A major liner bankruptcy in the coming months is on the cards according to the main carriers’ Altman Z-scores.
The Z score formula for predicting bankruptcy was first published in 1968 by Edward Altman, who was, at the time, an assistant professor of finance at New York University. The formula can be used to predict the probability that a firm will go into bankruptcy within two years.
Splash reported at the end of February that the collective Altman Z score of the 14 container shipping companies that publish their financials deteriorated markedly in the 12 months ending September 30, 2019.
Alphaliner has now published new details of the main carriers’ troubled balance sheets.
According to Alphaliner’s survey of the main carriers’ Altman Z-scores as at the end of 2019, seven out of the eleven carriers have Z-scores of less than 1.3, indicating a ‘very high’ likelihood of potential insolvency.
“The deteriorating global economic outlook, which pushed container shipping lines to withdraw an unprecedented amount of capacity in April and May, will hurt carriers’ operating cashflows and further weaken their fragile balance sheets,” Alphaliner reported in its most recent weekly report.
Carriers with elevated leverage ratios are “especially vulnerable”, Alphaliner warned, in particular those with high levels of short term debt that are due this year. Of the eleven carriers surveyed, six have negative working capital – current liabilities exceeding current assets – including CMA CGM, Hapag-Lloyd, HMM, PIL, Yang Ming and Zim.
Alphaliner added that carriers with poor track records of negative earnings are also particularly at risk, with the Z-scores of HMM, Yang Ming and Zim lowered due to their negative retained earnings.
Since the end of March, credit rating agency Moody’s has changed the credit outlook for Hapag-Lloyd, Maersk, MOL and NYK from ‘stable’ to ‘negative’ and placed CMA CGM’s credit ratings under review for potential downgrades.
Rodolphe Saadé, the CEO of CMA CGM, the world’s fourth largest containerline, is anticipating May will be the slowest month for box movements across the globe thanks to the coronavirus.
Interviewed by French newspaper Le Figaro nine days ago, Saadé said: “The situation is going to be tense in May. We are estimating a 30% drop in global shipping.”
The sudden massive volume of blanked sailings announced in recent days is set to create new records in terms of the inactive containership fleet, which analysts at Alphaliner are now saying will breach the 3m teu mark for the first time meaning some 13% of the entire global box fleet will be out of work.
According to a report issued earlier this month from Copenhagen-based Sea-Intelligence, the volume loss alone from the record number of pandemic-linked blanked sailings will cost the top 15 carriers more than $6bn in 2020, rendering the industry loss-making in 2020, reversing the $5.9bn profit the top 15 carriers managed combined last year.
Sea-Intelligence warned that a failure to prevent a simultaneous rate collapse could lead to the liner industry losing a “staggering” $23.4bn in 2020.
In an ongoing poll carried on this site, a majority of Splash readers believe shipping will suffer a record number of layups in the coming 18 months and readers have singled out the container shipping sector as the shipping segment likely to be most hard hit from the fallout brought about by the coronavirus contagion.