MOODY's rating agency has downgraded the earnings estimate of Japan's second largest shipping company, MOL, to Baa3 rating - the lowest of its investment grade ratings.
However, Mariko Semetko, an analyst at Moody's, said the change is unlikely to affect MOL's ability to borrow.
The shipping company was under review for a downgrade after MOL reported earnings of JPY8.5 billion (US$84 million) for the period ending June 30, compared to JPY12.9 billion the previous year.
This cut its ordinary income estimate for the full fiscal year ending March 30 from JPY70 billion to JPY50 billion, reported American Shipper.
Moody's already had MOL on a "negative outlook" because of high debt leverage, "but even though the leverage was very high, we assumed the company will be able to de-leverage over time," said Ms Semetko.
"Now that the company has changed its guidance for the year, we don't think that they will be able to continue to de-leverage in the near term."
Said Moody's: "Continued weakness in the containership segment has contributed to the lower earnings. The company previously expected the segment to turn profitable after reporting three consecutive years of losses.
"MOL now expects losses of JPY5.5 billion for the year. In addition, the dry bulk segment, which was previously expected to remain the key earnings driver, has instead proven sluggish on tepid market conditions," said Moody's.
Based on management's revised expectations, Moody's said it expects MOL's debt to EBITDA ratio will be around eight by the end of March next year, up from 7.7 on March 31.
"Such a high leverage level is inconsistent with its current Baa3 rating," said Ms Semetko. "That reversal in the de-leveraging trend is what prompted us to place the company under review for downgrade."
She said if MOL's rating drops below Baa3, it will no longer be investment grade.
"Having said that, I don't think that will change much the company's ability to finance because MOL, as well as a lot of other Japanese companies, has a very strong support system, so I don't think they'll have any issues in terms of financing going forward," she said.
WORLD SHIPPING
12 August 2014 - 20:45
Moody's downgrades MOL estimate to Baa3, the lowest investment grade
MOODY's rating agency has downgraded the earnings estimate of Japan's second largest shipping company, MOL, to Baa3 rating - the lowest of its investment grade ratings.
WORLD SHIPPING
12 August 2014 - 20:45
Moody's downgrades MOL estimate to Baa3, the lowest investment grade
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