Gibson Tanker Report – Sailing The Sea Of Sanctions

Bunker Port News Worldwide

Fitch Affirms Adani Ports At ‘Bbb-‘; Off Rating Watch Negative ; Outlook NegativeFitch Ratings has affirmed India-based port operator Adani Ports and Special Economic Zone Limited’s (APSEZ) Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘ and removed it from Rating Watch Negative (RWN). The Outlook is Negative. A full list of rating actions is at the end of this commentary. RATING RATIONALE The rating affirmation follows the demonstration of adequate funding access by the Adani group following the US indictment of certain board members of another group entity, Adani Green Energy Limited (AGEL), on 20 November 2024. We believe the risk associated with the group’s liquidity and funding requirements has moderated. However, the Negative Outlook reflects our view that the proceedings and outcome of the US investigations could reveal further weaknesses in the group’s corporate governance practices, which may lead to negative rating action in the near to medium term. Fitch will monitor the investigations for any evidence of weakness in the entities’ governance practices and internal controls, and the impact on APSEZ’s financial flexibility. The rating continues to reflect APSEZ’s strong business and financial profile, underpinned by a robust portfolio of seaports and adequate liquidity position. Its cash balance of INR77 billion as of December 2024 and strong operating cash flow should cover debt maturities of INR66 billion during the financial year ending March 2026 (FY26) and fund its capex. The company also benefits from flexibility in the pace of execution of its expansion projects. Fitch assesses the financial profile to be stronger than is commensurate with its ‘BBB-‘ rating. Fitch’s governance assessment, as well as India’s (BBB-/Stable) Country Ceiling of ‘BBB-‘, constrains APSEZ’s rating at ‘BBB-‘. APSEZ benefits from geographically diversified port locations, advanced intermodal connectivity transportation infrastructure and best-in-class operational efficiency. It has high customer retention for about half of its cargo, owing to comprehensive and advanced infrastructure to handle a variety of cargoes. KEY RATING DRIVERS Best-in-Class Port Operator – Revenue Risk (Volume): Stronger APSEZ is India’s largest commercial port operator, handling a quarter of the country’s seaborne cargo through its 14 operational ports and terminals in India. Most are primary ports of call in their regions. Its flagship Mundra Port is the gateway to north-western India. Traffic is mainly origin and destination, with limited transshipment cargo. APSEZ’s advanced transport infrastructure, operational efficiency and integrated logistics solutions that transport cargo from its ports to inland depots via railways have led to market share gains and faster organic throughput growth than its peers and India’s economic growth. Cargo that is difficult to switch to other ports makes up about half of total throughput. APSEZ continues to diversify its throughput from the west coast, with its east-coast terminals accounting for more than 40% of total throughput. The company’s expanded logistics business covers all of India, with multimodal logistics for warehousing, rail transportation and distribution. Flexibility in Modifying Tariffs – Revenue Risk (Price): Midrange APSEZ’s portfolio comprises mainly non-major ports. The private ports have the freedom to fix their own tariffs, which are generally higher than at other Indian ports, but this is justified by APSEZ’s better operational efficiency and connection with the hinterland, as it lowers shippers’ overall logistics costs, according to management. The company’s take-or-pay contracts accounted for about 12% of port revenue in the financial year ended March 2024 (FY24), with a capacity-weighted remaining contract term of 16 years. Take-or-pay contracts insulate revenue from throughput volatility. The assessment is constrained to ‘Midrange’ due to regulated tariffs at certain ports, although their contribution to APSEZ’s EBITDA is minimal. Internally Funded Capex – Infrastructure Development and Renewal: Stronger APSEZ’s medium-term capex plan is well developed, focusing primarily on expanding capacity at key ports to accommodate demand growth, as most major greenfield projects are nearing completion. Its capex plans also involves upgrading ports and enhancing logistics capabilities, including warehousing, bulk rakes and trucking. It has budgeted annual capex of about INR110 billion-115 billion over the medium term. APSEZ has a strong record of managing its port investments, which are mostly discretionary and can be postponed without affecting operations