Ratings agency Moody’s has downgraded Japanese shipping company Mitsui OSK Lines’ (MOL’s) rating to Ba1 after concluding that it has heavy debts amid weak freight markets for dry bulk and containers.
Moody’s vice-president and senior analyst Mariko Semetko said, “The rating action reflects our expectation that the company will not be able to deleverage fast enough to maintain its investment grade rating.”
For the financial year that ended 31 March 2015, the company’s ordinary profit declined by 7% year on year to JPY51.3 billion (USD415.7 million).
As at the last financial year, MOL’s debt stood at JPY1.183 trillion, up from JPY1.094 trillion for the financial year that ended on 31 March 2014.
Moody’s said it does not expect material improvements in freight rates, particularly in dry bulk.
It added that it is difficult to foresee MOL improving its profitability and sustaining leverage the coming 12-18 months, at levels more appropriate for an investment grade rating.
Consequently, Moody’s expects MOL’s debt/EBITDA will remain above 7x as of 31 March 2016.
The rating reflects MOL’s very high debt leverage, continued weakness in the bulk ship segment, and persistent industry-wide overcapacity that limits the company’s ability to raise freight rates.
Moody’s, however, said that MOL’s consistently weak financial metrics are partially offset by its well-established presence among the Japanese shipping companies, its limited refinancing risk, and its large scale.