Hapag-Lloyd Rating Upgraded After UASC Merger

Hapag-Lloyd ship

By The Maritime Executive 06-28-2017 08:31:47

Rating agency Standard & Poor has upgraded its rating of Hapag-Lloyd after the container shipping company's merger with United Arab Shipping Company (UASC.)

The ratings company confirmed Hapag-Lloyd’s B+ rating and has taken the company off its CreditWatch list with future negative implications. Hapag-Lloyd was upgraded to Outlook Negative. 

The merger with UASC, completed in May this year, involves the operations of all 45 UASC services and 58 UASC vessels being fully integrated into Hapag-Lloyd's service routes this year.

The merger added debt to Hapag-Lloyd’s capital structure. However, as a result of the acquired ships and containers, the company does not plan to make further large investments over the next few years, and this should allow more cash flow for repayment of debt and deleveraging. 

“The company should be able to maintain credit ratios we consider commensurate with the current rating in 2017-2018,” Standard & Poor’s wrote in its Research Update. The rating agency also acknowledged the competitive advantages of the merger with UASC such as Hapag-Lloyd’s larger size and capacity, an enhanced network diversity and access to a young fleet. 

Standard & Poor stated: “Hapag-Lloyd has demonstrated its ability to integrate acquired businesses and extract synergies, for example, after the 2014 takeover of the container liner shipping activities of Chile-based Compañía Sud Americana de Vapores S.A. (CSAV), which underpins our rating action.”

The rating confirms the strong industrial logic of the merger, said Nicolás Burr, CFO of Hapag-Lloyd. “Now we are better positioned for this rapidly consolidating industry and still challenging market environment.” 

Hapag-Lloyd plans to realize $435 million in annual synergies starting in 2019 from the merger and has a solid financial structure including a liquidity reserve of $1.2 billion (including undrawn credit lines), says Burr. Furthermore, a cash capital increase of $400 million is planned within six months after the closing of the merger end of May. The capital increase is backstopped by a group of Hapag-Lloyd’s shareholders.