significantly. Fixed-Rate Bullet Bonds Dominate – Debt Structure: Midrange APSEZ’s consolidated debt comprises mainly US dollar and Indian rupee bullet bonds. We expect its business strengths, established capital market access and relationships with banks to mitigate refinancing risk. APSEZ also has limited exposure to floating interest rates since the majority of its debt is made up of fixed-rate bonds and notes. The bonds do not benefit from restrictive financial covenants or reserve accounts and it relies on natural hedging to manage foreign-exchange risk. Nearly one-third of its revenue is in US dollars and should be sufficient to service its US dollar debt. Financial Profile Fitch’s base case assumes annual cargo volume growth of about 10%-15% and 2%-3% annual tariff growth over the next few years. We forecast an EBITDA margin of about 60% over the period, annual capex of INR115 billion-120 billion and annual cash outflow from acquisitions at the same level as FY24. We have also assumed a dividend payout ratio of 20%-25% per annum. Our base-case total debt/operating EBITDA remains below 2.5x from FY26 to FY28. Our rating case assumes a haircut from the base case at about 2%-5% in volume and about 1%-2% in tariffs, an additional 2pp-3pp stress on the EBITDA margin, a 20% stress on capex and 10% additional stress on acquisition assumptions. We have assumed a higher dividend payout ratio of 25% per annum. The rating-case total debt/operating EBITDA remains below 3.0x from FY26 to FY28. PEER GROUP We view APSEZ as most comparable to JSW Infrastructure Limited (JSWIL, BB+/Positive). Both JSWIL and APSEZ have diverse portfolios and debt profiles with limited protective features. However, APSEZ benefits from a more diverse cargo and counterparty mix, larger scale of operations, and larger portion of cargo throughput due to its longer-term cargo contracts compared with JSWIL. APSEZ’s rating is, however, constrained by its ESG assessment and India’s Country Ceiling. We therefore assess APSEZ only one notch higher than JSWIL despite its much stronger business profile. Port of Melbourne (issuing entity Lonsdale Finance Pty Ltd: BBB/Stable) is the primary port of call in the State of Victoria and serves Australia’s broader market with limited competition. Its rating benefits from a diversified landlord port business model, long concession life, and low infrastructure development and renewal risk, although its operational scale is much smaller than that of APSEZ. Despite an average net debt/EBITDA of 7.9x against APSEZ’s 3.0x under Fitch’s rating case, Port of Melbourne is rated a notch higher than APSEZ as its overall stronger qualitative attributes support higher leverage, while APSEZ is constrained by its ESG assessment and India’s Country Ceiling. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade – Impairment of financial flexibility, which would be evident from increased funding costs or restricted funding access; – Evidence of further weaknesses in group entities’ governance practices and internal controls, such as material adverse development from the US investigation; – Prolonged deterioration in rating-case debt/EBITDA to above 6.0x; – Lowering of India’s Country Ceiling to ‘BB+’. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade The rating could be affirmed with a Stable Outlook if risks of any material negative implications from the US investigations do not materialise, while funding access remains intact. CREDIT UPDATE APSEZ continued to handle about a quarter of India’s total cargo volume in 9MFY25. Cargo throughput increased by 7% yoy, while revenue rose by 14%, contributed largely by organic throughput growth in Mundra as well as consolidation of results from Astro Offshore, a leading offshore support vessel owner, and Tanzania’s concession starting from 2HFY25. APSEZ completed the acquisition of its majority stake in Gopalpur Port in FY25 and an 80% interest in Astro Offshore. It has also signed a 30-year concession agreement to operate and manage Container Terminal 2 at the Dar es Salaam port in Tanzania. In addition, India’s first dedicated transshipment hub, Vizhinjam Port, also commenced operation in December 2024. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS APSEZ’s rating is capped by India’s country ceiling ESG Considerations APSEZ has an ESG Relevance Score of ‘4’ for Governance Structure due to the complexity of its group structure at the shareholder level, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. APSEZ has an ESG Relevance Score of ‘4’ for Group Structure due to the concentration of ownership with a large majority stake held by Adani Group, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Source: Fitch Ratings

