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By John Helmer in Moscow

Russia’s leading maritime fleet executives, who were keen to announce newbuild orders and fleet renewal plans a year ago, have become very coy in the face of falling cargo volumes and freight rates, and the expiry of long-term charters. The principal lenders to the Russian shipping companies are even more uncommunicative.

State-owned Sovcomflot is the fleet leader with 132 vessels totaling 9.4 million dwt, and 31 vessels currently on order for another 2.7 million dwt. Ranking itself in the top-5 global tanker companies, Sovcomflot’s last annual report for 2007 refers to long-term debt of $2.1 billion, up 11% on 2006; the “current portion” of the long-term debt is $153 million. The interest expense line shows interest repayment in 2007 at $90 million, up 29% from 2006, when it was $70 million. There are no auditor’s notes or elaborations of debt or fleet valuations in the text of the report. The only reference to bank lenders for fleet says: “Sovcomflot has long established relationships with major Russian and international banks allowing it to secure long-term debt financing on attractive terms.”

Novorossiysk Shipping Company (Novoship), also state owned, reports that its current fleet of 52 vessels comes to 4 million dwt, and its order-book includes 14 vessels for another 1.4 million dwt. The company provides no further detail on fleet financing or debt.

A Russian fleet insider says that Sovcomflot, which has taken shareholding control of Novoship, has persuaded lenders to value ships with a formula based on the purchase price extended for 25 years. Before the adoption of this formula, the Sovcomflot fleet was valued every year at market value, with revaluation differences reflected in the annual financial statement on the profit/loss line. It is unclear what valuation policy Sovcomflot’s lending banks are now insisting on, or what balance-sheet and replayment impacts this is having at present.

Few transportation analysts in Moscow’s investment banks and brokerages claim to know whether the Russian shipping companies are facing margin calls or refinancing pressures. Roydel Stewart, transportation analyst for Alfa Bank, said he could not say, but would not be surprised if there had been margin calls, given the fall in freight rates and fleet values. Goldman Sachs analyst Anton Farlenkov said he was unable to say.

Alexei Bezborodov, the leading analyst in Moscow of the Russian fleet companies, said it was well-known that the two internationally listed companies, Primorsk Shipping Company (Prisco) and Far Eastern Shipping Company (Fesco) had big debts, but there was no information on how they were handling them.

Prisco, with a fleet of 19 tankers (1.4 million dwt), reports that last year it ordered 8 vessels for another 1.3 million dwt. The company is closely held by controlling shareholder, Alexander Kirilichev.

In August of 2008, Prisco said it valued its assets under construction at $266.7 million (as of December 31, 2007). But the company does not disclose how it is financing them, beyond noting that long-term loans amounted to $562.2 million, up 57% since 2006. The company says its accounts are audited by Moore Stephens, but it does not post full-year or interim financial reports.

Fesco, controlled by Sergei Generalov’s Industrial Investors group, is the most transparent of the Russian fleet companies. Company reports identify Raffeisen and ING as the biggest lenders to Fesco for fleet additions. With Citibank and Unicredit (Italy), these banks take up about 66% of the Fesco loan book. ING also has loans to Sovcomflot.

When asked whether it has considered margin-calls in relation to falling fleet valuations, Raffeisen asked for a written letter of request, and then refused to reply. Unicredit and Citibank refused to talk about loan terms, margin-calls or vessel valuation policy.

Fesco’s chief spokesman, Stanislav Vartanyan, acknowledged that his company must meet several repayment obligations by the end of June this year. “Reduction of transportation volumes in the country as a whole, according to rail statistics, is between 25% and 30%. That depresses our revenues quite seriously,” he told Fairplay.

Fesco’s last financial report, issued in November for the six months ending June 30, 2008, reported loans and obligations totaling $995.6 million; that was up 23% from six months earlier. A note from Fesco’s auditor Moore Stephens says that of the loan aggregate, $431.8 million is due for repayment before June 30, 2009. The auditor also reports that 49 vessels in the fleet have been pledged as security for loans from ING, Calyon, and the state controlled Vneshtorgbank.

The net book value of the pledged fleet was reported at $636 million.But the market capitalization of the entire company in the share market is currently just $473 million. It was $4 billion at peak last May. Trading in Fesco shares (ticker FESH:RU) has been limited since the start of the year; the share price is currently 20 US cents, down 38% since the start of the new year.

Vartanyan told Fairplay: “We really didn’t have any situations where we can’t fulfill our obligations in front of the banks, although there has been devaluation of pledged vessels and serious reduction in freight rates. This is the result of our successful work with the banks. We were able to add additional security in each of the cases.”

He said that Fesco is in negotiation now with its banks to refinance this year’s obligations. It is also lobbying the Russian government to improve its borrowing terms, and if it succeeds, Fesco may apply to the state banks.

“After December, when we were included in the state list of stratyegic enterprises, we started actively to talk to the government regarding state support for [foreign bank] credits, which the [falling rouble] exchange rate is having an impact. As far as applying to [state-owned Vnesheconombank] VEB, the rules are that you can apply within three months of the credit maturity date. We are working with the banks on refinancing schemes. But at the same time we will apply to VEB. This would be done to see whether we will satisfy all of the criteria, and will get money on better conditions.”

“We are not betting on VEB, but if we will succeed with them, the terms may be better.”

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