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Shipping line CMA CGM predicts China recovery as its bonds dive

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Via Financial Times

One of the world’s biggest shipping companies, CMA CGM, has said shipments from China are returning to normal, even as investors bet against the French group’s solvency.

Rodolphe Saadé, chief executive of Marseille-based CMA CGM, told the Financial Times: “The warehouses are empty in Europe, they need to order from China to fulfil demand. [Chinese] factories are at 80 per cent of full production, and we think by the end of March the situation will be back to normal.”

However Mr Saadé warned the economic shock was shifting from China to Europe. “Today we can see it’s becoming a global crisis,” he said. “In Europe there is a lot of fear over the coronavirus.”

Fear is stalking CMA GGM itself. The value of the privately held company’s debt has plummeted in the last few weeks, with its five-year bond trading at just 65 cents on the euro, as bondholders brace for heavy losses. The company has a €725m bond maturing in January that will need either refinancing or repaying with an equity raise.

The cost of buying credit-default swaps — a derivative contract that acts like insurance against a company not paying its debt — on CMA CGM has more doubled since the start of the year to pass the 2,000 basis point mark this week. This price implies that the company has a more than 80 per cent chance of defaulting in the next five years.

The company said its bond performance “reflects the volatility of all financial markets — including in this entire sector — in the context of the Covid-19 virus”. CMA CGM also emphasised the progress it was making in its plan to raise over $2bn in cash and credit lines by mid-2020, having already renewed credit lines for $535m and agreed to sell terminals to a joint venture to help raise nearly $1bn.

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CMA CGM came close to the brink after the financial crisis. It narrowly avoided catastrophe as Mr Saadé’s father, Jacques Saadé — the Franco-Lebanese shipping magnate who founded the company — negotiated a combined $750m of capital injections from a Turkish investor and the French sovereign wealth fund in 2010 and 2012.

Mr Saadé said the group’s volumes in February were nearly 8 per cent down on January, as CMA CGM reported a loss of $229m in 2019 compared with a net profit of $34m in the previous year. CMA CGM is trying to turn round its lossmaking Ceva logistics arm, of which it took control in 2018.

Net debt rose $10.1bn to $17.8bn, which CMA CGM attributed largely to new accounting standards.

Mr Saadé said that so intense was the demand for Chinese goods from starved international customers that Ceva Logistics recently chartered 50 aircraft to fly car parts from China to Los Angeles for a big customer in the US.

“We also have clients in Europe asking us to make available ships for containers from Shanghai to Le Havre,” he said.

At the peak of the coronavirus epidemic in China, CMA CGM had 19 of the more than 500 ships in its fleet idle at anchor, according to the company.

Two weeks ago, AP Moller-Maersk, the world’s biggest container shipping company, said the coronavirus would hit its earnings this year as it warned of a “very, very weak February and weak March” because of the deadly epidemic.

Additional reporting by Richard Milne in Oslo

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