Moody's Changes Hapag-Lloyd to Positive
Moody’s Investors Service (Moody’s) changed the rating for German Container shipping company Hapag-Lloyd to positive from stable, thanks to cheaper fuel.
According to Moody’s the outlook on the B2 corporate family rating (CFR), the B2-PD probability of default rating (PDR) and the Caa1 senior unsecured rating of Hapag-Lloyd AG.
Concurrently, Moody's has affirmed the ratings assigned to the company, including its B2 CFR, B2-PD PDR and Caa1 senior unsecured rating.
The change in outlook to positive from stable mainly reflects the company's improved operating performance since the beginning of 2015, driven by the lower bunker fuel price.
The change in outlook also reflects structural improvements in its cost structure following a recent acquisition and the implementation of cost optimisation measures.
The change in outlook follows the announcement by Hapag-Lloyd of its intention to undertake an IPO and raise $500 million, which Moody's considers credit positive.
The change in outlook to positive from stable mainly reflects the improvement in Hapag-Lloyd's operating performance since the beginning of 2015 and Moody's view that part of this improvement is sustainable.
During H1 2015, Hapag-Lloyd reported EBITDA of EUR493 million, a significant increase from EUR67 million in H1 2014. Hapag-Lloyd, like all players in the container shipping segment, has benefitted from the sharp reduction in bunker fuel prices (approximately 50% decline since August 2014), which is correlated to and has followed the drop in oil prices.
Bunker fuel is one of the largest cost items for container shipping companies, and represented 20%-25% of their total operating costs in 2014.
In addition to the low bunker price, Hapag-Lloyd's operating performance improvement has been driven by more fundamental changes to its operations and cost structure. In December 2014, Hapag-Lloyd closed the acquisition of the container shipping activities of the Chilean company Compania Sud Americana de Vapores (CSAV).
This resulted in increased scale for the combined group and a slight reduction in fleet age, as well as cost synergies which Hapag-Lloyd now estimates to reach $400 million by 2017 vs. an initial target of $300 million. The integration of CSAV's container shipping activities has been so far implemented smoothly.
Hapag-Lloyd further expects to improve its operating efficiency through the implementation of another cost-cutting programme (Project Octave), which it projects will reduce costs by an additional $200 million in 2016.
