Bangkok--26 Sep--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Regional Container Lines PLC (RCL) at “A-” and has also affirmed the rating of RCL’s senior debentures (RCL096A) at “BBB+” with “stable” outlook. The ratings reflect RCL’s strong market position among regional feeders, which is the result of its fleet size, frequency of service, and the young age of its ships. The ratings also take into consideration RCL’s capable and experienced management team. However, these strengths are partially offset by the cyclical, highly competitive business environment and high fuel prices.
The “stable” outlook is based on the expectation of RCL’s ability to sustain its strong market position and its growth in lifting volume. The outlook also reflects the management team’s discipline in utilizing the cash flow generated by operations to fund an expansion plan and dividend payments, rather than relying mostly on debt financing. However, the rating and outlook could be revised if there is significant deterioration in its overall financial performance due to a long-term decline in its operating profit margin.
TRIS Rating reported that RCL is the largest feeder operator among ASEAN shippers. According to the Port of Singapore Authority (PSA) and RCL’s local agencies’ statistics, the company has the highest feeder market share between Singapore, the Philippines, Malaysia, and Thailand. RCL’s large market share stems from the high number of trips it operates per week multiplied by its huge fleet size. RCL is also one of the top 30 container shippers in the world, based on fleet size. Currently, the company has a total capacity of 57,383 TEUs (twenty foot-equivalent unit), from 33 company-owned vessels and 12 charter vessels. As it owns most of its vessels, RCL can offer frequent voyages and operate on flexible schedules. While its competitors operate smaller fleets, RCL’s larger fleet size provides a competitive advantage through greater frequency of service. In addition, RCL’s fleet is young at an average age of 11 years. Therefore, the company has benefited from more efficient use of fuel and lower maintenance expense.
TRIS Rating said, the container shipping industry is highly cyclical. Each cycle has a traditional span of 5-6 years; however, in recent years, there has been a shortening of the cycles. Demand for shipping is closely linked to economic activity and trade. The health of the global economy has a profound impact on the company’s feeder business, whereas intra-Asia trade is a major factor in the liner business. The shipping freight rate rose considerably during 2004-2005. However, the cycle started to slowdown in 2006 and continued in a downward trend in 2008. RCL’s average freight rate declined from US$208 per TEU in 2007 to US$206 per TEU in the first half of 2008. Freight rates are not expected to improve much in the next few years, as a result of weakening global economic environment, while the amount of new vessel deliveries remains high.
RCL’s financial leverage has been continuously improved. Its total debt to capitalization ratio (unadjusted operating leases) decreased to 33% at the end of June 2008 from 44% during 2004-2005. The company’s financial performance in the first half of 2008 was weaker than the same period of last year. Even though freight revenue slightly improved from Bt9,643 million in the first half of 2007 to Bt9,669 million in the same period of 2008, the operating margin significantly decreased from 18.7% in the first half of 2007 to 8.5% in the first half of 2008 due to decreasing freight rates and souring bunker costs, said TRIS Rating.
Regional Container Lines PLC (RCL)
Company Rating: Affirmed at A-
Issue Rating:
RCL096A: Bt2,500 million senior debentures due 2009 Affirmed at BBB+
Rating Outlook: Stable