French container shipping company CMA CGM S.A. (CMA, B2 positive)’s credit profile is more robust when compared to that of German rival company Hapag-Lloyd AG (HL, B2 negative) when accounting its higher profitability, larger market share and more diverse geographic presence, Moody's Investors Service commented via an Issuer In-Depth report.
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However, the financial and liquidity profile of HL has demonstrated greater stability than that of CMA, while Moody's believes that both companies' credit metrics will reduce a fair share of their current gap.
"The advantage CMA holds over HL is quite evident when it comes to its ability of being able to maintain higher profitability levels," commented Marie Fischer-Sabatie, author of the above-mentioned report. "During the 2007-14 time period, CMA's EBIT margin (including Moody's adjustments) was double when compared to that of HL, averaging approximately 8% in comparison to the 4% that HL demonstrated."
Moody's also notes in its report that while both companies have managed to materially reduce their respective costs, the average operating costs of HL per 20-foot equivalent unit (TEU) have remained higher than those of CMA on an average basis.
Moody's also mentions that CMA holds an advantage over HL when regarding terms of size, along with market share and geographic diversity. Although the combination of Chile's Compania Sud Americana de Vapores S.A. (CSAV, unrated) container shipping activities with the ones offered by HL, in a deal that was reached back in December of 2014, will actually increase HL's scale, CMA will still be the frontrunner in the race.
However, HL has managed to maintain a more sound financial and liquidity profile over the years (this also includes the 2009 financial crisis) than CMA, backed up by the strong support of the company shareholders. However though, CMA recently enhanced materially its liquidity profile and improved its governance.
While the credit metrics of CMA are currently stronger than HL's, Moody's believes that this current gap is to narrow within a time frame of 12 to 18 months of CSAV's integration. CMA has displayed better credit metrics than those of HL over these past two to three years. The rating agency, however, believes that the differential will narrow down due to HL's combination with CSAV results regarding economies of scale along with synergies. HL recently also benefitted from a $500 million capital injection.