An $8 Billion Payout From Maersk Raises Questions for Creditors

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By Christian Wienberg (Bloomberg) — Shareholders in the world’s biggest container-shipping company may get up to $8 billion in payouts next year, according to Goldman Sachs.

That’s great news for equity investors in A.P. Moller-Maersk A/S, but it raises a number of questions for the Danish company’s creditors.

According to Danske Bank, big shareholder rewards will push Maersk’s credit rating closer to junk. And going forward, the company will have a hard time making enough money to protect its BBB rating because trade conflicts between the U.S. and China will pressure the transport industry, according to Brian Borsting, a Danske credit analyst.

The Payout Math

Chief Executive Officer Soren Skou says Maersk plans to give shareholders “a material part” of the roughly $5 billion it got from the sale of an oil and gas unit. Goldman interprets that as meaning about $3.9 billion. To get to $8 billion, the Wall Street bank includes equity payments from a planned IPO of Maersk Drilling (about $3.5 billion) and a couple of other smaller items.

Maersk said on Wednesday it plans to cut capital expenditure by as much as a third next year, to make room for bigger dividends.

“It’s the board that decides on dividends, but it’s clear that by reducing our capex, we create more financial flexibility,” Skou said.

Maersk paid its shareholders about $470 million in 2017. The highest payout to date is the roughly $6.4 billion handed its owners in 2015, after it sold its stake in Danske Bank.

Creditor Angst

If Maersk’s debt rating is downgraded, “credit investors could be looking at a company that is close to high-yield with significant container industry exposure,” Borsting said in a note to clients. That “would mean very volatile earnings and cash flow.”

Danske points out that Maersk’s longest-dated bond is already trading as though the company had been downgraded.

Borsting says it’s unlikely that Maersk will be pushed all the way down to junk. “However, with the risk of a global trade war looming, uncertainty is high,” he said.

© 2018 Bloomberg L.P