port-and-ship

15 March 2025

Bunker Port News Worldwide

Shipping And Alternative Fuels Producers Await Imo Regulations On Ghg Emissions FrameworkDuring 2025, the International Maritime Organisation (IMO) will consider adopting new “mid-term measures” for managing greenhouse gas (GHG) emissions. This will include proposed new shipping fuel standards on maximum permitted carbon emissions intensity from ships, and a market-based mechanism for GHG pricing and enforcement. If agreed, they would be adopted as amendments to Annex VI of the MARPOL Convention. IMO’s global role for international shipping The IMO, a United Nations specialised agency, has responsibility for the safety and security of international shipping, and the prevention of marine and atmospheric pollution by ships. Its work includes international law reform initiatives, such making regulations covering liability and compensation for damage, such as pollution, caused by ships. The IMO’s development and reform agenda responds to the UN’s Sustainable Development Goals. Building on its early work establishing the first ever comprehensive antipollution convention, the 1973 International Convention for the Prevention of Pollution from Ships (MARPOL Convention), these regulations now include added requirements addressing pollution from chemicals, other harmful substances, garbage, sewage and – under an Annex VI adopted in 1997 – air pollution and emissions from ships. Regulation of shipping emissions and efficiency The first mandatory international measures to improve energy efficiency for ships was issued on 15 July 2011. These introduced controls including the International Air Pollution Prevention Certificate and the International Energy Efficiency Certificate regimes. Further progress was made through the 2018 Initial IMO GHG Strategy and the 2023 Strategy on Reduction of GHG Emissions from Ships. The IMO’s most recent set of “short term” technical and operational measures, the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), have been in force since 1 January 2023. EEXI framework Existing ships of 400 GT and above must calculate their attained Energy Efficiency Existing Ship Index (EEXI), which reflects the “technical” or “design” efficiency of the ship. (The IMO will be reviewing the effectiveness of the EEXI requirements during 2025.) Ships then have to reach a “required EEXI”, equivalent to the Required Energy Efficiency Design Index levels for new vessels for 2022 — a technical efficiency measure for ship design, based on a minimum energy efficiency level per capacity mile (eg. tonne mile) for different ship types and sizes. The EEXI framework is technology (including fuel-type) neutral: the shipowner or charterer can choose the most appropriate means to achieve the goals set by IMO regulations. CII Rating This reflects the operational energy efficiency of ships, building on baselines set by previous fuel oil consumption regimes. It is mandatory for ships of 5,000 gross tonnage and above. Attained annual operational CII must be documented and verified against the required annual operational CII for a ship. The annual carbon intensity reduction factor is equivalent to business-as-usual until entry into force, then 2% from 2023 to 2026, and finally to be further strengthened for the period 2027 to 2030. The ship’s operational carbon intensity rating must be states on a performance level scale of A (major superior), B (minor superior), C (moderate), D (minor inferior) or E (inferior). A ship rated D for 3 consecutive years or rated as E must develop a “Plan of corrective actions”. Fuel type and efficiency is a material component of the CII rating. 2023 GHG Strategy on Reduction of GHG Emissions from Ships The 2023 IMO GHG Strategy sets ambitious targets to reduce GHG emissions in international shipping, emphasising technological innovation and alternative fuels. Key goals include: Carbon intensity reduction – Improving energy efficiency for new ships and reduce CO₂ emissions per transport work by at least 40% by 2030, compared to 2008 levels. Adoption of Low / Zero-Emission Technologies – By 2030, at least 5% (striving for 10%) of shipping energy use should come from zero or near-zero GHG emission sources. Net-Zero Emissions by 2050 – Emissions should peak as soon as practicable, and reach net-zero by 2050. Indicative interim checkpoints – Cutting total annual GHG emissions by 20-30% by 2030, and by 70-80% by 2040, compared to 2008 levels. In the medium term, the IMO has indicated that “a basket of candidate measure(s), delivering on the reduction targets, should be developed and finalised, comprised of both: a technical element, namely a goal-based marine fuel standard regulating the phased reduction of the marine fuel’s GHG intensity; and an economic element, on the basis of a maritime GHG emissions pricing mechanism.” Because the IMO is taking a regulatory approach which is technology and fuel-type agnostic, and focusses instead on emissions intensity, it is not setting specific targets for the use of particular fuel types. However, it can be reasonably anticipated that, over time, the approach will be effective in moving shipping fleets from using emissions intense fuel types such as heavy fuel oil, very low sulphur fuel oil and marine diesel to fuels that have a higher energy profile and lower emissions intensity, such as LNG, methanol, ammonia and hydrogen. Many shipping companies, particularly those with a European operations base, have already