Christian Wienberg Copenhagen

DEBT holders in AP Moeller-Maersk are looking on as the biggest shipping company uses its excess cash to enrich shareholders in a strategy shift that threatens to cap its bond gains.

Chief executive Nils Smedegaard Andersen said last week that he would start the Copenhagen-based company’s first ever “formalised” share buy-back programme, purchasing $1 billion (R11bn) in stock, or about 2 percent of Maersk’s market capitalisation.

According to Nordea Bank, Scandinavia’s biggest lender, the move means there is now no prospect of the ratings upgrade some bondholders had been hoping for.

“If Maersk continues to sell assets and distribute the cash to shareholders, it may harm the credit profile over time,” Lars Kirkeby, the chief credit analyst at Nordea in Oslo, said. “We don’t see much room for Maersk to get a higher rating now.”

Maersk, once Europe’s biggest issuer of unrated corporate bonds, invited ratings companies to grade its debt in September last year in a move designed to help it access the dollar bond market.

It subsequently got a BBB+ rating at Standard & Poor’s and a Baa1 grade at Moody’s Investors Service, one step below the A- shadow rating that Danske Bank and SEB gave Maersk at the time.

Since then, Maersk’s 4.375 percent note due in November 2017 has returned bondholders about 4 percent, including reinvested interest. The note’s spread relative to the government yield curve widened to 75 basis points yesterday from 73 basis points at the end of last week.

Maersk, which owns a container shipping line, an oil unit, a drilling division and a port operator, sold a stake in its supermarket unit in January, raising cash proceeds of about $3.2bn. It has also sold 15 so-called very large crude carriers for $980 million.

Brian Boersting, a credit analyst at Danske, said last week there was still value in Maersk bonds under the current credit rating and repeated a buy recommendation.

“The share buy-back, in our view, signals no further deleveraging in AP Moeller-Maersk, which limits the upside in bond valuation,” Boersting said. “However, as metrics continue to be strong for the target rating of BBB+, we continue to see value in AP Moeller-Maersk’s bonds.”

Maersk’s biggest shareholder with a 41.5 percent stake is AP Moeller Holding, a fund for the founding family.

Marie Fischer-Sabatie, a Paris-based analyst at Moody’s, said last week the rating firm was keeping its Maersk grade unchanged. – Bloomberg