CHILEAN shipping line CSAV has been further downgraded by credit rating agency Standard & Poor, lowering the carrier's rating from a B- to a BB- rating, and keeping the company on its "negative" watch.
S&P is reported to have slammed CSAV's operational and financial situation within an industry that has taken an unprecedented hit in its latest report.
"The action reflects our opinion that the gap between supply and demand in container shipping markets is currently far from narrowing and the industry will therefore continue to face very challenging conditions in 2009 and probably 2010," said the S&P report.
"Within this scenario and absent a significant restructuring of its business strategy, we expect CSAV to continue posting significant losses that would challenge its credit quality by further eroding its operational performance, its financial risk profile, and its liquidity position, and that could lead the company to delay payments to lessors."
CSAV lost US$39 million in 2008, despite gains from fuel hedging that were "backfiring this year, as prices have submerged below the level the line guaranteed in 2008." S&P also noted that CSAV has recently announced it was seeking help from a German shipping bank to redirect its business model.
"CSAV recently announced that it has retained HSH Corporate Finance GmbH to help it redesign its business strategy, which in our opinion speaks to the disappointing results of the current business model and the company's need to further restructure its operations to improve profitability, one of its main weaknesses when compared with other rated peers," S&P said.
According to S&P, the carrier is too dependent on off-balance sheet financing the chartering of vessels.
"The ratings on CSAV reflect the company's weak business risk profile and highly leveraged financial profile," the report said. "The company's modest business position in the volatile container shipping market is the result of its weak operating efficiency, particularly in the most competitive long-haul routes such as the east/west trades. It also has an aggressive ship-management strategy (involving heavy use of a chartered fleet) in a higher-than-average risk industry," it said.
"The company's strong positioning in the South American west coast routes (that stem from its longstanding relationships with major Chilean exporters) and its port services operations in Chile's major ports (which provide CSAV with a relatively predictable stream of profits) partially mitigate the negative factors," said S&P.
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