Troubled box line Yang Ming suspends share trading

4/24/2017

After years of losses, Taiwanese container shipping line Yang Ming yesterday suspended trading in its stocks on the Taiwanese stock exchange until 4 May, to enable it to reduce its equity capital by more than 50%.

The drastic step follows the January announcement that the Taiwanese line was pursuing a number of strategies including seeking government and private investment in a bid to recapitalise after losing more than $650 million in less than two years.

Nilesh Tiwary and Rahul Kapoor, Singapore-based analysts at Drewry, told Lloyd’s Loading List earlier today that Yang Ming’s stock trading suspension was unlikely to herald a repeat of last year’s Hanjin Shipping bankruptcy, which left global supply chains in disarray.

“We do not think this will have any knock-on effects in terms of services,” they said. “Also, on the eve of the new alliances’ network kick-off on 1 April, members of The Alliance - Hapag-Lloyd, K Line, MOL, NYK and Yang Ming - announced that they will create an independent trust fund to safeguard cargo in the event of any member lines going the same way as Hanjin.

“We do not think counter parties should be worried at this stage as we expect the Taiwanese government to intervene and bail out Yang Ming.”

Yang Ming released few details yesterday, but the rationale behind its capital reduction is to make up for its heavy previous losses. In 2016, Yang Ming lost $492 million, a result Lars Jensen, chief executive and partner at SeaIntelligence Consulting, described as “very negative”. By contrast, he pointed out that Maersk Line lost $384m and CMA CGM lost $452m over the same period but “CMA CGM is almost four times larger than Yang Ming in terms of capacity and Maersk Line is almost six times larger”.

Jensen told Lloyd’s Loading List earlier today that Yang Ming’s stock trading suspension “appears to be a move to secure some room to manoeuvre while restructuring the finances”.

He said previous indications from the Taiwanese government strongly suggested they would not let one of their main lines falter. “Furthermore, they have likely learned from the Hanjin debacle in 2016 that allowing a main carrier to falter in an uncontrolled manner is the worst outcome for all involved, and hence will likely endeavour to avoid any such outcome,” he added.

Earlier this year, Drewry declared Yang Ming the most leveraged container operator in its coverage universe after Yang Ming had issued an advisory reiterating its financial recovery plan backed by a government $1.9 billion assistance programme, and its intention to raise $54 million through a privately placed rights issue with six Taiwanese investors, including the state-owned National Development Fund of Taiwan, thereby increasing the government’s share from 33% to around 37%.

“The move was aided by cost optimisation measures including a drastic cut in wages; it slashed the pay of its senior executives by 50% and the salary of its line managers by up to 30%,” said a Drewry Maritime Financial Research note issued this morning.

However, despite taking such drastic steps, Yang Ming’s balance sheet remained “worrisome” at the end of FY16, according to Drewry, which said subsequent stock price gains had not reflected the company’s true fundamentals. 

Drewry said that in its view, and despite the current capital reduction and the government’s bailout package of US$1.9 billion, which was targeted towards rescuing the entire local industry and not just YMM, the latest measures would likely be insufficient unless YMM could raise more equity.

“Despite a better outlook for freight rates in FY17, we believe high cost structure coupled with debt burden will keep YMM in the red in 2017,” said the analyst. “Profitability can only be restored by a meaningful restructuring driven by asset sales, debt restructuring, and a large fresh capital infusion.”