Indonesia Tanker Firm Berlian Laju to Stop Debt Payments

Indonesia's largest oil-and-gas shipping company PT Berlian Laju Tanker Tbk said it will stop servicing its debt, which ratings agency Fitch said could lead to a default rating.

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The debt moratorium will enable the Berlian Laju group to review its financial position and arrangements, the company said. It estimated it has to make about $418 million in scheduled principal payments this financial year. Nomura said the company has $2.1 billion in debt outstanding.

"The company has decided to temporarily cease repayments on all of the company's bank loans and bonds and payments on ship leases and on similar obligations of its other subsidiaries, save for PT Buana Listya Tama Tbk," Berlian Laju said in a stock market filing.

The shares in the company, which have fallen by half in both Jakarta and Singapore since last May, were suspended at the company's request.

The decision to freeze debt payments follows a covenant breach on a loan granted to a Berlian Laju subsidiary, for which Berlian Laju is a guarantor, the company said. It didn't identify the subsidiary.

The Indonesian tanker firm said it hopes to carrying on with its normal business, and will give the "highest priority" to servicing its obligations to its suppliers and trade creditors, who will not be affected by the debt standstill.

Fitch immediately placed Berlian Laju's CCC rating on rating watch negative.

A CCC rating is classified as extremely speculative.

If coupon payments or principal payments are not made within the contractual cure period, Fitch will cut the company's rating to RD.

It also placed on ratings watch negative $400 million in unsecured notes due 2014 that were issued by BLT Finance B.V., which are guaranteed by Berlian Laju.

Fitch downgraded Berlian Laju's rating in December to CCC from B minus, which it said at that time reflected heightened liquidity risks because the company had not yet secured refinancing for 1.1 trillion rupiah in domestic bonds maturing in May and July 2012. It also faces looming debt maturities in 2013 and 2014, Fitch said in December.

Shipping rates have fallen sharply in recent months, hurt by a slump in Chinese buying and a surplus of vessels.

The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities -- fell to its lowest in over three years on Wednesday.

Nomura said in a client note that Berlian Laju's 2014 bonds have dropped in price to 25-29 cents on the dollar from around 39 cents at the end of December.

"We view the bonds as having largely priced in a debt restructuring scenario," it said. "That said, there could be potential downside risk in the bonds should the company go down the path of liquidation as most of its assets have already been pledged to creditors."