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S&P confirms Hapag-Lloyd’s credit rating

Standard & Poor’s confirmed Hapag-Lloyd’s B+ credit rating in the wake of its merger with United Arab Shipping Co., and removed the German shipping company from its CreditWatch.

   Rating agency Standard & Poor’s (S&P) confirmed Hapag-Lloyd’s B+ credit rating, and removed the German shipping company from its CreditWatch in the wake of its merger with United Arab Shipping Co. (UASC), which was completed last month.
   Hapag-Lloyd was also upgraded to “outlook negative.”
   The merger with UASC did add debt to Hapag-Lloyd’s capital structure, but Hapag-Lloyd said that “due to the acquired ships and containers of UASC, no bigger investments are planned in the next few years.” Therefore, more cash flow should be available for repayment of debt and deleveraging, Hapag-Lloyd explained.
   S&P did recognize the competitive advantages of the merger, such as Hapag-Lloyd’s larger size and capacity, an enhanced network diversity, and access to a young fleet.
   “Hapag-Lloyd has demonstrated its ability to integrate acquired businesses and extract synergies, for example, after the 2014 takeover of the container liner shipping activities of Chile-based Compañía Sud Americana de Vapores S.A. (CSAV), which underpins our rating action,” S&P said.
   “We are proud that our rating has remained unchanged after the merger with UASC which is an important milestone for Hapag-Lloyd. The rating confirms the strong industrial logic of the merger,” Hapag-Lloyd CFO Nicolás Burr said. “Now we are better positioned for this rapidly consolidating industry and still challenging market environment.”
   Looking ahead, Hapag-Lloyd plans to realize $435 million in annual synergies starting in 2019 from the merger.
   The primary areas to realize synergies in liner shipping mergers are always network and procurement, Rainer Horn, director of public relations at Hapag-Lloyd told American Shipper.
   Hapag-Lloyd’s synergies will mainly be derived from network effects, since using bigger ships will reduce the transport costs per unit; procurement effects, as larger volumes and contracts will lead to lower costs; and equipment effects, with reduced imbalances in transport volumes between markets resulting in less empty containers being transported and relocated, he explained.
   Hapag-Lloyd said it has a “solid financial structure,” including a liquidity reserve of $1.2 billion (including undrawn credit lines). A cash capital increase of $400 million is planned within six months from the merger’s closing date, which took place on May 24, and is backstopped by a group of Hapag-Lloyd’s shareholders.