Alphaliner: Carriers under Spotlight amid Worsening Balance Sheets

The rapid deterioration of Hyundai Merchant Marine’s (HMM) financial situation has also put the spotlight on other carriers’ balance sheets, Alphaliner says, commenting on HMM’s defaulting on the repayment of KRW 120 Bn (USD 105 million) of its publicly traded bonds due on 7 April 2016.

The defaulting triggered a downgrade of the company’s corporate bond ratings to the extremely speculative ’C’ grade by the Korean Investors Service (KIS) – its eighth successive credit rating downgrade since 2013.

Alphaliner claims that even industry leader A.P. Moller-Maersk was not spared as its credit outlook was revised from stable to negative by the rating agency Standard & Poor’s (S&P) in February, due to the challenging business environment.

According to S&P, the container shipping industry “is up against very difficult industry conditions due to capacity oversupply”, as weak freight rate conditions are expected to strain Maersk’s current ‘BBB+’ investment grade credit rating.

S&P has also lowered CMA CGM’s corporate credit rating from ‘B+’ to ‘B’ with a negative outlook on 1 April 2016. The downgrade reflects S&P’s expectation that CMA CGM will “see constrained earnings, owing to the depressed conditions in container shipping” together with the risks posed by CMA CGM’s planned acquisition of Singapore-based NOL, as well as further fleet expansion that is expected to weaken the company’s liquidity position, Alphaliner added.

Several carriers are also taking significant impairment losses on the values of their shipping assets. MOL will recognise an extraordinary loss of USD 1.65 bn in the last quarter of its fiscal year ending March 2016, of which USD 573 million relates to the impairment loss of its container shipping assets and K Line also expects to record a USD 462 million extraordinary loss from structural reforms.