IS YANG MING THE NEXT BANKRUPTCY TARGET?

Red flag for Yang Ming as container line is weighed down by billion-dollar losses

By Mike Wackett

19/01/2017

Following the bankruptcy of Hanjin, Taiwan’s Yang Ming is now the container line in the greatest financial danger, according to a research paper published today.
Drewry Financial Research Services (DFRS) says the line has the industry’s most leveraged balance sheet, with a net gearing of a massive 437% at the end of Q3.
The figure soars above the industry average of 124% and is nearly five times that of its closest regional peer, Evergreen.
The report says: “Yang Ming’s high debt is a great cause for concern for us, given the heightened financial risks. Even with recovery in the underlying freight market, the debt burden without a restructuring is a red flag and a clear sell signal for us.”
DFRS noted that Yang Ming had accumulated NTD38.4bn ($1.2bn) in losses since 2009, with its net loss for 2016 at around $400,000 by the end of the third quarter.
The analyst believes the carrier’s high cost structure, combined with its debt mountain, will “keep Yang Ming in the red in 2017”, despite an improved outlook for freight rates.
In November, the Yang Ming board announced it would slash executives’ pay by 50% and the salaries of senior line managers by 30%, among a raft of desperate measures to stop the rush of red ink.
The Taiwan government owns a 33% stake in Yang Ming and will need to support the debt-ridden carrier, suggests DFRS.
It noted that talk of a merger between Yang Ming and compatriot carrier Evergreen was unlikely, given that the latter is privately owned.
However, there had, it said, been talk in government circles of a merger with state-owned Taiwan International Port Corp (TIPC).
According to Alphaliner data, Yang Ming is currently the ninth-largest ocean carrier, operating a fleet of 101 ships for 579,048 teu, giving it a 2.8% global market share.
Fifty-five of its vessels are chartered, including eight 14,000 teu ultra-large vessels on fixed-rate long-term lease from Seaspan.

It is possible that, to reduce its vessel operating costs, it may endeavour to renegotiate the terms and daily hire rates of its chartered-in tonnage, along similar lines to Hyundai Merchant Marine and Hanjin.
Yang Ming, founded in 1972, is a member of the CKYE east-west vessel alliance, but in April it will join with Hapag-Lloyd and the soon-to-be-merged container businesses of K Line, MOL and NYK in THE Alliance. Its dire financial health will be of great concern to the other members.
THE Alliance is the first vessel-sharing agreement to include safeguards for shippers in case of a failure by one of the partners.
According to US federal maritime commissioner William P Doyle, THE Alliance’s filing with the FMC includes “framework language” to allow other members to take over the operation of the affected party to avoid a repetition of the supply chain chaos caused by the sudden collapse of Hanjin.
Following the Hanjin crash, which left some $12bn of cargo stranded on 100 containerships around the world, shippers are understandably nervous about the financial health of ocean carriers.