Maersk to Use Credit Headroom on Shareholders

A.P. Moeller-Maersk A/S will use the headroom under its current credit rating to return cash to shareholders and make acquisitions instead of pursuing a higher grade.

That’s according to Denmark’s largest lender, which predicts Maersk won’t attempt to seek an upgrade after Moody’s Investors Service last week placed a positive outlook on its Baa1 rating to an upgrade.

“Maersk has started buying own shares as well as other shareholder-friendly initiatives, which show that the company sees its debt level as on the low side,” Brian Boersting, an analyst at Danske Bank A/S, said by phone. “The company has clearly indicated that it’s likely to use its strong balance sheet to make acquisitions, for example in the oil segment.”

Maersk, once Europe’s biggest issuer of unrated corporate bonds, in September 2013 obtained a BBB+ rating at Standard & Poor’s and a similar Baa1 grade at Moody’s. The latter on June 17 raised the outlook to positive after changing how operating leases are calculated. That allowed Moody’s to lower debt tied those leases by about $15 billion.
Largest Ships

“Key credit metrics suggest the credit is strong for the current rating,” Boersting said. “Maersk will prefer to use the larger maneuver room within its credit rating to reward shareholders and make acquisitions rather than to strive for an upgraded rating.”

Maersk is seeking acquisitions for its oil unit, which is shrinking as its North Sea fields mature. The Copenhagen-based company is also investing in new container vessels and in terminals for its other units. Earlier this year, it paid a record high dividend after selling a stake in Danske and also ordered its largest ships ever in a $1.8 billion deal.

“Financial policy remains unchanged,” Jan Kjaervik, Maersk’s head of group finance, said in an e-mailed reply to questions. “We continue to stay committed to our BBB+/Baa1 rating.”

Sparinvest, which manages about 70 billion kroner ($11 billion) including Maersk bonds, says the bonds are a good investment regardless of what happens with the rating.

“The bonds are at a stable and solid level and we are satisfied with the rating they have,” said Michael Sandfort, a portfolio manager at the Danish asset manager.

The fund owns Maersk bonds maturing next year and 2017, which would make the impact of any change in the credit rating limited, he said.

According to Danske’s Boersting, Maersk is likely to guard against a change in either direction.

“I believe that Maersk sees it as more attractive to have a stable credit rating rather than one that gets upgraded and then downgraded should the company make a large-scale debt-financed acquisition,” he said.
Source: Bloomberg