RUS

SCF announces intention to float on the Moscow Stock Exchange

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This announcement and the information contained herein are not for publication or distribution, directly or indirectly, in or into the United States, Canada, Australia or Japan, or in any other jurisdiction in which such publication or distribution would be prohibited by applicable law.

The information contained in this announcement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of any securities of PAO “Sovcomflot” in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any jurisdiction. 

September 15, 2020. Moscow, Russia. PAO “Sovcomflot” (the “Company” and, together with its subsidiaries, the "Group", “Sovcomflot” or “SCF”), one of the global leaders in maritime transportation of hydrocarbons with focus on operating in ultra-harsh ice environments, announces its intention to conduct an initial public offering (the “IPO” or the “Offering”) of ordinary shares (the “Shares”) of the Company and to list on the Moscow Exchange.

SCF highlights

  • Global leader in marine energy transportation solutions and a leading provider of ‘floating pipeline’ and critical infrastructure for global energy suppliers 
  • A diversified business, integrated into the global energy value chain, with a focus on large-scale projects in ultra-harsh ice environments
  • Total contract backlog of approximately US$20 billion (including newbuilds) with a weighted average remaining contract length of 23 years(1) for time-charter contracts
  • Modern asset base of 146 existing vessels (12.6 million deadweight tons (“DWT”)) with a net book value of fleet of US$6.2 billion and an additional 24 vessels with total DWT of 2.3 million in the orderbook, to be delivered in 2020-2025(2)  
  • One of the world’s largest fleets of ice-class shuttle tankers, LNG carriers and icebreaking PSVs by number of vessels and DWT(3) 
  • Highly visible long-term and growing infrastructure cash flows through industrial projects
    • Strategic focus on increasing contribution from industrial projects (with a 2025 target of 70% industrial time-charter-equivalent (“TCE”) revenue contribution) that have historically provided predictable cash flows and strong profitability and returns
  • Longstanding partnerships with leading blue-chip energy companies
  • Strong financial profile with track record of financial discipline:
    • Adjusted EBITDA(4) of US$823 million in 2019 and US$1,028 million for the twelve months ended June 30, 2020 
    • Adjusted EBITDA margin(5) of over 70% for the six months ended June 30, 2020
    • Conservative leverage of 2.7x Net Debt / Adjusted EBITDA as of June 30, 2020(6), with a long history of raising finance in international capital markets
    • As of June 30, 2020, the Group generated 99.9% of its TCE revenues in U.S. dollars 
    • Ongoing target dividend payout of at least 50% of IFRS net profit, with dividend guidance for year 2020 of US$225 million, subject to board and shareholder approval 
  • Strong culture of safety, environmental responsibility and innovation
    • SCF pioneered and operates the world’s first LNG-fueled Aframax crude oil tankers and has consistently increased the amount of LNG used by the Group’s vessels as a percentage of total volume of fuel consumed, which increased from 8% in 2017 to 15% in 2019
    • Winner of Lloyd’s List’s Global Environmental Award (2018) for its contribution to shipping industry sustainability and Marine Money’s Green Ship Finance deal of the year (2019)
  • Highly regarded management team, responsible for SCF’s industrial business growth, which has achieved a 3.5x increase in TCE revenues (excluding joint ventures) since 2005 
  • Strong corporate governance standards, with 3 of 11 board directors independent and audit and compensation committees chaired by independent directors

1 - Data as of August 31, 2020, includes proportionate share of equity-accounted JVs in the amount of US$10 billion.
2 - Number of vessels and DWT as of August 31, 2020 includes equity-accounted JVs’ fleet (13 vessels in operation and 14 under construction). Fleet book value as of June 30, 2020 excludes JVs.
3 - Based on Clarksons Research rankings (July 2020).
4 - EBITDA adjusted for other non-operating expenses; hedge ineffectiveness and termination of hedge; gain on derecognision of dividend liability; loss on sale and dissolution of subsidiaries; foreign exchange gains; foreign exchange losses; gain/loss on sale of equity accounted investments; other operating revenues and other operating expenses. 
5 - Adjusted EBITDA divided by TCE revenue.
6 - Calculated on basis of last twelve months ended June 30, 2020.

Igor Tonkovidov, President and CEO of SCF Group, said:

“We are excited to begin a new chapter in the history of SCF. The Offering reinforces our position as a global leader in the maritime transportation of hydrocarbons and expands our access to international capital markets.

