Hapag-Lloyd sees credit rating fall

10/8/2012

Shipping line Hapag-Lloyd has had its credit rating lowered after fears that it will report weaker profitability and cash flow than expected.

Standard & Poor’s (S&P) Ratings Services has downgraded the line, currently involved in a debt-funded fleet expansion programme, from BB- to B+.

Hapag-Lloyd told Lloyd’s Loading List.com: “The step was taken in response to the persistently difficult business environment in the liner shipping industry – it’s an adjustment of our rating to reflect the market environment.”

 S&P said the downgrade reflected its view that Hapag-Lloyd “will report weaker profitability and cash flow than initially anticipated in 2012”.

Combined with the debt-funded fleet expansion, this would likely lead to a further deterioration in cash flow protection measures, which S&P estimates will fall short of the levels it considers commensurate with the BB- rating.

S&P said: “We have revised our base-case forecasts for Hapag-Lloyd in 2012 and 2013, given the weak industry outlook. We now estimate that Hapag-Lloyd’s credit ratios will deteriorate in 2012 to levels that are weak, even for the current B+ rating. Cash flow measures should, however, rebound in 2013, which we consider to be consistent with the B+ rating.

“S&P believes that the pace and magnitude of a rebound in Hapag-Lloyd’s credit measures remains uncertain and vulnerable to weak market prospects, owing to structural overcapacity and the slowing pace of expansion of the global economy, aggravated by persistently high bunker fuel prices.”

It added that it would consider another downgrade, “if, for example, Hapag-Lloyd experiences a stronger-than-anticipated contraction in transported volumes and is not able to sustainably raise freight rates to recover the inflation in bunker prices that we currently anticipate. If this occurred, it would hinder the rebound we currently expect in the company’s cash flow generation in 2013, and weaken its liquidity position.”

A spokesperson for the line told Lloyd’s Loading List.com: “For Hapag-Lloyd, the next large credit renewal (where the rating is important) will be our Euro bond, which is due in October 2015 only. That’s still quite some time to go and the company will see how the liner shipping markets are then.”

The spokesperson said the line had “a solid liquidity reserve of well over €500 million”, which included undrawn credit lines. 

The carrier still has eight 13,200teu newbuildings to be delivered, to follow the two which entered service this summer.

“Long-term financing has already been secure for all newbuildings in the orderbook and all the investments in containers, which have been made and are planned,” said the spokesperson.