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TOKYO (Standard & Poor's) Aug. 27, 2007--Standard & Poor's Ratings Services
today raised its long-term corporate and senior unsecured debt ratings on
Nippon Yusen KK and Mitsui O.S.K. Lines Ltd. to 'BBB+' from 'BBB', and those
on Kawasaki Kisen Kaisha Ltd. to 'BBB' from 'BBB-'. The upgrades are based on
each company's enhanced resilience to market fluctuations, through their
strengthened business franchise and improved earnings stability. The outlooks
on all three companies are stable.
As leaders in the global multi-line shipping industry Nippon Yusen,
Mitsui O.S.K., and Kawasaki Kisen have diversified business portfolios and
excellent customer bases. The Japanese shipping industry, which consists
primarily of these three major players, performs an important role as the
domestic economy relies heavily on imports for energy and other resources.
Through ongoing cost reduction efforts, including the recruitment of
foreign sailors, and improvements in operational efficiency the three
companies maintain a level of cost competitiveness that is high by
international standards. Under their conservative business policies, which are
designed to manage the fluctuation risk of the shipping market within a
certain range based on the high-percentages of long-term contracts, each
company made solid progress in strengthening its competitiveness in the highly
stable automobile shipping services and bulk carrier operations.
As a result, each company's cash flow stability has further improved as
has their resilience to adverse market conditions. In addition, financial
resilience to deterioration in business conditions has been strengthened by
the increased accumulation of retained earnings, backed by strong business
performance.
The future increase in vessel supply and the economic slowdown are risk
factors that may negatively affect the shipping market. However, the
possibility of extreme erosion in the supply-demand balance over the next few
years is likely to be limited at this stage, given the mid- to long-term
expansion prospects for marine transportation, backed by progress in the
horizontal division of work on a global scale as well as the expansion of the
global economic zone to include emerging countries. Even if shipping market
conditions deteriorate, the affect on the performance of the leading three
shipping companies will be limited, due to each company's accumulation of
long-term contracts and business diversification.
Although each company is making aggressive investments to enhance their
fleet, each has a policy to focus on a balance between:
-- Stable business backed by the long-term contracts and business directly
exposed to market risk; and
-- Growth investment and financial stability.
Therefore, for the time being, each company is unlikely to make
investments with excessive financial risk, or that would cause a significant
deterioration in their financial profiles�??which have been enhanced over the
last few years.
Nippon Yusen KK
Nippon Yusen KK is enhancing its shipping business and stabilizing profits
through the introduction of new vessels and the accumulation of long-term
contracts mainly in bulk and energy segments. The company is also reinforcing
its focus on "comprehensive logistics services" including land and air
transport. Although the profit contribution from non-shipping segments is
currently limited, these segments are expected to play a more important role
in mitigating earnings fluctuations in the shipping business segment, given
the solid future growth expected in the overseas comprehensive logistics
services.
Although Nippon Cargo Airlines Co. Ltd. (NR), which became a consolidated
subsidiary in 2005, is expected to post losses close to ¥20 billion for the
second consecutive terms due to the deterioration of business conditions, its
profits are likely to recover next year based on the replacement of old
aircraft and improved operating efficiency. Its business performance over the
next few years is expected to remain solid, backed by stable growth in the car
carrier business and the expansion of non-shipping businesses.
The ratio of net debt to total capitalization (after making adjustments
for leases) stood at about 63% as at March 31, 2007. Even if Nippon Yusen
proceeds with capital investments as currently planned, this ratio is unlikely
to significantly deteriorate again for the time being. For another upgrade,
Standard & Poor's will continue to monitor if the company is able to further
enhance its cash flow stability, through the continued accumulation of
long-term contracts in shipping business, or through an earnings recovery in
Nippon Cargo Airlines.
Mitsui O.S.K. Lines Ltd.
Through its efforts to expand sources of stable income, which are not exposed
to shipping market fluctuation risk, and its moves to increase the number of
dry bulk and oil carrier long-term contracts, Mitsui O.S.K. has improved its
cash flow stability. The company has adopted a policy of intensively focusing
management resources into its shipping business and this is expected to
further strengthen its business franchise in the next few years as it plans to
start using new, highly-cost-competitive vessels, for which orders were made
before the ship construction costs rose.
Given the prospects of solid business performance in the near term, the
ratio of net debt to total capitalization (after making adjustments for
leases) is expected to remain on a stable, improving trend over the next few
years. The ratio as at March 31, 2007, stood at about 56%. For another
upgrade, Standard & Poor's will continue to monitor the degree of improvement
in the company's capital structure, further expansion of stable income
sources, and its future investment policy in vessels.
Kawasaki Kisen Kaisha Ltd.
Kawasaki Kisen is steadily enhancing its resilience to market fluctuations
through its efforts to further strengthen cost competitiveness, to expand its
stable car carrier segment, and to increase the number of long-term contracts
in its dry bulk and oil carrier segments. The company is more exposed to the
higher risk container business than its two peers, yet it is unlikely to make
a significant change to its business structure in the near term, given its
fleet investment policy.
In spite of expected continued high-levels of capital investment, the
ratio of net debt to total capitalization (after making adjustments for
leases) is expected to remain stable at around 50% over the next few years.
The ratio as at March 31, 2007, stood at about 54%. For another upgrade,
Standard & Poor's will continue to monitor if the company is able to further
strengthen its capital structure backed by its strong performance. In
addition, we will continue to monitor Kawasaki Kisen's efforts to expand the
number of long-term contracts, and its ongoing vessel investment policy.
This unsolicited rating(s) was initiated by Standard & Poor's. It may be
based solely on publicly available information and may or may not involve the
participation of the issuer's management. Standard & Poor's has used
information from sources believed to be reliable, but does not guarantee the
accuracy, adequacy, or completeness of any information used.
A Japanese-language version of this media release is available on
Standard & Poor's Research Online at www.researchonline.jp, or via CreditWire
Japan on Bloomberg Professional at SPCJ <GO>. Complete ratings information is
available to subscribers of RatingsDirect, the real-time Web-based source for
Standard & Poor's credit ratings, research, and risk analysis, at
www.ratingsdirect.com. All ratings affected by this rating action can be found
on Standard & Poor's public Web site at www.standardandpoors.com; under Credit
Ratings in the left navigation bar, select Find a Rating, then Credit Ratings
Search.
Ratings List
Upgraded
To From
Nippon Yusen KK (Unsolicited Ratings)
Corporate Credit Rating BBB+/Stable/-- BBB/Stable/--
Senior Unsecured
Local Currency BBB+ BBB
Mitsui O.S.K. Lines Ltd..
Corporate Credit Rating BBB+/Stable/-- BBB/Stable/--
Senior Unsecured
Local Currency BBB+ BBB
Kawasaki Kisen Kaisha Ltd..
Corporate Credit Rating BBB/Stable/-- BBB-/Stable/--
Senior Unsecured
Local Currency BBB BBB-
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