TRIS Rating Co., Ltd. has upgraded the company rating of Regional Container Lines PLC (RCL) to "A-" from "BBB+" and has also upgraded the rating of RCL's Bt2,500 million senior debentures (RCL096A) to "BBB+" from "BBB" with "stable" rating outlook. The ratings reflect the company's strong market position among regional feeders which is the result of its large fleet size, frequency of service and young age of ships. The ratings also take into consideration RCL's capable and experienced management team and the global trend toward increased use of container shipments. However, these strengths are partially offset by the cyclical, highly competitive environment and the company's relatively high leverage, which is the nature of the capital intensive ship transportation business. Most of its vessels are pledged to its lenders; therefore, RCL's debentures are one notch below the company rating.
The "stable" outlook is based on the expectation that RCL will be able to maintain its strong market position. The outlook also reflects the expectation that management will exercise discipline in utilizing the strong cash flow generated by the business to both fund its expansion and pay dividends.
TRIS Rating reported that RCL is one of the top-40 shipping operators in the world, according to Containerisation International, based on fleet size. The fleet sizes of operators vary based on the number of owned and chartered vessels operated. With a total fleet capacity of approximately 40,731 TEUs (twenty foot-equivalent unit), RCL owns 27 vessels and charters 13 vessels, giving it one of the largest container fleets in Southeast Asia. In addition, RCL purchased six new ships that will be delivered within 2005, increasing capacity by 13,668 TEUs. According to the Port of Singapore Authority (PSA) and RCL's local agencies' statistics, RCL has the highest feeder market share between Singapore, the Philippines, Malaysia, and Thailand. RCL's large market share stems from the high number of trips it operates per week multiplied by its huge fleet size.
TRIS Rating said RCL owns most of its ships, which enables it to offer frequent voyages and operate on flexible schedules. Its competitors operate smaller number of fleets, thereby providing RCL with a competitive advantage as RCL is able to offer greater frequency of service. Most of RCL's vessels are younger than those fleets of other publicly-traded Thai shipping operators. The company spent approximately US$166 million to acquire six new vessels while this level of capital expenditures is considered high. New ships are more fuel-efficient and are likely to require less labor than older ships. Because of this huge investment in new ships, RCL's debt to capitalization ratio remained at 46.5% at the end of June 2005. However, its financial leverage will improve to be in the range of 29%-37% in the next 2-3 years which is better than originally expected because the company was able to substantially finance its expansion from high internal cash generation during the exceptionally strong market in 2004 and 2005. RCL's management team has extensive experience. Its Thai founder has been in the shipping business since 1973. Top management consists of Thais, Singaporeans and Hong Kongers who have long experience with world-class ship operators. Other than the traditional Shipper-Owned-Containers (SOC) business, RCL has expanded into Carrier-Owned-Containers (COC) business. While SOC largely depends on the global economy and main line operator decisions, COC relies more on regional economic conditions and retail customers.
The container shipping industry is highly cyclical. Each cycle has traditionally spanned 5-6 years; however, in recent years, there has been a shortening of cycles. Freight rates are also volatile and it is not easy for operators to match construction of new ships to capture uptrend in the container industry cycle. Demand for shipping is closely linked to economic activities and trade. The health of the global economy has a profound impact on the SOC business; whereas, intra-Asia trade is a major factor in the COC business, TRIS Rating said. -- End
Regional Container Lines PLC (RCL) Company Rating: Upgraded to "A-" from "BBB+" Issue Rating: RCL096A: Bt2,500 million senior debentures due 2009 Upgraded to "BBB+" from BBB" Rating Outlook: Stable
The "stable" outlook is based on the expectation that RCL will be able to maintain its strong market position. The outlook also reflects the expectation that management will exercise discipline in utilizing the strong cash flow generated by the business to both fund its expansion and pay dividends.
TRIS Rating reported that RCL is one of the top-40 shipping operators in the world, according to Containerisation International, based on fleet size. The fleet sizes of operators vary based on the number of owned and chartered vessels operated. With a total fleet capacity of approximately 40,731 TEUs (twenty foot-equivalent unit), RCL owns 27 vessels and charters 13 vessels, giving it one of the largest container fleets in Southeast Asia. In addition, RCL purchased six new ships that will be delivered within 2005, increasing capacity by 13,668 TEUs. According to the Port of Singapore Authority (PSA) and RCL's local agencies' statistics, RCL has the highest feeder market share between Singapore, the Philippines, Malaysia, and Thailand. RCL's large market share stems from the high number of trips it operates per week multiplied by its huge fleet size.
TRIS Rating said RCL owns most of its ships, which enables it to offer frequent voyages and operate on flexible schedules. Its competitors operate smaller number of fleets, thereby providing RCL with a competitive advantage as RCL is able to offer greater frequency of service. Most of RCL's vessels are younger than those fleets of other publicly-traded Thai shipping operators. The company spent approximately US$166 million to acquire six new vessels while this level of capital expenditures is considered high. New ships are more fuel-efficient and are likely to require less labor than older ships. Because of this huge investment in new ships, RCL's debt to capitalization ratio remained at 46.5% at the end of June 2005. However, its financial leverage will improve to be in the range of 29%-37% in the next 2-3 years which is better than originally expected because the company was able to substantially finance its expansion from high internal cash generation during the exceptionally strong market in 2004 and 2005. RCL's management team has extensive experience. Its Thai founder has been in the shipping business since 1973. Top management consists of Thais, Singaporeans and Hong Kongers who have long experience with world-class ship operators. Other than the traditional Shipper-Owned-Containers (SOC) business, RCL has expanded into Carrier-Owned-Containers (COC) business. While SOC largely depends on the global economy and main line operator decisions, COC relies more on regional economic conditions and retail customers.
The container shipping industry is highly cyclical. Each cycle has traditionally spanned 5-6 years; however, in recent years, there has been a shortening of cycles. Freight rates are also volatile and it is not easy for operators to match construction of new ships to capture uptrend in the container industry cycle. Demand for shipping is closely linked to economic activities and trade. The health of the global economy has a profound impact on the SOC business; whereas, intra-Asia trade is a major factor in the COC business, TRIS Rating said. -- End
Regional Container Lines PLC (RCL) Company Rating: Upgraded to "A-" from "BBB+" Issue Rating: RCL096A: Bt2,500 million senior debentures due 2009 Upgraded to "BBB+" from BBB" Rating Outlook: Stable