Through this extension to its established maritime equity research offering Drewry is now able to provide a full investment research service which includes in-depth analysis of the credit instruments that underpin corporate capital structure and provide an investment proposition in asset allocation for institutional investors. Debt capital is a key source of funding for the maritime sector and as regulatory burdens restrict capital availability more companies are expected to tap the debt capital markets in coming years.
Commenting on the launch, Rahul Kapoor, Head – Drewry Financial Research Services Ltd said: “We believe there is a growing need for objective, independent credit research on the highly complex bond structures within the maritime sector. The new offering provides an impartial view of both global maritime bonds and listed credit instruments and will help market participants analyse their investments as well as monitor the creditworthiness of counterparties. We aim to provide our clients with comprehensive solutions that combine industry-leading insight with independent equity, credit and bespoke maritime research of the highest quality.”
Launching with a rigorous analysis of the listed bonds of the three major container shipping companies, A.P. Moller Maersk, CMA CGM and Hapag Lloyd AG the service offering will expand to cover other maritime sectors including port operators, dry bulk, tanker and gas shipping.
In the current interest rate environment, Drewry favours bond issues that lie higher on the risk spectrum with a short duration. Both CMA CGM’s and Hapag Lloyd’s bonds satisfy our bond picking criteria and have notes outstanding in the high-yield segment with low duration risk in many instances. However, the notes on many occasions trade above par and we do not believe the risk return profile is attractive based on the credit outlook for the issuers. We believe the rally since the third quarter of 2016 is stretched and recovery is largely priced in. Therefore we see downside risk for bonds from the current levels as credit metrics are about to worsen in full-year results and the probability of a rating downgrade is significant as highlighted by the rating agencies.
Drewry Maritime Financial Research: Credit Research Assessment Criteria
Issuer credit outlook
- Positive: We anticipate an improvement of the issuer’s credit profile, which may be accompanied by an upgrade by rating agencies.
- Stable: We do not expect the credit profile of the issuer to change significantly.
- Negative: We anticipate a deteriorating credit profile for the issuer, which may result in a downgrade by rating agencies.
Bond valuation
- Attractive: We expect the bond to generate a total return higher than the average return of a benchmark, which includes instruments with a similar credit profile and duration risk issued in the same currency. Our recommendation can stem from a positive view on the issuer’s credit profile not fully reflected in the price, the unduly high risk premiums, the probability of the issuer calling the instrument or deferring interest payments, as well as external factors such as regulatory intervention.
- Neutral: Bonds that we view as fairly valued. We expect the instruments to produce a total return in line with the average return of a broad bond benchmark consisting of instruments with a similar credit and duration risk, and issued in the same currency.
- Negative: We believe that the credit profile of the issuer is not fully reflected in the current market valuation and we expect a total return below the average return from a bond benchmark consisting of instruments with similar credit and duration risk, and issued in the same currency.
