New accounting standards see debt levels among leading liners soar 50%

New accounting standards see debt levels among leading liners soar 50%

New accounting standards effective from the start of this year have made for some massive debt increases for the world’s largest container carriers.

The application of the new IFRS 16 lease accounting standard from January 1 means long-term leases for vessels, equipment, and other assets now have to be capitalised, whereas operating leases could previously be kept off the balance sheet.

Analysts at Alphaliner have gone through the figures of the nine container carriers that have published their first quarter results to highlight the very noticeable increases in their debt obligations. The carriers covered in the analysis are Maersk, Cosco, CMA CGM, Zim, Wan Hai, Evergreen, Yang Ming, HMM and Hapag-Lloyd.

Aggregated financial debt of the nine companies rose by a staggering 50% to reach $84bn at the end of March, compared to the total debt disclosed in end December financial statements.

CMA CGM reported the largest jump in its total debt, with an increase of 117% from $9.2bn to $19.9bn. State-backed Cosco remains the liner with the largest debts, which have now soared past the $20bn mark in the wake of these new accounting standards.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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2 Comments

  1. Avatar
    MaxK
    June 5, 2019 at 6:11 pm

    I believe, In addition to the debt/liability for the lease, Balance Sheets would also need to be adjusted to include the value/asset that the vessel/equipment represents.
    If that is correct, shouldn’t that be stated in your article to present a complete assertion?

  2. Avatar
    Barry Parker
    June 7, 2019 at 9:59 pm

    But even prior to these rules, any good analyst worth his/her salt would be including lease obligations (charter in, actual lease in) to evaluate a company’s balance sheet health. I am trying to learn how the new rules work, but I’ve recently seen a bunch of shipping leases which include more options- my guess (not certain?) is that smarties at these companies are figuring out ways to sharp shoot the new rules and keep longer term obligations off the balance sheets (but the aforementioned good analysts will hopefully know better and stay ahead of these gambits).