Moody‘s Investors Service has today downgr[ds_preview]aded the rating of Denmark-based shipping and oil company A.P. Møller-Maersk A/S to Baa2 from Baa1, moving it two rungs away from losing its investment grade.
»The downgrade reflects our expectation of reduced diversification following the results of the strategic review, as well as the deterioration in Maersk‘s credit profile amidst weak market conditions particularly in container shipping and drilling, which we do not anticipate to be reversed shortly,« said Maria Maslovsky, Moody‘s Vice President and lead analyst for Maersk. »In addition, significant uncertainties associated with the execution of the strategy of separating the energy businesses, especially the final capital structure of the transportation and logistics business, are encapsulated in the negative outlook.«
The downgrade reflects Moody‘s expectation that the Møller-Maersk Group will become much less diverse with the separation of its energy businesses as anticipated in the results of its strategic review and discussed at the recent capital markets day.
Møller-Maersk expects to focus on its transportation and logistics division incorporating Maersk Line, the global leader in container shipping which will grow with the Hamburg Sud acquisition, APM Terminals, a top five terminal operator, Damco, a logistics provider with a growth potential, as well as Svitzer and Maersk Container Industry.
Maersk‘s strategy is to capitalize on the synergies between these businesses which have previously been operated as independent profit centers to create a global leader in the transportation and logistics space. While Moody‘s acknowledges the strong position and growth potential of the transportation and logistics business, it also recognizes that with the separation of the energy division the company‘s operations will be less diverse and potentially less protected from a downturn in its end markets.
The downgrade further reflects Maersk‘s deteriorating credit profile with leverage measured as debt/EBITDA climbing to 2.5x for the last twelve months to September 2016, above Moody‘s downgrade benchmark of 2.25x.
Moody‘s further expects this metric to weaken in 2017 as the contract coverage declines in the drilling segment, the expectation that container freight rates may take some time to recover and incremental leverage from the potential acquisition of Hamburg Sud.
