CMA CGM – update following new 2026 bond deal and Maersk/Hapag Lloyd guidance upgrade
All,
We have updated our projections and comments to reflect the information we learned from the CMA CGM bond roadshow, and the Maersk/Hapag Lloyd guidance upgrade. We also incorporate the new liquidity projections following the new EUR525m 2026 unsecured bond.
Please find our analysis here.
Our long position on the 2021 bonds for 3% of the NAV is being taken out by the company's exercise of the early call option at 100. We remain long the 2022 bonds for 2% of the NAV at around 100. We are not considering the new 2026 bonds at this stage.
The 2026 bonds mature only a few months before that the final extendable maturity of the state-backed loans. This leaves them at a much higher risk of impairment, especially if competitive dynamics in the sector deteriorate once more.
The positive reaction of the sector to the double challenges of IMO 2020 and the major contraction of trade volumes in 2020 suggests to us that the structural improvement of its underlying dynamics is at least partially a reality. The positive momentum of the sector is unlikely to reverse over the next 4 quarters, and with the cyber attack behind the company at a lower than expected cost (USD50m before insurance payouts vs Maersk's USD300m), investors could start to believe that the CMA/shipping credit story has fundamentally changed into a new level.
The 2025 bonds benefit from our projected liquidity cushion for the company after 2022, which at USD1.8bn (before FCF and interest) is more than enough to offset any potential weakening of the business into late 2021 to 2024. We see price discipline of the sector holding up to at least until late 2021, when the tapering off of IMO-related refurbishments (adding back capacity), and the normalization of the oil products market, should lead to a normalization of margins. This should support FCF at least until early 2022.
As always, feel free to reach out if you want to exchange ideas on CMA CGM.
Juliano