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    -0.1%
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    0.040
    0.2%
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    280.700
    1.8%
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    0.070
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    1.8%
  • OTLT.USA
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    -0.002
    -0.1%
  • OTRI.USA
    19.840
    0.040
    0.2%
  • OTVI.USA
    15,608.360
    280.700
    1.8%
  • TSTOPVRPM.ATLPHL
    2.890
    0.070
    2.5%
  • TSTOPVRPM.CHIATL
    3.540
    -0.040
    -1.1%
  • TSTOPVRPM.DALLAX
    1.290
    0.030
    2.4%
  • TSTOPVRPM.LAXDAL
    3.660
    0.010
    0.3%
  • TSTOPVRPM.PHLCHI
    2.360
    0.030
    1.3%
  • TSTOPVRPM.LAXSEA
    4.100
    0.080
    2%
  • WAIT.USA
    129.000
    2.000
    1.6%
American ShipperShipping

Drewry expresses concern over Yang Ming’s high debt

Yang Ming responded by saying it has unwavering support of Taiwan’s government and has “proactively reorganized internally to effectively reduce its operating costs.”

Source: Sheila Fitzgerald/Shutterstock
Yang Ming has accumulated distributable losses of NTD 38.4 billion since 2009

   A report issued Thursday by the investment research arm of Drewry on container shipping company Yang Ming Marine Transport Corp. (YMM) expressed concern about the Taiwan-based company’s high level of debt.
   “YMM’s high debt is a great cause for concern for us given the
heightened financial risks. Even with recovery in the underlying freight
market, the debt burden without a restructuring is a red flag and a
clear sell signal for us. We see YMM as an apt candidate for a
government-backed shareholder bailout,” according to the report from
Rahul Kapoor, director of Drewry Financial Research Services, and Nilesh
Tiwary, lead analyst, container shipping at the company.
   Yang Ming responded to the report today in a customer advisory that said while it “has not been immune to the ongoing challenges the entire shipping industry has experienced this past year” it has “proactively reorganized internally to effectively reduce its operating costs.”
   Yang Ming said it stands apart from many of its competitors. First, Yang Ming’s majority ownership interest, unlike that of its competitors, is held by the Ministry of Transport and Communication (MOTC) of the Republic of China (Taiwan). In fact, Yang Ming is one of a few global common carriers that can claim a close relationship with a national government. Second and equally important, Yang Ming has full access to staunch government-backed funding for approximately U.S. $ 2 billon.”
   It explained that “Yang Ming is one of the few carriers that has access to this vast support” that was announced by the Taiwan government in November.
   “Finally, Yang Ming has not approached its creditors with any demands to restructure any part of its debt and does not have any intention to do so going forward. Yang Ming is not in default of any of its obligations whatsoever and any suggestions otherwise are patently false,” the carrier said.
   “It is inaccurate to compare Yang Ming with other carriers in view of Yang Ming’s ownership structure and the unwavering support from the government of Taiwan,” the carrier added.
   According to Yang Ming’s most recent annual report, the company, established in December 1972, was majority owned by the MOTC until Feb.15, 1996 when MOTC reduced its holdings when Yang Ming was listed on the Taiwan Stock Exchange. The percentage of ownership on Dec. 31, 2015 was 33.31 percent with half of the directors appointed by the MOTC.
   The comments from Drewry came, even as Yang Ming’s stock price has climbed. Yang Ming’s stock price increased about 20 percent between Dec. 29, 2016 and Thursday, rising from 4.66 New Taiwan Dollars (U.S. $0.15) to NTD 5.58, though it remains well below its 52-week high of NTD 9.95.
   Drewry said the carrier’s net gearing totaled 437 percent at the end of the third quarter of 2016, much higher than the industry average of 124 percent, Drewry said. It explained that net gearing is a ratio of net debt to shareholders equity. Net debt is a company’s overall debt situation by netting the value of a
company’s liabilities and debts with its cash and other similar liquid
assets.
   “YMM’s high debt is a great cause for concern for us given the heightened financial risks. Even with recovery in the underlying freight market, the debt burden without a restructuring is a red flag and a clear sell signal for us. We see YMM as an apt candidate for a government-backed shareholder bailout,” according to the report from Rahul Kapoor, director of Drewry Financial Research Services, and Nilesh Tiwary, lead analyst, container shipping at the company.
   In an email to American Shipper, Kapoor said Drewry did not want to sensationalize Yang Ming’s financial situation, saying the article “is an investment research report and we are asking investors to stay away given very high debt. What we are highlighting is the high debt levels at the company and how in absence of bringing the debt levels down, the profitability is unlikely to return. By no means are we implying YMM as the next Hanjin,” the Korean carrier that filed for bankruptcy last year.
   “We do not think Yang Ming is in a similar situation, but we are worried about the company’s debt metrics,” Drewry said. However, Kapoor said after the financial restructuring of the other Korean carrier, Hyundai Merchant Marine, by its lenders, “YMM now has the most leveraged balance sheet in the industry. The debt at the company has continued to climb in the recent quarters.”
   Drewry said the Taiwanese government is the largest single shareholder in Yang Ming.
   “We believe the company will continue to be supported from the government should its financial conditions worsen and do not see a solvency event for the company,” Drewry said. “YMM will however have to raise cash through a combination of asset sales, sale-leasebacks, fresh equity and bring the debt levels down.”
   The Taiwanese government will need to support the debt-ridden company, Drewry said, noting Yang Ming has accumulated distributable losses of NTD 38.4 billion since 2009. The company had total losses of NTD 13.02 billion for the first three quarters of 2016.
   Lawmakers at the legislature’s Transportation committee in Taiwan recently asked the MOTC to consider merging Yang Ming and Taiwan International Port Corp. (TIPC) amid the global shipping industry’s recession, Drewry said. One of the legislators from the Democratic Progressive Party, Chen Oupo, expressed his displeasure against the government’s plan to offer Yang Ming a NTD 60 billion loan, and proposed the company merge with another government entity such as TIPC, while ruling out fellow Taiwanese shipping company Evergreen Marine.
   “According to him, a merger between two government entities is more viable than a merger between a government and a private entity,” Drewry said.
   However, according to a report from Reuters, Yang Ming Chairman Bronson Hsieh said at a media event Wednesday, “A merger has never been an option for Yang Ming, and it won’t be. Over the past 10 years, the five shippers with the highest profit margins have been smaller players. Smaller companies do not necessarily have to be merged.”
   According to the Taipei Times, Hsieh said the shipping industry is expected to see lower growth than expected, 3.4 percent this year compared to earlier estimates of 4.8 percent.
   The paper reported that with demand growth holding steady at 1.6 percent, Hsieh anticipates freight rates will recover.
   Drewry noted that Yang Ming has reduced expenses by announcing in November that employees would take steep pay cuts – 30 percent for “first line managers” and 50 percent for executives.
   In addition, Drewry said Yang Ming implemented new guidelines to achieve more nimble operations and more stringent cost controls.
   Under the new guidelines:
     • The company’s vessels would no longer take on loss-making shipments, and would charge demurrage and docking fees;
     • The company would try to prevent delays and improve its logistics center’s capabilities;
     • And the company plans to establish an information system that would provide real-time operating data among its partners and subsidiaries across the globe as well as the head office.

Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.

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