Moody’s has expressed concerns about the level of debt at two of Japan’s largest public shipowners – Mitsui OSK Lines (MOL) and NYK.
As a consequence it has downgraded the rating of both shipowners following a review for downgrade initiated back in September 2018.
MOL has seen its corporate family rating lowered to Ba2 from Ba1, while NYK has been assigned a Ba1 corporate family rating, reflecting a one-notch lower rating than its Baa3 issuer rating.
“We expect MOL’s debt will not decline materially over the next few years and its leverage will likely remain above our downgrade guidance of 7.0x for a Ba1 rating,” said Motoki Yanase, a Moody’s vice president and senior credit officer.
The rating agency said it sees only “a limited possibility” for MOL to materially reduce its debt during the next several years.
It bases this theory on the expectation that MOL will continue to borrow to invest in its growth segments, such as offshore oil and gas infrastructure and LNG carriers.
Moody’s said it expects a “marginal improvement in profitability” over the next few years, from its growth segments, the spin-off of its volatile containership business into the Ocean Network Express (ONE) joint venture, and the gradual recovery in the market, mainly in the dry bulk and containership sectors.
However, Moody’s believes that any earnings improvement will have a “limited impact” on MOL’s ability to lower leverage, given the large size of its debt.
“Nevertheless, despite its weak credit metrics, MOL’s rating continues to be supported by its large scale, relatively diversified shipping segments, and well-established market presence,” Moody’s said.
“MOL owns a variety of ships – including bulkers, car carriers, tankers and LNG carriers – which have different business cycles and mitigate business volatility to some extent.
“These mostly unencumbered assets put the company in a better position than many of its global peers to raise funds by selling or securing assets.”
In the case of NYK, Moody’s says that even though it plans to reduce debt, its leverage in terms of debt/ebitda will “likely remain high for an investment grade rating”, above its downgrade guidance of 6.5x over the next several years.
“ NYK is seeking to reduce debt by curtailing capital expenditure and monetizing assets, but any debt reduction will likely be less than 10% during the next three years,” said Yanase.
