[220112.EN.SEA] Moody's Downgrades Wan Hai's Credit Outlook To Negative From Stable

THE credit outlook of Taiwan-based carrier Wan Hai has been downgraded to negative from stable by Moody's Investors Service because of declining freight rates, high oil and the company's growing debt combined with the delivery of new ships.

"The negative outlook reflects Moody's concerns that depressed freight rates and high bunker costs will continue to weigh on Wan Hai's profitability and operating cash flow in 2012," said Moody's vice president and senior analyst Jonathan Lee.
Moody's said Wan Hai's profit margin in 2012 will drop to 10 per cent from 26.5 per cent in 2010, reported London's Containerisation International, adding that the carrier's operating cash flow will fall to NT$5.4 billion (US$180 million) from NT$10 billion in 2010.

Wan Hai debt levels are also expected to remain high as the company receives 12 new ships over the next 18 months, raising indebtedness to NT$68.9 billion, said Mr Lee.

"This increase, combined with the decline in EBITDA (earnings before interest, taxes, depreciation, and amortisation), will result in a net adjusted debt leverage of 6.2 x, which would be very high for the Ba3 rating."

Yet Moody's applauded Wan Hai for its good job in running the business with a sound liquidity position and remarkable operational and financial management, as well as its ability to curtail chartering and container leasing to curb deeper debt.

Moody's said it believes Wan Hai is able to further "reduce part of the increased costs through rationalising its charter fleet and cost structure, such as by slot swapping with its alliance partners and by maintaining a high level of liquidity".

The rating agency also said Wan Hai has maintained its leading position in the intra-Asia trade lane. But as the intra-Asia liner market is likely to face more pressure, Moody's said it would continue to monitor quarterly results. "In case its performance is much weaker than expected, the ratings could come under further downgrade pressure."

Given the outlook, Moody's said a rating upgrade is unlikely in near term. But Wan Hai's outlook could return to stable if it can regain operating profitability and improve its financing capability.

Wan Hai runs 78 containerships, 61 of which are owned and 17 are chartered. It focuses on the intra-Asia trade lane, covering Taiwan, Japan, China, Korea and ASEAN countries.

Source : HKSG, 13.01.12.