Bloomberg News

World’s Biggest Shipping Line Raises Bond Target: Nordic Credit

September 27, 2013

Maersk’s Majestic Maersk Triple E Class Ship

Shipping containers stand illuminated at night on the prow of the Majestic Maersk Triple E class ship, one of the world's largest vessels, operated by A.P. Moeller-Maersk A/S at Langelinie pier in Copenhagen. Photographer: Freya Ingrid Morales/Bloomberg

A.P. Moeller-Maersk A/S (MAERSKB), owner of the world’s biggest shipping line and Europe’s erstwhile largest issuer of unrated debt, will use the credit ratings it got this week to raise bond sales as it targets the dollar market.

“We will increase the number of bonds we issue going forward,” Maersk Chief Financial Officer Trond Westlie said yesterday in an interview in Copenhagen. “We’re a company that mainly deals in dollars so it makes a lot of sense for us to be able to issue dollar bonds. The credit rating gives us access to the dollar market and gives us lower funding costs in general.”

Yields on Maersk bonds plunged to their lowest in more than a year yesterday after Denmark’s biggest company hired Moody’s Investors Service and Standard & Poor’s to grade its debt. Moody’s assigned the company a Baa1 rating, while S&P gave Maersk’s bonds a similar BBB+ grade. Both ratings carry stable outlooks.

Maersk’s shipping unit, a bellwether for global trade demand, reported rising profits last month and raised its full-year forecast as cost cuts countered a decline in freight rates. The company is adjusting to five years of overcapacity after a boom in ship orders collided with the global financial crisis, triggering a record slump in freight demand. Chief Executive Officer Nils Smedegaard Andersen has said a U.S. recovery will support the shipping industry as European demand remains weak.

Being Opportunistic

Maersk’s plan to focus on dollar bonds will still leave space for debt sales in other currencies, depending on where the company can get the best financial result, Westlie said.

“We will be opportunistic when we issue and will consider all the currencies we can,” he said.

The yield on Maersk’s 500 million-euro ($675 million) 4.375 percent bond due 2017 sank to 1.66 percent yesterday, driving the bond to its highest price since it was first sold in November 2010, according to data compiled by Bloomberg. The spread relative to the interpolated government curve narrowed to 109 basis points from 139 basis points a day earlier. The yield fell to 1.63 percent today.

Though Danske Bank A/S (DANSKE) and SEB AB give Maersk an A- shadow rating, Westlie said the company is “comfortable” with the grades it received at S&P and Moody’s. “It’s not uncommon that actual ratings are one step lower than shadow ratings,” he said.

Buy Recommendation

Danske Bank is advising clients to buy Maersk bonds after the ratings were assigned.

“We expect the bonds to tighten further due to the inclusion in various indices and the fact that the bonds will now be accessible to investors that have not been able to invest in unrated names,” Danske analysts Brian Boersting and Jakob Magnussen said in a note. “Our view is supported by the solid financial metrics for the current BBB+ rating, and potential upward rating pressure on an 18-24 month horizon.”

Maersk said Aug. 16 that costs declined 12.7 percent last quarter at its container shipping unit, which transports about 15 percent of the world’s seaborne trade. In the first quarter, unit costs dropped 7.1 percent. Maersk Line reported a doubling of second-quarter net income to 2.5 billion kroner ($452 million) even as revenue declined 10 percent.

The company’s “very competitive cost base” will boost earnings over the next three years, Goldman Sachs Group Inc. said in a note this month as it recommended investors buy Maersk shares. The stock has gained about 22 percent this year.

Beating Governments

Maersk’s 2017 note has returned 2 percent this year, compared with a 1.4 percent loss on Danish government bonds maturing in three to five years. Similar-maturity German notes lost 0.5 percent in the period.

Maersk’s net interest-bearing debt declined to 76.7 billion kroner at the end of June from 91.7 billion kroner a year earlier, according to the Aug. 16 report. The company, which also owns an oil unit, a drilling division and a supermarket chain, said liquidity reserves, which include undrawn revolving credit facilities and cash, rose to 81.4 billion kroner from 61.8 billion kroner over the same period.

Bonds make up about 28 percent of Maersk’s gross debt, CFO Westlie said. “That ratio will now go up, but I can’t give a specific percentage for next year or the year after,” he said.

Maersk, which in 2009 entered the debt market with a strategy to issue one new bond every year, has nine notes outstanding, denominated in British pounds, euros, Norwegian kroner and Swedish kronor.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editors responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net; Daniel Tilles at dtilles@bloomberg.net


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