The rating agency acted negatively to the idea that the A.P. Moller – Maersk conglomerate could potentially choose to divide into separate companies, noting the split could hurt the group’s business diversification.
Standard and Poor’s (S&P) has reacted negatively to the idea that the A.P. Moller – Maersk conglomerate could potentially choose to split up its operations.
A.P. Moller – Maersk revealed it was considering the split after appointing Soren Skou chief executive officer, replacing Nils Andersen. Skou was previously CEO of leading liner carrier Maersk Line.
Stemming from Maersk’s announcement it would review its business set-up, S&P said Tuesday it had “placed its BBB+ long-term counterparty credit rating on Denmark-based conglomerate A.P. Moller – Maersk A/S (Maersk) on CreditWatch with negative implications.”
S&P added, “We also placed on CreditWatch negative our BBB+ issue ratings on Maersk’s senior unsecured debt.”
“We understand this review could result in the disposal of one or several of Maersk’s main business units, such as container shipping, exploration and production, drilling or terminal,” the rating agency said.
S&P anticipates the split could hurt the group’s business diversification. “We currently apply a one-notch uplift to the rating on the group to incorporate our view of the group’s broad diversification and strong positions in all its key business lines,” the rating agency said. “That said, any material change to the group’s structure could lead to a deterioration of the group’s overall credit quality, in our view.”
While some stock analysts talk about the conglomerate discount – the idea that conglomerates are valued by the market at less than the sum of their parts – Per Karlsson,
a director at S&P who co-authored the report said, “We do give them benefit for the large diversification. Over the business cycle we believe it has given them a benefit versus other companies that may not be as diversified.”
Maersk has four major businesses – the container shipping of Maersk Line; the container terminal business of APM Terminals; Maersk Oil, an oil and gas production company; and Maersk Drilling, which provides drilling services to oil and gas companies. It also has a fifth “leg” which is a hodge-podge of companies including Maersk Tankers, the forwarding company Damco, the towing company Svitzer and Maersk Supply Services.
S&P said it acknowledged the large uncertainty around the outcome of the strategic review and that it may not result in any significant changes. In addition, the extent of the changes to the group’s financial policy that the strategic review may imply, along with any potential offsetting factors are still unclear.
“Moreover, given that all business areas continue to face significant market difficulties, we anticipate that Maersk’s operating performance may falter,” S&P said. “We project that credit ratios will be low for the current rating for the full year 2016, including funds from operations (FFO) to debt around 25 percent-30 percent. The group’s largest segment, the container liners, are experiencing severe freight-rate volatility and downward pressure on primary and secondary routes. This trend has intensified over the past 12 months, and we anticipate that performance in 2016 will drop significantly compared with 2015.”
Maersk has been narrowing its focus in recent years, for example, divesting its 20 percent stake in Danske Bank in 2015, selling holdings in Danske Supermarked in 2014, and closing the Odense shipyard in 2012.
Kis Soegaard, a Maersk Group spokesman said, “As a matter of principle, we never comment on ratings.”
S&P’s take on potential Maersk Group break-up