SCF’s strategy remains focused on maintaining our 'preferred carrier’ status with the major oil and gas companies by renewing and expanding our fleet, with a particular focus on the industrial projects that have historically provided long term predictable cash flows and profitable returns on invested capital.

The offering provides investors with the opportunity to gain exposure to the global energy sector, and invest in a high quality and growing transportation provider with significant operational expertise in harsh environments, with a history of strong financial performance, and commitment to supporting sustainable development by adopting advanced, “green” technologies and enhancing operational efficiency.”

Expected details of the offering

  • The Offering will include an offer of newly issued Shares (the “Offer Shares”) (i) to institutional and qualified individual investors in the Russian Federation, and otherwise to institutional investors outside the United States in reliance on Regulation S under the U.S. Securities Act of 1933 (the “Securities Act”), and (ii) within the United States to “qualified institutional buyers” as defined in, and in reliance on, Rule 144A under the Securities Act or pursuant to another exemption from the registration requirements thereunder. The Russian Federation will not offer any shares in the Offering
  • The Company expects that the Shares will be admitted to trading on the Moscow Exchange on or about the pricing date
  • The Company expects that the net proceeds from the IPO will be at least US$500 million equivalent 
  • The Company is currently wholly-owned by the Russian Federation and it is expected that, after completion of the IPO, the Russian Federation will remain the majority shareholder of the Company 
  • The Company intends to use net proceeds from the placement of the Offer Shares for general corporate purposes, including, without limitation, investments in new assets, with a focus on industrial projects, decarbonisation and further deleveraging. 
  • The Company intends to enter into standard 180-day lock-up arrangements subject to customary carve-outs and waivers by the Joint Global Coordinators and Joint Bookrunners (as defined below)
  • VTB Capital, Citigroup Global Markets Limited, Sberbank CIB, J.P. Morgan and BofA Securities are acting as Joint Global Coordinators and Joint Bookrunners of the Offering

For further enquires, please contact

PAO Sovcomflot
Nikolai Kolesnikov (EVP & CFO)
+7 495 660 4000
Alexander Verbo (Head of Finance Department – Treasury)
Telephone: +7 495 660 4000

VTB Capital plc
Peter Stonor (Managing Director)
Telephone: +44 20 3334 8993
Marcus Brown (Managing Director)
Telephone: +44 20 3334 8661

Citigroup Global Markets Limited
Irackly Mtibelishvily (Managing Director)
Telephone: +7 495 589 2880
Ken Robins (Managing Director)
Telephone: +44 020 798 62742

Sberbank CIB
Anton Malkov (Managing Director)
Telephone: +7 495 258 0500
Yury Popov (Executive Director)
Telephone: +7 495 258 0500

J.P. Morgan Securities plc
Yan Tavrovsky (Managing Director)
Telephone: +7 495 967 1068
Mariano Colmenar-Gotor (Executive Director)
Telephone: +34 91 516 1483

BofA Securities
Andrey Sergeev (Managing Director)
Telephone: +7 495 662 60 88
Christian Cabanne (Managing Director)
Telephone: +44 207 995 7593

About SCF

The Group is a global leader in seaborne energy transportation solutions and a leading provider of marine services for global energy suppliers, specializing in maritime operations in harsh environments. The Group owns and operates one of the largest tanker fleets in the world, according to Clarksons Research. As a fully integrated shipowner and manager, the Group provides specialist marine services and equipment to upstream oil and gas projects and complex high-end shipping services to the world’s leading oil and gas companies.

The Group’s operations are split between two core businesses: industrial and conventional shipping. These businesses are each divided into two segments, with the industrial business comprising offshore services and gas transportation segments, and conventional shipping comprising crude oil transportation and oil products transportation segments. Activities not falling within either of the core businesses are represented by the other marine services segment. A description of each segment is set out below.

