[171216.EN.BIZ] Maersk to Lower Capital Expenditure in a Bid to Improve Rating

DANISH business conglomerate A P Moller-Maersk may consider selling assets or cutting dividends as it seeks to retain its credit rating, the company said.

Maersk's Baa1 credit rating was put under review for a downgrade by Moody's in September, after it announced it would split up the company to focus on the shipping business and spin off its energy assets, The Maritime Executive reported.

Last month, Standard & Poor's lowered the company's credit rating to BBB from BBB+ with a negative outlook.

"We would like to send a very clear message today that we are committed to remain investment grade rated," chief executive Soren Skou told investors at its capital markets day in Copenhagen recently.

Cheap financing was a key argument of having a diversified business, but as the conglomerate is split up, it also becomes more exposed to the cyclical changes in the shipping industry.

Mr Skou said the company aimed to reduce capital expenditure in its transport and logistics division from around US$6 billion this year to $5.5 billion next year and $4 billion in 2018, while keeping new investments in its energy business at a minimum.

Maersk's energy business accounted for more than one-third of the company's EBITDA in the first nine months of the year.

"If it becomes necessary, we will also look at divestments and other cash flow enhancing measures," Mr Skou said.

"Finally, our board will also consider the dividend in line with our policy," he said, noting that Maersk last reduced annual dividends to shareholders in 2009.

Maersk also pointed out that it is targeting return on invested capital in its transport and logistics business at above 8.5 per cent while at the same time growing revenue.

In its first major deal since the restructuring was announced in September, Maersk said this month it would buy German rival Hamburg Sud in a cash deal, although it did not disclose the value of the deal. Hamburg Sid is the world's seventh largest container shipping line and a leader in the North–South trades. The company operates 130 container vessels with a container capacity of 625,000 TEU.

The acquisition of Hamburg Sud will replace some 60 per cent of revenue lost when A P Moller-Maersk spins off its energy division, the head of the Danish company said.

The energy division, which includes exploration and production, tankers and drilling, made up a quarter of Maersk's revenue last year, around $9.8 billion.

In comparison, Hamburg Sud had revenue of around $6 billion. "We intend to replace that lost turnover quickly through organic and inorganic growth," Mr Skou said, noting that Hamburg Sud's revenue last year totalled some 15 per cent of Maersk's total revenue.

With the acquisition, Maersk Line will have container capacity of around 3.8 million TEU and an 18.6 per cent global capacity share. The combined fleet will consist of 741 container vessels with an average age of 8.7 years.

Source : HKSG.