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35-Year Can Kicking

29 March 2019 by jbchevrel

Kawasaki Kisen (KAWKIS) is a transportation company which owns cargo ships, container ships & terminals, tankers and LNG carriers. It is also the highest beta name in iTraxx Japan this year. Today its 5y CDS tightened by -50bp, vs 1.25bp for iTraxx Japan, and -4/+2bp for other iTraxx Japan constituents. From mid FEB to mid MAR, KAWKIS 5y CDS had widened +230bp i.e. more than doubled, reaching a peak at c430bp before reverting to the current c305bp. The roll effect is not to be blamed here, as the roll is virtually nil. Today’s move comes after the news that it will get a JPY 45 billion subordinated loan from Mizuho, the Development Bank of Japan and Sumitomo Mitsui Trust. This 35y loan, due in 2054, will be used to repay debt and for capex on vessels. This confirms the MAR 21 Nikkei report, after KAWKIS announced that its full-year operating loss was forecast to come JPY 21B yen, instead of JPY 5B previously expected. The latter had caused most of the reversal from 400s to 300s in the CDS.