Hoping to Protect Investment-Grade Rating, Maersk Ready to Move Step Closer to Junk `for Right Reason’

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By Christian Wienberg (Bloomberg) — A.P. Moller-Maersk A/S this week renewed a pledge to creditors to protect its investment-grade rating.

But the man in charge of the shipping giant’s finances says there’s room to move a little closer to junk.

“We’re one notch above investment grade,” Chief Financial Officer Jakob Stausholm said in an interview. “It would be good to keep it, but if we were to lose that one notch for the right reason, that would be okay. What’s important is to not come below investment grade.”

S&P Global Ratings and Moody’s Investors Service both have Maersk two steps above junk, but on reviews for a possible downgrade. They’re trying to figure out what will happen to Maersk’s debt structure once it goes from being an energy and shipping conglomerate to a company focused only on transport.

Maersk is in close contact with the two rating companies to gauge how much it needs to strengthen its balance sheet in connection with the split, the CFO said. “We have a very good dialogue with both,” he said.

“We have a maximum level of flexibility and could choose to go in different directions,” Stausholm said. “We could choose to send all the proceeds from the energy sales back to shareholders or we could keep it all. We can build the balance just like we want it.”

Maersk has sold its tanker unit for $1.2 billion and plans to complete the sale of its oil and gas division this quarter, for which it’s set to get about $8 billion from Total S.A. in cash and shares.

Maersk has a history of paying handsome dividends to its owners. But proceeds from divestments will first be used to cut debt and only then to pay shareholders, Stausholm told investors on Tuesday.

Maersk’s capital markets day was “a credit-positive event” and Stausholm’s comments “a strong pledge,” Brian Borsting, a credit analyst at Danske Bank, said in a client note. But “uncertainty regarding the separation of the energy businesses and the level of shareholder distribution will remain.”

Maersk’s two remaining energy units — drilling and supply service — may fetch a combined $5.3 billion, according to analyst estimates. Maersk has said it expects to find new owners for both before the end of this year. That will end a conglomerate structure that ratings companies tend to like.

If Maersk gets downgraded one step, “credit investors are looking at a company that is close to high-yield with significant container industry exposure, which is very volatile earnings and cash flow wise,” Borsting said. For Maersk to stay investment grade, “it needs to scale the balance sheet conservatively and with a clear margin of safety versus a high-yield rating.”

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