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Three Become One

31 October 2016 by lberuti

MITSOL ( Mitsui O.S.K. Lines Ltd ), KAWKIS ( Kawasaki Kisen Kaisha Ltd ), and NIPYU ( Nippon Yusen Kabushiki Kaisha ) plan to merge their container businesses to create a company that will control 7 percent of the box-shipping trade. The idea is to take some competitive pressure off the 3 companies by rationalizing their overlapping shipping routes. NIPYU‘s liner trade business made a pretax loss for the three past quarters. KAWKIS’s container-ship operations have made a pretax loss for the past five quarters, while MITSOL’s have made a pretax loss for the last 20 quarters. The environment for this sector is not good, and the filing for bankruptcy protection of Hanjin Shipping over the summer only served as a stern reminder of the extreme difficulties the industry is experiencing to recover from the slump that has plagued it since the global financial crisis. Most analysts reckon it is better to do something than not do anything, and getting bigger could be a way to improve the outlook according to NIPYU’s president. Investors cheered the move and sent NIPYU’s 5-year risk premium 8bps tighter at 69bps, MITSOL’s 20bps tighter at 125bps and KAWKIS’s 15.5bps tighter at 147.5bps. With all 3 names in iTraxx Japan Series 26, they explained 100% of today’s index tightening. Meanwhile, the broader credit market was understandably quiet as part of Europe will be out tomorrow. Variations were contained, but credit felt a bit weak, and more so in the US than in Europe.