vice President/Senior Credit Analyst at Moody's and lead analyst for
FESCO. "The past two years represented the peak years of the programme of
capital expenditure required to pursue this strategy. In 2008, the group
is aiming to stabilise its financial profile and start to reap the
benefits in terms of higher and more stable cash flow generation. From
2009, free cash flow is expected to turn positive, boosting the
de-leveraging process," adds Mr Vetulli.

The stable outlook incorporates Moody expectation that FESCO will continue
to enjoy a strong and stable operating profile and that its shareholders,
as indicated in FESCO's business plan, will provide equity injections
sufficient to maintain healthy leverage and to prevent any liquidity
problems in 2008. According to Moody's, the rating could be positively
affected if the group's operating performance continued to improve from
its current level. Specifically, the improvement would have to involve a
sustainable increase in internal cash flow generation and the consequent
progressive de-leveraging of the balance sheet towards 3.0x on a total
debt/EBITDA basis, with a ratio of retained cash flow (RCF) to net debt
in the high teens and a total coverage ratio of over 3.0x, all ratios
being adjusted according to Moody's methodologies.

Conversely, Moody's says that the outlook or rating could be adjusted
downwards in the event of a deviation from the targets set by FESCO's
business plan. Quantitatively, the rating is likely to be downgraded if
FESCO were unable to make progress on de-leveraging to below 4.0x on a
debt/EBITDA basis or if the ratio of RCF to net debt were to fall into
the mid-teens. At the same time, maintenance of a total coverage ratio
below 2.0x would exert downward pressure on the rating. Furthermore,
liquidity problems deriving from a delay of the expected equity injection
from FESCO's shareholders would immediately create pressure on the rating
that could lead to a multi-notch downgrade.

Headquartered in Moscow, Russia, FESCO is an integrated logistics group
active in three business segments: shipping (66% of H1 2007 revenues);
container terminals (16%); and railway transportation (18%). FESCO's main
shareholder is Industrial Investors Group, which controls 62.0% of the
Russian group. Other important shareholders are East Capital and Genesis
Investment Management, two investment funds with stakes of 9.8% and 3.0%,
respectively, and former shareholders of Transgarant (11.3%), which was
acquired by FESCO in 2006. The remaining shares are in free float. In
FY2006, FESCO reported revenues of USD571 million.

Company: Trasnport group FESCO

Full company name
Country of riskRussia

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