Moody's assigns first-time B2 rating to IGSS; stable outlook
MOSCOW. Oct 31 (Interfax) - Moody's Investors Service has assigned a B2 corporate family rating (CFR) and a B2-PD probability of default rating (PDR) to IG Seismic Services Plc. (IGSS), a leading pure-play, land and transition-zone seismic company that services oil and gas production companies primarily in Russia and the Commonwealth of Independent States (CIS), Moody's said in a press release.
The outlook on the ratings is stable. This is the first time Moody's has assigned ratings to IGSS.
"The assigned B2 rating balances risks related to IGSS's relatively small scale of operations by global standards, and concentration on a single segment of the oilfield services business, with the company's leading position in the Russian market and strategic partnership with Schlumberger Ltd., which enhances its competitive advantage vis-a-vis domestic peers," says Julia Pribytkova, a Moody's Vice-President - Senior Analyst and lead analyst for IGSS.
The assigned B2 rating primarily reflects (1) risks pertaining to IGSS's focus on a single product line, i.e., land and transition-zone seismic services, which are characterised by historical volatility and seasonality; (2) modest financial metrics, particularly those measuring operating efficiency and interest coverage; (3) relatively high leverage compared with industry peers and (4) recurring refinancing risks arising from a short-term debt portfolio structure. As IGSS primarily operates in Russia, its rating takes into account risks associated with operating in a weaker institutional and economic framework compared with those of more developed markets.
More positively, IGSS's rating acknowledges (1) the company's dominant position in the growing Russian seismic services market; (2) its meaningful presence in all major hydrocarbon-rich basins in Russia; (3) its high customer diversification; (4) the presence of strategic partner Schlumberger Ltd. (A1 stable) among the company's shareholders.
Moody's positively notes IGSS's strong expertise in the 3D and high-density segments of the seismic services market. The company's competitive position is supported by cooperation with Schlumberger, the world's largest diversified oilfield services company, which provides IGSS with exclusive rights to use its innovative proprietary software in Russia and the CIS. The company's technical expertise in measurement and data processing/interpretation strongly positions it to capture upside in the Russian seismic services market.
IGSS is reliant on external funding to finance its non-discretionary capital investment programme. Therefore, the company's liquidity beyond 2014 will be conditional upon its ability to secure funding under committed backup facilities, and/or gain access to long-term capital market instruments.
The stable rating outlook reflects Moody's expectation that (1) IGSS's market will continue to demonstrate healthy growth; and (2) the company will adhere to conservative financial and liquidity management policies.
Moody's would consider upgrading IGSS's rating if the company is able to achieve the following on a sustainable basis: (1) reduce its leverage measured by debt/EBITDA on an adjusted basis to below 2.5x; (2) improve interest coverage measured EBIT/interest expense to 2.0x-2.5x; (3) achieve a long-term debt capital structure.
Conversely, a rating downgrade could be triggered by (1) any negative developments in IGSS's operating environment and/or business profile that leads to a deterioration in the company's metrics beyond Moody's current expectations; and/or (2) a weakening of the company's liquidity profile.
Domiciled in Cyprus and headquartered in Moscow, Russia, IG Seismic Services (IGSS) is the largest seismic services company in Russia, with operations also in Kazakhstan, Azerbaijan, Uzbekistan and other countries, Moody's said. The company provides high-quality seismic acquisition and data processing and interpretation services to a diversified client base and has a foothold in all major oil and gas provinces of Russia. The company was formed in 2011 as a result of a merger of (1) the Russia-based seismic assets of GEOTECH Holding, the country's largest geophysical company; (2) oilfields services company Integra Group (not rated); and (3) Schlumberger.
