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Against The Tide

02 September 2019 by jbchevrel

The Marseille-based shipping giant CMA CGM (ticker: CMACG) outperformed the broader euro high yield CDS complex, with the 5y CDS tighter by c45bp, on reports that China Merchants Group is in talks to invest in port assets owned by CMACG. The state-owned Chinese firm wants to diversify geographically. The deal could be some $100Ms, according to unidentified sources. The positive reaction in credit reflects that such divestment would help CMACG reduce its debt, especially after its profile was worsened post Ceva Logistics AG acquisition. Talks are still ongoing, and the deal hasn’t been confirmed yet. For reference, China Merchants Port had already bought 49% in CMACG’s Terminal Link unit (13 container terminals in US, France, Greece, Morocco and Korea) for c€400M in 2013. In cash space, € 2022s and 2025s rose by more than +2c, to the richest in two months. While CMACG had a reasonably strong Q1 (revenue +37% YOY volume carried +4% YOY fleet capacity +7% YOY), the credit profile will remain dependent on efforts to curb expenses (cost savings target $1.5B). It is still a ~7x-leverage company currently losing money (-$43M in Q1-19). Liquidity-wise, CMACG has c$2B, with cash on balance sheet standing at $1.7B plus they have $0.4B of undrawn facilities. As new tariffs have kicked in this weekend between China and the US, it is worth reminding that CMACG is super sensitive to global trade. And any short-term continuation of growth in SEA-US volume can be pessimistically interpreted as a front running of future higher tariffs between the 2 countries.