Maersk’s outlook changed from positive to stable

Denmark-based shipping and oil company A.P. Møller-Mærsk had its outlook changed from positive to stable on the Baa1 issuer rating and Baa1 senior unsecured ratings, according to Moody’s rating agency.

“Our decision to change the outlook to stable from positive primarily reflects the challenging market conditions affecting most of Maersk’s business units, particularly its two largest, Maersk Line and Maersk Oil,” says Marie Fischer-Sabatie, a Moody’s Senior Vice President and lead analyst for the issuer.

The world’s largest container shipping company, Maersk Line, has been affected in the second half of 2015 as the company’s average freight rates dropped by 16% between 2014 and 2015. This resulted in a revenue drop of 13%, which was only partly offset by lower costs, pushing Maersk Line’s EBITDA down by 21%.

Maersk’s oil and gas company Maersk Oil has reported a sharp decline in its profits on the back of the lower oil price, which averaged USD 52 per barrel for Maersk Oil in 2015 compared to USD 99 per barrel in 2014.

While Maersk’s 2015 performance and credit ratios continued to position the group comfortably within its rating category with leverage at around 1.8x, Moody’s expects that the group’s financial profile will weaken in 2016. Maersk said that it expects an underlying result significantly below last year’s USD 3.1bn across its branches. Gross cash flow used for capital expenditure is expected to be around USD 7bn in 2016.

The rating agency bases this forecast on its projection of average oil prices of around USD 33 per barrel in 2016, a continued decline in freight rates for container shipping and low single-digit volume growth in percentage terms.

The rating agency said that Maersk’s credit ratios will be weak for its rating category in 2016, but will gradually recover in the following 12-18 months to levels in line with its current Baa1 rating.