Ratings agency Moody's is considering downgrading NYK's issuer rating over debt concerns.
Moody's Japan vice president Motoki Yanase said: "We expect NYK's leverage will likely stay at its high level of above seven times for the next several years and surpass our downgrade trigger of 6.5 times."
Moody's said the debt to EBITDA ratio does not appear likely to improve materially without substantial efforts to reduce debt.
It does expect the ONE containership operation formed with compatriots K Line and MOL to result in some cost savings and margin improvements, however.
"The deconsolidation of this long-unprofitable business will temper NYK's earnings volatility, though it will take time to bear out its effect on its credit metrics," it added.
But Moody's expects NYK, as the largest 38% shareholder of ONE, to remain exposed to the credit risks originating from the containership business.
"The ONE-related assets and liabilities will remain on NYK's balance sheet, since NYK will on-lend containerships to ONE until the existing leasing contracts with their shipowners expire. NYK expects that its revenue for the fiscal 2018, after the deconsolidation of containership business, will decline by approximately 20%," it added.
Review to focus on debt
The rating is currently Baa3.
The review of this will focus on NYK's plan to manage future debt, including how this could be managed with asset sales and vessel turnover in the next several years; and the progress of the ONE integration and associated cost savings.
It will also consider how the company's other businesses, such as bulkers, tankers and car carriers, will fare and help support NYK's future profits.
A downgrade is possible if there is little prospect of deleveraging, it said.
It added: "Given the review for downgrade, an upgrade is unlikely in the foreseeable future until Moody's sees signs of material deleveraging and growth in profit and cash flow and ONE establishes a profitable track record."
