PortandTerminal.com, March 8, 2020
“Indebted liner operators face their highest risk of bankruptcy than at any point in the past decade,” says consultancy firm AlixPartners and CMA CGM is highly indebted.
MARSEILLES, FRANCE – How much financial trouble is CMA CGM in right now? While the company says that it sees things returning to normal in China, investors are betting against the French group’s solvency.
Earlier this week CMA CGM told Reuters that its shipments from China are returning to normal after the coronavirus outbreak crippled traffic last month. Based on that, they said that they were forecasting the global health crisis would have a limited impact on its performance this year.
The coronavirus has caused havoc on physical supply chains and global trade, the shipping industry is rife with blanked voyages, idle containers and falling rates.
At the peak of the coronavirus epidemic in China, CMA CGM says that it had 19 of the more than 500 ships in its fleet idle at anchor.
The company said on Friday it expected to return to normal fleet capacity in China from mid-March. There had been signs of industrial production picking up since late February, it said.
The demand for Chinese goods from starved international customers is so intense that reportedly CMA CGM owned Ceva Logistics recently chartered 50 aircraft just to fly car parts from China to Los Angeles for a big customer in the US.
Rodolphe Saadé, chief executive of Marseille-based CMA CGM walked back the rosy “business coming back to normal” outlook that the company gave in it Reuters interview this week.
Mr Saadé’s tone was decidedly less optimistic in an interview yesterday with the UK’s Financial times when he warned that the economic shock was shifting from China to Europe. “Today we can see it’s becoming a global crisis,” he said. “In Europe there is a lot of fear over the coronavirus.”
That’s a problem because CMA CGM, which is the world’s fourth-largest shipping company is also very highly leveraged and it needs to refinance $1 billion of debt which is coming due next year.
Spooked, the value of the privately held company’s debt has plummeted in the last few weeks, with its five-year bond trading at just 65 cents on the euro, as bondholders brace for heavy losses. The company has a €725m bond ($825m) maturing in January that will need either refinancing or repaying with an equity raise.
The group posted a net loss of $229 million for 2019, compared with a $34 million profit the previous year, citing the effects of an accounting rule change and the acquisition of loss-making Swiss firm CEVA Logistics.
The container shipping industry’s financial condition remains “perilous” as indebted liner operators face their highest risk of bankruptcy than at any point in the past decade, according to a study by AlixPartners.
Indebted liner operators face their highest risk of bankruptcy than at any point in the past decadeAlixPartners
And financial shocks in the coming months could shift carriers’ finances “from worrisome to downright distressed” amid heightened vulnerability caused the spread of the coronavirus, the New York-consulting firm warned.
The company said its bond performance “reflects the volatility of all financial markets — including in this entire sector — in the context of the Covid-19 virus”. CMA CGM also emphasised the progress it was making in its plan to raise over $2bn in cash and credit lines by mid-2020, having already renewed credit lines for $535m and agreed to sell terminals to a joint venture to help raise nearly $1bn.
Two weeks ago, CMA CGM competitor Maersk, the world’s biggest container shipping company, warned of a “very, very weak February and weak” March because of coronavirus but forecast a “sharp rebound” in April, May and June.
Global shipping badly needs CMA CGM to get through this crisis intact.
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