THREE of Japan’s largest shipping companies, Nippon Yusen Kabushiki Kaisha (NYK), Mitsui OSK Lines, and Kawasaki Kisen Kaisha (K-Line), on Monday announced a merger to better handle the financial downturn in the industry, after the move was approved by each company’s board of directors.
The three companies, whose combined container shipping revenues reached $19 billion in 2015, said that they would set up a new joint-venture company to integrate the container shipping businesses (including worldwide terminal operating businesses excluding Japan) of all three companies and to sign a business integration contract and a shareholders agreement.
The agreement is still subject to regulatory approval from Japanese authorities, but the companies’ stocks soared in Tokyo after the announcement, with Mitsui OSK gaining 5.62 percent on Monday, NYK closing 6.43 percent higher, and K-Line closing up 0.38 percent, having shed gains of nearly 10 percent in trading earlier in the day as investors opted to take profits.
The new joint venture, provided regulators approve it, will begin operations in April 2018, and would create the world’s sixth-largest container shipping firm, the companies said.
According to industry journal Port Technology, however, the new company would actually rank third, accounting for seven percent of the global shipping market with a fleet of 256 container ships. The move is estimated to save the three companies up to $1 billion per year in operating costs.
NYK President Tadaaki Naito in a statement said, “If we don’t want the number of Japanese shipping companies to be zero, we need to create one strong, splendid company.”
On Thursday, however, credit ratings agency Moody’s Analytics announced it had downgraded NYK’s issuer rating from Baa2 to Baa3 and changed its outlook to negative, reflecting Moody’s assessment that “earnings and cash flow will remain low and leverage will remain elevated over the coming 12-18 months.”
In a press release Mariko Semetko, Vice President and Senior Analyst at Moody’s explained, “The downgrade to Baa3 from Baa2 reflects our view that low freight rates will keep NYK’s cash flow low and leverage high in the near to medium term….Consequently, the company’s earnings recovery has been and will likely remain much slower than Moody’s had previously anticipated.”
K-Line also recently ran into controversy when rumors spread in early September that the company was near bankruptcy, and possibly a target for acquisition by other container shipping lines.
The rumors, however, proved to be untrue when competitor American President Lines (APL) admitted fault for them in a public statement, attributing them to APL employees speaking to clients.