The German ocean carrier is citing benefits from its planned merger with United Arab Shipping Company, but Reuters has reported a “snag” in those plans.
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Hapag-Lloyd CEO Rolf Habben Jansen said the company would have a younger fleet with a higher average vessel capacity after its merger with UASC.
German ocean carrier Hapag-Lloyd said this week it expects improved operating earnings this year and that its acquisition of United Arab Shipping Company (UASC) will strengthen its position in the Middle East, bring together complementary assets, and create synergies that will reduce costs by $435 million per year from 2019 onward.
Hapag-Lloyd CEO Rolf Habben Jansen said during a press conference that preparations for the merger with UASC were ongoing, and even though the long stop date (in which either company could withdraw from the transaction) had been pushed back from March 31 to May 31, “nevertheless, we hope we will be able to finalize the closing in the next few weeks.”
However, Reuters said the merger has hit a snag with the German shipping line, and some banks are seeking assurances that UASC’s top shareholder, Qatar, remain committed to the deal for the long term.
Two finance sources, who declined to be identified, told Reuters that one of the primary concerns of Hapag-Lloyd and some of the Gulf-based syndicate banks is that Qatar could lower its stake in the combined group in the future.
Habben Jansen said a key benefit of Hapag-Lloyd’s acquisition of UASC is that two very strong companies will be joining the company as major shareholders. He said Hapag-Lloyd’s profitability will be improved as a result of the acquisition and resulting synergies, along with cost savings.
“We are convinced that after the merger with UASC, we will achieve a very strong position amongst the top five carriers with a very competitive fleet, a well-diversified portfolio and an excellent crew,” he said.
Qatar Holding, on behalf of the State of Qatar, owns 51.3 percent of UASC today and would own 14.4 percent of Hapag-Lloyd after the merger; and the Public Investment Fund (PIF), on behalf of the Kingdom of Saudi Arabia, owns 36.1 percent of UASC and would own 10.1 percent of Hapag-Lloyd after the merger.
Reuters said it was told by one of its sources that “what is being sought are assurances that there would be no change in the share ownership” by Qatar.
With the addition of UASC shareholders, Hapag Lloyd’s existing major shareholders would see their stakes reduced as follows:
• CSAV, which merged its container shipping activities with Hapag-Lloyd in 2014, would see its stake drop from 31.4 percent to 22.6 percent;
• HGV, the city of Hamburg’s investment company, would see its stake drop from 20.6 percent to 14.9 percent;
• Kuhne Holdings, the private investment company of transportation maganate Klaus Michael Kuhne, would see its stake drop from 20.2 percent to 14.6 percent;
• And TUI, the tourism company that was the former owner of Hapag-Lloyd, would see its stake drop from 12.3 percent to 8.9 percent.
After the deal is completed, a 14.7 percent stake will be held by smaller shareholders, including those from Kuwait, Iraq, the United Arab Emirates and Bahrain, which are minority shareholders in UASC today.
Between CSAV, Kuhne, Qatar Holding and PIF, Habben Jansen said, “We will have very strong anchor shareholders who are very strongly interested in the medium term and willing to support the company whenever necessary. We believe we are well positioned for what will probably be a strong and more stable market environment.”
Despite moving 7.6 million TEUs in 2016, a 2.7 percent jump from 2015, Hapag-Lloyd saw revenues decline 13 percent to $8.55 billion, resulting from the average freight rate falling 15 percent year-over-year in 2016 to $1,036 per TEU.
Hapag-Lloyd recorded a net loss of $103 million in 2016 compared to a profit of $126 million in 2015. Habben Jansen declined to provide a projection for Hapag-Lloyd’s net result in 2017.
Earnings before interest, tax, depreciation and amortization (EBITDA) reached $671 million in 2016, 27 percent below the $922 million recorded in 2015. The company did say it expects an improvement in EBIT and EBITDA in 2017.
Habben Jansen emphasized the growing importance of scale in container shipping and said the company wants a more balanced trade portfolio, which he said can be a help during challenging market conditions. “It is important not to have these ups and downs all the time. We want to have more predictable results,” he said.
After the merger, he said the combined companies will have a young, fuel efficient fleet with an average age of 6.3 years, compared to an average age of 7.9 years, and average ship size will rise from 5,800 TEUs to 6,857 TEUs.
From 2014 to 2016, UASC added six, 18,000-TEU ships and nine, 15,000-TEU ships to its fleet, and Hapag-Lloyd is adding five new 10,500-TEU ships to its fleet in 2016-17.
As a result, Hapag-Lloyd will not have a need to order additional ships and will be able to use its earnings to reduce leverage, Habben Jansen said.
Asked about Maersk’s planned acquisition of Hamburg Süd, a major competitor of Hapag-Lloyd (and earlier CSAV) in South America, he said he did not expect an immediate impact given the fact that the merger is not expected to be completed until the end of 2017, but he said there might be a chance for Hapag-Lloyd to strengthen its position in the South American trade.
