CMA CGM close to downgrade by Moody's

Date: Thursday, April 2, 2020
Source: Shipping Watch

The coronavirus' impact on the global container market makes Moody's doubt whether CMA CGM can maintain its rating. It looks more serious than the bureau's outlook for Maersk and Hapag-Lloyd.

French container shipping line CMA CGM risks losing its current credit rating from Moody's as a consequence of the escalating corona crisis.

In a review of the company, Moody's puts its current B2 rating on review for downgrade.

The update comes not long after the two competitors Maersk and Hapag-Lloyd had their outlooks changed from stable to negative, though this marks a less drastic downgrade.

Moody's told ShippingWatch a few weeks ago that the initiatives the shipping line had implemented to strengthen its capital base were not necessarily sufficient, and that the coronavirus situation would make it difficult for CMA CGM if it is not quickly contained.

The bureau writes more or less the same today.

"Moody's notes positively the recent progress on the terminal sale and successful extension of USD 535 million of RCF lines. Nevertheless, Moody's views CMA CGM's capital structure as too weak for the current B2 rating,especially factoring in the negative effects on volumes but potentially also on freight rates," writes the credit rating bureau.

Should issue new shares

Moody's says that the shipping company needs to strengthen its capital, for instance by issuing new shares and thus getting a better liquidity as buffer for the effect of the coronavirus.

Furthermore, Moody's noted that Ceva Logistics, which CMA CGM acquired in late 2018, could also need to strengthen its cash holdings so as not to end up breaching its covenants. And the bureau also projects that the sliding demand could result in lower rates, and the ability to void sailings thus becomes important.

On Wednesday this week alone, the major shipping lines voided more than 12o sailings on the main container routes, a number that had tripled in just a few days, and which was developing continuously.

In February Moody's changed its outlook for CMA CGM to "negative" from "stable", citing the conditions for the French's liner company's shipping activities and logistics business. Following the acquisition of Ceva Logistics, the logistics business has made several rating bureaus take a more critical view of CMA CGM, as it gave the company a very high debt.

"If coronavirus was restricted to one quarter, it would be another matter. Now, what we are seeing is that this is turning into an issue not only for China. Right now we are on the brink of a completely different situation where it is difficult to say what will happen to the demand. However, I would not be surprised if the container market will stay either flat or decrease this year," Moody's analyst Daniel Harlid told ShippingWatch on March 18.

In a comment to ShippingWatch, CMA CGM Chief Financial Officer Michel Sirat said that the reality for the company today is that the debt is manageable, and that the company has a strong liquidity.


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