Industrial Business

  • Offshore services. This segment comprises the services provided by the Group’s ice-class shuttle tankers and specialized supply vessels. The Group’s shuttle tankers transport oil from offshore facilities to customers’ receiving terminals or onward shipment hubs. The Group’s ice-breaking supply vessels provide services for dedicated offshore platforms and drilling rigs, in addition to early stage emergency response operations. This segment also provides additional services to offshore development facilities, such as the management of Floating Storage and Offloading Units, and logistical support.
  • Gas transportation. This segment transports LNG and LPG. As of June 30, 2020, the Group operated a fleet of 6 LNG carriers (5 of which are ice-class) with a total capacity of 0.7 million DWT, with a further 3 newbuilds in progress and 4 LPG carriers (2 of which are ice-class). In addition, the Group jointly owns with NYK Line 4 LNG carriers (2 of which are ice-class), and a further 14 ice-class LNG carriers have been ordered through a JV with Novatek for delivery in 2023-2025. The Group also performs technical management of a third party-owned Floating Storage and Regasification Unit.

Conventional Shipping Business

  • Crude oil transportation. This segment comprises the transportation of crude oil. As of June 30, 2020, the Group’s fleet in this segment consisted of 54 wholly-owned crude oil carriers (with a further 2 newbuilds in progress for delivery in 2022), representing a total capacity of 7.1 million DWT.
  • Oil products transportation. This segment comprises the transportation of refined petroleum and other oil products. As of June 30, 2020, the Group’s fleet in this segment consisted of 36 wholly-owned petroleum product carriers (with a further 1 newbuild in progress for delivery in 2022 and 2 newbuilds in progress for delivery in 2023), representing a total capacity of 2.1 million DWT (excluding JVs and newbuilds). In this segment the Group operates 9 petroleum product carriers jointly owned with third parties, representing a total capacity of 0.7 million DWT.

Other marine services

  • Other marine services. This segment comprises bulk cargo carriers and seismic vessels. As of June 30, 2020, this segment’s fleet consisted of 2 dry cargo bulkers with a total capacity of 149,077 DWT and 2 chartered in seismic research vessels, and the segment accounted for 1% of the Group’s fleet net carrying value as of June 30, 2020.

The Group specializes in providing services in harsh environments and ice water conditions with fleet vessels, management systems and personnel specialized in operating in such conditions and is a provider of critical infrastructure in the form of a floating pipeline for global energy suppliers to connect to their customers. A substantial portion of the Group’s fleet consists of vessels with ice class notations, spread across each of the Group’s operating segments. These vessels, which are designed to perform in and withstand harsh weather and ice water conditions and are customized to their specific operating environment, provide services primarily along the harsh environment trade routes of the Baltic, Russian and Canadian Arctic and sub Arctic regions and the northern Far East of Russia.

Since 2005, the Group has shifted its strategy from that of a pure tanker business and expanded into the industrial solutions space, providing critical infrastructure for global energy suppliers to connect to their customers. For the six months ended June 30, 2020, 52.2% of the Group’s TCE revenues were generated by the conventional shipping business, 43.7% by the industrial business and 4.1% by other marine services. The Group has also expanded significantly through organic fleet growth, which is ongoing. As of August 31, 2020, the Group had 24(7) additional vessels in the orderbook (1 of which was delivered on September 14, 2020; the remainder are expected to be delivered as follows: 1 within the next six months, 5 in 2022, 7 in 2023, and 10 in 2024 to 2025).

7 - 14 of the 24 vessels ordered by JVs.

Group Strategy

  • Maintain the Group’s status as a “preferred carrier” for leading international and national energy companies by focusing on high quality service while maintaining strong brand recognition associated with quality and safety.
  • Maintain the Group’s leading position in the export of Russian hydrocarbons.
  • Expand its industrial business. 
  • Develop as an integrated offshore upstream services provider with a specific focus on operating in harsh environments and the ice water conditions of the Arctic and sub-Arctic regions.
  • Strengthen the Group’s market positions by renewing and selectively expanding its fleet.
  • Focus the Group’s investment policy on the needs of core Russian and international oil and gas clients.
  • Increase the environmental sustainability of the fleet and the Group by ensuring the reliability and environmental safety of services rendered.

***

The contents of this announcement have been prepared by and are the sole responsibility of the Company.

The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed by any person for any purpose on the information contained in this announcement or its accuracy, fairness or completeness.

This announcement may include statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “will” or “should” or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections, guidance and other forward-looking statements will not be achieved. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.

