Taiwan Ratings Corp (中華信評) yesterday revised down its credit outlook for Yang Ming Marine Transport Corp (陽明海運) from “stable” to “negative,” saying diminishing international trade could materially weaken the company’s operating performance this year and beyond.
The agency affirmed the “twBBB” issuer credit rating on Yang Ming and the “twBBB” credit rating on its senior unsecured corporate bond.
“The negative outlook reflects mounting difficulty Yang Ming is facing to turn its operations around if the COVID-19 pandemic prolongs or worsens,” the local arm of S&P Global Ratings said.
The industry has been plagued by chronic oversupply and Yang Ming has displayed a weaker cost structure and efficiency than its larger peers, the agency said.
Disruptions to people flows and supply chains caused by the pandemic could slow down global demand, and a slump in trading volume could pressure Yang Ming’s cash flow, it said.
The strict containment measures imposed by governments around the world could dampen global GDP and chill end-market demand, it added.
Yang Ming is particularly vulnerable to macroeconomic changes in light of its heavy exposure to the highly competitive trans-Pacific and European long-haul routes, it said.
As a result, Taiwan Ratings said that it expects the volume carried by Yang Ming to fall 10 to 25 percent this year, with the decline becoming evident in the second and third quarters.
Yang Ming’s persistently weak operating performance and high capital expenditure could weigh on its capital structure and credit ratings over the next few quarters, if it fails to strengthen its cost efficiency and if economic conditions fail to improve, Taiwan Ratings added.
Yang Ming’s growing exposure to relatively stable intra-Asia trade routes could help ease the decline, it said.
On the other hand, freight rates would come under pressure if the supply glut intensifies, the agency said.
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