Monday, September 28, 2015

HAPAG-LLOYD AND MEGA SHIPS

Do mega ships mean mega miracles for container lines? Or do they accelerate rate disintegration as carriers push to fill these big vessels?

Hapag-Lloyd plans to raise $500m with IPO

CSAV and Kühne Maritime will double down on their investments in the German container line by each investing an additional $50 million.

   Hapag-Lloyd, the world’s fourth largest container shipping company, plans to raise the equivalent of $500 million through an initial public offering later this year.
   The German liner company, which plans to list its shares on the Frankfurt and Hamburg stock exchanges, said it will use the proceeds from the IPO for further investments in ships and containers as well as to “further strengthen its capital structure, long-term growth and profitability.”
   In an annex to the press release, the company also noted, "One of Hapag-Lloyd’s key strategies is to actively participate in the consolidation within the container liner shipping industry. Its operational structure is set up to efficiently pursue strategic acquisitions or further business combinations in a consolidation driven market environment."
   Citing figures from MDS Transmodal, Hapag-Lloyd said it had more than doubled its share of the container transport sector from 2 percent in 2000 to about 5 percent today, in part through its acquisition of the container business of CSAV last December and CP Ships in 2005.
   Hapag-Lloyd noted it will actually raise the funds in euros, but that it expects they will be equivalent to U.S. $500 million.
   Of the $500 million, $400 million will stem from the sale of newly issued shares to institutional and retail investors.
   In addition, two of Hapag-Lloyd’s largest shareholders, Chile’s Compañía Sud Americana de Vapores (CSAV) and Kühne Maritime, have placed what Hapag-Lloyd termed “cornerstone orders” to each acquire an additional $50 million in stock. CSAV owns 34.01 percent of Hapag-Lloyd, while Kühne Maritime owns 20.75 percent. An investment company owned by the city of Hamburg, where Hapag-Lloyd is headquartered, HGV Hamburger Gesellschaft für Vermögens- und Beteiligungsmanagement mbH, owns a 23.23 percent share and has said it will not sell shares.
   (A chart showing the current ownership of Hapag-Lloyd can be found on its website.)
   Hapag-Lloyd noted that a consortium company owned by CSAV, Kühne Maritime, HGV, owners of 78 percent of its stock, have agreed by way of a shareholders’ agreement to hold a stake of at least 51 percent for 10 years, not to sell any shares in the IPO and to pool voting rights on all decisions relating to the company’s business, “as they are supporting Hapag-Lloyd long-term.”
   The IPO "will also comprise additional shares from TUI and a market standard greenshoe," an overallotment option given to underwriters, said Hapag-Lloyd. The tourism company TUI was once the parent company of Hapag-Lloyd and today owns 13.88 percent of its stock.
   Last month TUI said, "We continue to account for Hapag-Lloyd AG as a business held for sale. With the IPO of the 'new' Hapag-Lloyd AG, agreed in the frame work of their merger with CSAV, and our right to sell our remaining stake via a trade sale, we have kept all our options to completely exit container shipping open."
   “The IPO is an important milestone in the history of Hapag-Lloyd”, said Rolf Habben Jansen, chief executive officer of Hapag-Lloyd. “This move will give us better access to the capital markets which will enable us to further invest in our business to become more competitive, which will be good for our customers, our people and our shareholders. We are especially pleased about the investment of our core shareholders which underlines once more their confidence in the future of Hapag-Lloyd.”
   Hapag-Lloyd has a fleet consisting of 188 container ships with a total capacity of approximately 1 million TEU, according to figures on its website. (Alphaliner, on its Top 100 list of container carriers, lists the Hapag-Lloyd fleet as consisting of 171 ships — 69 owned and 102 chartered — with 919,759 TEU capacity and five ships on order. Hapag-Lloyd said those five 10,500 TEU ships are expected to be delivered between October 2016 and May 2017.)
   By market share, Hapag-Lloyd is “among the leaders on the Atlantic and Latin American trades with a recognized presence on the Far-East and Transpacific trades," the company said. "Membership in the G6 Alliance, the second largest alliance globally by transport capacity, gives Hapag-Lloyd the necessary scale benefits in a fragmented global shipping market.”
   In the press release announcing the IPO, Hapag-Lloyd said “global container volume is expected to grow by a compound annual growth rate of 5.5% between 2014 and 2016. The fundamentals around supply and demand are expected to improve in the coming years, which would provide cyclical upside to the industry.”
   Hapag-Lloyd's own volumes in the first half of this year amounted to 3.7 million TEUs, up 29.4 percent compared with the same period in 2014. About 56 percent of its transport volume in the first half of 2015 was in East-West trades and 44 percent in North-South trades.
   The company also increased revenues by 1.5 billion euro to 4.7 billion euro during the same timeframe, thanks primarily to its merger with and integration of the CSAV container business.
   “Complementary trades, economies of scale and cost reduction with a larger fleet and reduction of procurement costs make Hapag-Lloyd and CSAV a highly strategic fit,” said Hapag-Lloyd, adding that it “targets annual net synergies of around $400 million fully realized by 2017. This is $100 million higher than originally targeted.”
   It added that last year the company launched a profit improvement project dubbed “OCTAVE,” that “targets annual cost savings of approximately $200 million from 2016 onwards and is currently well on track, already delivering tangible results in the first half of 2015.”
   “We have good momentum, our results have improved, and we have made up ground versus our competition,” said Habben Jansen.