started down a comparable path of GHG emissions reductions as a result of the EU’s Monitoring, Reporting and Verification Maritime Regulation and the scheduled progressive coverage of the European Emissions Trading Scheme to cargo and passenger ships. What is the IMO’s timetable and substantive focus? The IMO 2023 GHG Strategy includes a timeline for adoption of these mid-term measures: Northern Spring 2025: approval of mid-term measures; Northern Autumn 2025: adoption of mid-term measures at an extraordinary session of the Marine Environment Protection Committee; and 2027 (16 months after adoption): entry into force of mid-term measures. The IMO initially released a preliminary “illustration” of a possible draft outline of an “IMO net-zero framework”, listing regulations under the International Convention for the Prevention of Pollution from Ships (MARPOL) to adopt or amend to allow for a new global fuel standard and a new global pricing mechanism for maritime GHG emissions. The illustration identifies the following possible amendments to MARPOL Annex VI in a new Chapter 5 entitled “Regulations on the IMO net-zero framework”: New Chapter 5.1: Goal-based marine fuel standard regulating the phased reduction of the marine fuel’s GHG intensity — with specific new regulations covering its application, goals, functional requirements, attained GHG fuel intensity (GFI), target / required GFI; GFI data collection and reporting; alternative compliance approaches; and a central GFI Registry. New Chapter 5.2 – Economic mechanism(s) to incentivize the transition to net-zero – with new regulations for application, calculation of economic contribution by ships, collection of economic contribution by ships, flexible compliance mechanism(s), central management / oversight of collected revenue, and distribution of revenue. At the MEPC 82 meeting, possible draft amendments to MARPOL Annex VI on the net-zero framework (MEPC 82/WP.9, annex 1) were presented as “a work in progress”, and this document continue to be evaluated by the IMO Secretariat, expert working groups and member States in advance of the further deliberations schedule for 2025. However, some notable aspects of the working draft include: Well-to-wake scope – The regulations will be based on reported, verified and determined “well-to-wake” GHG emissions produced by the fuel used on board the ship. Scaled reduction factors – The regulations will set out prescribed reduced factors with dates by which the annual GFI of a ship must be reduced with reference to the GFI reference value, with “base” and “strive” targets. Emissions pooling – An annual GFI over-compliant ships are to be permitted to pool their surplus compliance units with excess emissions from under-compliant ships, to achieve an overall pool compliance balance of zero. Financial contributions to IMO Net Zero Fund – A new Fund will be established and ships will be required to make an annual GHG fuel contribution, based on the amount of its GHG emissions multiplied with a contribution rate per tonne of CO2eq as determined by the MPEC, on a well-to-wake basis to be defined in the guidelines to be developed by the IMO. Statement of Compliance – Will be used as the primary document in which annual GHG fuel intensity and the corresponding GHG fuel contribution to the fund is evaluated. GFI Registry – A central GFI Registry administered by the IMO will be the record keeper and administrator for both individual and pool data. Enforcement alternatives – May include either or both of requirements to bring Statements of Compliance into order and / or the imposition of additional charges or the detention of ships by a Port State until compliance is demonstrated. What does this mean for Australia? Australia is a signatory to the MARPOL Convention, and progressively implements its requirements into Australian law through legislation and regulations in order to comply with its international treaty commitments. Most recently, Australia implemented the IMO’s short-term measures for EEXI and CCI under Marine Order 97 (Marine pollution prevention – air pollution) 2022 which came into effect on 1 January 2023. The Order was made by the CEO of the Australian Maritime Safety Authority under subsection 342(a) of the Navigation Act 2012 and subsection 34(1) of the Protection of the Sea (Prevention of Pollution from Ships) Act 1983. A similar mechanism would be used if the medium term measures fall within the scope of AMSA’s regulation-making powers under those laws. Given the significance of shipping for Australia’s trade and prosperity, Australia is an active member of the IMO and is likely to work effectively through its negotiation mechanisms to ensure any new regulations are capable of swift adoption into Australian law. Any regulatory developments focused on reducing GHG emissions from shipping would increase global demand for low emissions fuels such as ammonia, methanol and hydrogen. Passage and implementation of these IMO regulations would also therefore bolster the emerging offtake markets for these low-emission fuels, with flow-on benefits for the development of commercial clean and renewable fuels projects in countries, like Australia, with the capacity to produce those fuels at scale using available renewable energy sources. Source: Clayton Utz – Peter Holcombe Henley and Sarah Hannoun

port-and-ship

15 March 2025

Gibson Tanker Report – Sailing The Sea Of Sanctions

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