Alphaliner: Weak Earnings Lead to Hapag-Lloyd, UASC Merger

Last week’s merger agreement between German shipping major Hapag-Lloyd and United Arab Shipping Company (UASC) was made amid ‘significant financial challenges’ that both companies are facing, according to Alphaliner.

Despite annual synergy savings of USD 400 million, which the company hopes to achieve from the combination of Hapag-Lloyd’s and UASC’s container shipping businesses, the merged carrier will still require additional financial support from its shareholders.

The two companies signed a Business Combination Agreement (BCA) on July 18. Once the regulatory and contractual approvals are obtained, the new Hapag-Lloyd will own and operate 237 vessels with a total transport capacity of around 1.6 million TEU.

The new company is expected to handle an annual transport volume of 10 million TEU and have a combined turnover of approximately USD 12 billion.

At the same time, Hapag-Lloyd issued a profit warning cautioning that lower freight rates and higher bunker costs would result in lower EBIT and EBITDA earnings in the second quarter, with the weak performance expected to persist in the second half of 2016, Alphaliner writes.

Although full details of UASC’s financial position were not disclosed, the company’s earnings are significantly lower than those of Hapag-Lloyd, with an EBITDA of only USD 33 million in 2015, and a net loss estimated by Alphaliner at over USD 350 million last year, after accounting for interest and depreciation expenses.

The combined Hapag-Lloyd/UASC entity plans to raise USD 400 million of new equity through a rights issue that will be underwritten by four key shareholders, Alphaliner said.

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