Financial stress may not be spread evenly as container rates fall
After experiencing difficulties in 2009 and 2010, a number of the usual suspects are again suffering from either a shortage of capital or a loss of faith in their debt.
For example, CMA CGM is struggling in the bond markets. The value of its debt is trading at less than half of its face-value and the news-wire Bloomberg is reporting that the spreads on its credit default swaps have rocketed.
Superficially things are not that bad. In the first half of the year CMA CGM reported container volumes up 9% and revenue up 8%; although profits fell heavily on a year-on-year basis. The company may have debts of $5.3bn (€3.7bn) but has approximately $600m (€4.2m) in cash on its balance-sheet.
What is spooking investors is the continuing fall in container freight rates. This has been consistent rather than spectacular, yet no- less threatening. It raises the prospect that companies such as CMA CGM will be unable to trade profitably or even cover the interest on their debts.
While not unrealistic, it is still a somewhat pessimistic opinion. Although the container market is clearly over-supplied in the short-term, CMA CGM is a big player with access to the sort of economies of scale that may be decisive in terms of longer-term survival.
CMA CGM has also demonstrated the ability to attract strategic investors, notably the Turkish Yildirim Group which has already bestowed several hundred million Euros in equity and debt. Admittedly this relationship is, as one hedge fund manager put it, "opaque". It is also unclear how deep Yildirim Group’s pockets are.
However, CMA CGM is not alone in its financial troubles. South American based container line CSAV has once again turned to its shareholders for a major equity injection worth $1.2bn and is looking for a ’strategic partner‘ for its entire container shipping business. CSAV is much smaller and suffered badly during the last shipping downturn; having to sell some of its equity to German ship owners in exchange for reducing its charter costs.
The difference between the two companies might be their respective sizes. CSAV is a mid-sized player whilst CMA CGM is comparable in size to Maersk and MSC. Even allowing for intense financial distress CMA CGM is an attractive business in terms of strategic markets.
Quelle: eyefortransport
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