TRIS Rating Co., Ltd. has affirmed the company rating of Regional Container Lines PLC (RCL) at “A-” and has also affirmed the “BBB+” rating to RCL’s senior debentures (RCL096A). The outlook remains “stable”. The ratings reflect RCL’s strong market position among regional feeders, which is the
result of its fleet size, frequency of service, and the young age of its 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 business environment and the company’s substantial capital expenditures planned for the next five years. Since
around 69% of RCL’s vessels are pledged to lenders, the rating of its debentures are one notch below the company rating.
The “stable” outlook is based on the expectation of RCL’s ability to sustain its strong market position and maintain its financial status at an acceptable level during a downward industry trend. The outlook also reflects its management’s discipline in utilizing its strong cash flow generated by operations to fund an expansion and dividend payments, rather than relying on debt financing.
TRIS Rating reported that RCL is the largest feeder operator among ASEAN shippers. According to
the Port of Singapore Authority (PSA) and RCL’s local agencies’ statistics, the company 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. RCL is also one
of the top 30 shipping operators in the world based on fleet size. Currently, the company has a total
capacity of 51,736 TEUs (twenty foot-equivalent unit), from 34 vessels of its own and eight charter
vessels. As it owns most of its vessels, RCL can offer frequent voyages and operate on flexible
schedules. While its competitors operate smaller fleets, RCL’s larger fleet size provides a competitive
advantage through greater frequency of service. In addition, most of RCL’s vessels are young. Therefore,
the company has benefited from more efficient use of fuel and lower maintenance expense.
TRIS Rating said, the container shipping industry is highly cyclical. Each cycle has a traditional span of 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 uptrends in the container
shipping industry cycle. Demand for shipping is closely linked to economic activities and trade. The health of the global economy has a profound impact on liner business, whereas intra-Asia trade is a
major factor in the feeder business. The shipping industry hit a cyclical peak and freight rate rose considerably during 2004-2005. However, the cycle has started to turndown in 2006. RCL’s operating margin has dropped
for the first six months of 2006 because freight rates fell while bunker oil cost soared. Although RCL
has incurred huge capital spending during the last two years, its debt to capitalization ratio has
fallen satisfactorily because it utilized excess cash generated during the upturn in the business cycle
to fund some of its expansion plan. However, since the industry has already passed the peak in freight
rates, it will be a challenge for the company to sustain its financial leverage.
TRIS Rating sees that the coup against Prime Minister Thaksin Shinawatra launched by the Council for Democratic Reform (CRD) on 19 September 2006 will have no immediate effect on the ratings of RCL in the short term. During the 1-year period before the general election, TRIS Rating will closely monitor the situation and will review the ratings of RCL if any effects occur in the medium term. -- End
Regional Container Lines PLC (RCL)
Company Rating: Affirmed at A-
Issue Rating:
RCL096A: Bt2,115.4 million senior debentures due 2009 Affirmed at BBB+
Rating Outlook: Stable
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Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.
result of its fleet size, frequency of service, and the young age of its 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 business environment and the company’s substantial capital expenditures planned for the next five years. Since
around 69% of RCL’s vessels are pledged to lenders, the rating of its debentures are one notch below the company rating.
The “stable” outlook is based on the expectation of RCL’s ability to sustain its strong market position and maintain its financial status at an acceptable level during a downward industry trend. The outlook also reflects its management’s discipline in utilizing its strong cash flow generated by operations to fund an expansion and dividend payments, rather than relying on debt financing.
TRIS Rating reported that RCL is the largest feeder operator among ASEAN shippers. According to
the Port of Singapore Authority (PSA) and RCL’s local agencies’ statistics, the company 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. RCL is also one
of the top 30 shipping operators in the world based on fleet size. Currently, the company has a total
capacity of 51,736 TEUs (twenty foot-equivalent unit), from 34 vessels of its own and eight charter
vessels. As it owns most of its vessels, RCL can offer frequent voyages and operate on flexible
schedules. While its competitors operate smaller fleets, RCL’s larger fleet size provides a competitive
advantage through greater frequency of service. In addition, most of RCL’s vessels are young. Therefore,
the company has benefited from more efficient use of fuel and lower maintenance expense.
TRIS Rating said, the container shipping industry is highly cyclical. Each cycle has a traditional span of 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 uptrends in the container
shipping industry cycle. Demand for shipping is closely linked to economic activities and trade. The health of the global economy has a profound impact on liner business, whereas intra-Asia trade is a
major factor in the feeder business. The shipping industry hit a cyclical peak and freight rate rose considerably during 2004-2005. However, the cycle has started to turndown in 2006. RCL’s operating margin has dropped
for the first six months of 2006 because freight rates fell while bunker oil cost soared. Although RCL
has incurred huge capital spending during the last two years, its debt to capitalization ratio has
fallen satisfactorily because it utilized excess cash generated during the upturn in the business cycle
to fund some of its expansion plan. However, since the industry has already passed the peak in freight
rates, it will be a challenge for the company to sustain its financial leverage.
TRIS Rating sees that the coup against Prime Minister Thaksin Shinawatra launched by the Council for Democratic Reform (CRD) on 19 September 2006 will have no immediate effect on the ratings of RCL in the short term. During the 1-year period before the general election, TRIS Rating will closely monitor the situation and will review the ratings of RCL if any effects occur in the medium term. -- End
Regional Container Lines PLC (RCL)
Company Rating: Affirmed at A-
Issue Rating:
RCL096A: Bt2,115.4 million senior debentures due 2009 Affirmed at BBB+
Rating Outlook: Stable
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Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.