Subject to their legal and regulatory obligations, neither the VTB Capital plc, Citigroup Global Markets Limited, Merrill Lynch International, J.P. Morgan Securities plc, JSC Sberbank CIB or Sberbank CIB (UK) Limited (together, the “Joint Global Coordinators and Joint Bookrunners”), the Company, nor any of their respective agents, employees or advisors intend or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this document to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

In no circumstances shall the provision of this document imply that no negative change may occur in the business of the Company after the date of provision of this document, or any date of amendment and/or addition thereto.

The information contained in this announcement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of any securities of the Company in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any jurisdiction.

This announcement is not for publication or distribution, directly or indirectly, in or into the United States, Australia, Canada or Japan. The distribution of this announcement may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement does not constitute an offer of securities to the public in the United Kingdom. No prospectus has been or will be approved in the United Kingdom in respect of the Shares.This announcement is only addressed to and is only directed at persons in member states of the European Economic Area (the “EEA”) who are “qualified investors” within the meaning of Article 2(e) of Regulation (EU) 2017/1129 (such Regulation, together with any applicable implementing measures in the relevant home Member State under such Regulation, the “Prospectus Regulation”) (“Qualified Investors”). In the United Kingdom, this announcement is being distributed to, and is only directed at, Qualified Investors (i) who have professional experience in matters relating to investments falling within the definition of “investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “FPO”), (ii) who fall within Article 49(2)(a) to (d) of the FPO or (iii) to whom it may otherwise lawfully be communicated (all such persons being together referred to as “Relevant Persons”). This announcement and information contained herein must not be acted on or relied upon (a) in the United Kingdom, by persons who are not Relevant Persons, and (b) in any member state of the EEA other than the United Kingdom, by persons who are not Qualified Investors. Any investment or investment activity to which this announcement relates is available only to (i) in the United Kingdom, Relevant Persons and (ii) in any member state of the EEA other than the United Kingdom, Qualified Investors, and will be engaged in only with such persons.

Investors should not subscribe for or purchase any Shares referred to in this announcement except on the basis of information in the offering memorandum that may be published by the Company (the “Offering Memorandum”). The information in this announcement is subject to change.

The information contained in this announcement does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities in the United States, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Under the U.S. Securities Act of 1933, as amended, securities may not be offered or sold in the United States absent registration or an exemption from registration. SCF does not intend to register any portion of the Offering in the United States, Australia, Canada or Japan or to conduct a public offering of the Shares in the United States, Australia, Canada or Japan. Subject to certain exceptions, the Shares referred to herein may not be offered or sold in Australia, Canada or Japan or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada or Japan.

The Joint Global Coordinators and Joint Bookrunners are acting exclusively for the Company and no-one else in connection with the Offering. They will not regard any other person as their respective clients in relation to the Offering and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, nor for providing advice in relation to the Offering, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

The date of the admission of the Shares to trading on the Moscow Exchange (“Admission”) may be influenced by factors such as market conditions. There is no guarantee that Admission will occur, and you should not base your financial decisions on the Company’s intentions in relation to Admission at this stage. Acquiring investments to which this announcement relates may expose an investor to a significant risk of losing all of the amount invested. Persons considering making such investments should consult an authorized person specializing in advising on such investments. This announcement does not constitute a recommendation concerning the Offering. The value of shares can decrease as well as increase. Potential investors should consult a professional advisor as to the suitability of the Offering for the person concerned.

In connection with the Offering, any of the Joint Global Coordinators and Joint Bookrunners or any of their respective affiliates, may take up a portion of the Shares in the Offering as a principal position and in that capacity may retain, purchase, sell, offer to sell for their own accounts such Shares and other securities of the Company or related investments in connection with the Offering or otherwise. Accordingly, any references in the Offering Memorandum, if published, to the Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any offering or placement of securities to any of the Joint Global Coordinators and Joint Bookrunners and any of their respective affiliates acting in such capacity. In addition, any of the Joint Global Coordinators and Joint Bookrunners and any of their respective affiliates may enter into financing arrangements (including swaps, warrants or contracts for differences) with investors, in connection with which any of the Joint Global Coordinators and Joint Bookrunners and any of their respective affiliates may from time to time acquire, hold or dispose of Shares. The Joint Global Coordinators and Joint Bookrunners do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so.

None of the Joint Global Coordinators and Joint Bookrunners or any of their respective directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for or makes any representation or warranty, express or implied, as to the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to the Company, its subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection therewith.