Hapag-Lloyd reveals UASC losses ahead of merger vote

Hapag-Lloyd reveals UASC losses ahead of merger vote

This is the first time United Arab Shipping Company's financials have been made public, revealing that the company's poor operating margins were exceeded only by Hanjin Shipping and Hyundai Merchant Marine.

Hapag-Lloyd revealed that the United Arab Shipping Company booked an operating loss of $298.7 million in 2015 and is still losing money on the eve of a shareholders’ meeting to clear the way for a merger with the Middle Eastern carrier.

Germany’s largest container line will seek shareholders’ approval on August 26 to amend its capital structure to close on the merger by the end of the year.

UASC posted a net loss of $384.3 million last year on revenue of $3.32 billion, the Hamburg-based carrier said.

The Dubai-based ocean carrier remained in the red in the first half of 2016, with an operating loss of $132.2 million and a net loss of $201.1 million on revenue of $1.5 billion.

This is the first time UASC’s financial figures have been made public, but the carrier, which is privately owned by six Gulf Arab governments, including Qatar with a 51.2 percent majority stake, was known to have been losing money.

UASC’s operating margin of negative 9 percent made it the worst performer among all the main carriers that published financial results for 2015, according to industry analyst Alphaliner.

The carrier’s negative 8.6 percent margin in the first half of 2016 was only surpassed by the two struggling South Korean carriers, Hanjin Shipping and Hyundai Merchant Marine, which posted negative margins of 9.8 percent and 18.5 percent for their container shipping units.

UASC had total debts of $4.1 billion at the end of June, against an equity base of only $1.9 billion.

The carrier’s equity position fell short of the minimum threshold that was agreed with Hapag-Lloyd under the terms of the planned merger. “This could mandate a compensatory payment by UASC shareholders at the time of the merger’s completion,” industry analyst Alphaliner said.

UASC’s losses are expected to continue into the foreseeable future owing to weak market conditions and its higher gearing and debt-servicing burden. “Hence, the UASC shareholders had little choice but to accept a relatively low and lop-sided valuation in the final merger agreement with Hapag-Lloyd.”

UASC will have a 28 percent stake in the merged carrier, and based on Hapag-Lloyd’s current market capitalization of 1.9 billion euros ($2.2 billion) the total value of UASC’s share would be worth only 745 million euros, a 55 percent discount to its current book value. 

The merged carrier would have a capacity of around 1.6 million twenty-foot-equivalent units and a market share of about 7 percent, ranking just behind fourth-ranked China Cosco Shipping, which also has a capacity of around 1.6 million TEUs, Hapag-Lloyd said. It will be a member of THE Alliance consisting of NYK Line, MOL, Hanjin Shipping, "K" Line and Yang Ming Line when that vessel-sharing agreement takes effect in April.

The combined revenue of the Hapag-Lloyd and UASC in 2015 amounted to just over $13 billion.

Hapag-Lloyd sank to a net loss of 99.3 million euros in the second quarter from a 29-million-euro profit in the previous year on a 20 percent slump in freight rates that took the first-half loss to 142.1 million euros against a 157.2-million-euro profit for the first half of 2015.

Contact Bruce Barnard at brucebarnard47@hotmail.com.

Comments

What a business, how many of you are calling your brokers to make sure you get into this?