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RAM Ratings affirms MTT Shipping’s ratings at AA3/Stable/P1
Published on 30 Oct 2024.
RAM Ratings has affirmed MTT Shipping Sdn Bhd’s (the Company’s) AA3/Stable/P1 corporate credit ratings and the same ratings of its Islamic Medium-Term Notes and Islamic Commercial Papers Programme with a combined aggregate limit of up to RM1.5 bil.
The affirmations are based on expectations that MTT Shipping will continue to register strong debt coverage of 0.40 times and above, supported by its market leadership in the domestic container liner shipping sector. The Company is anticipated to grow its reach across the Asia-Pacific region while managing debt levels as it completes its ongoing major fleet expansion exercise by early next year.
MTT Shipping’s credit metrics have remained strong despite challenging operating conditions. Global average freight rates corrected downwards in FY Dec 2023 as global capacity picked up and supply shocks from the pandemic and Russia-Ukraine war reversed. The increased capacity from foreign players on domestic routes resulted in industry-wide dampened revenue and margins despite overall container volume growth.
Combined with reduced charter hire demand, MTT Shipping’s operational cashflows were weaker from the previous year. However, the impact was offset by lower-than-expected debt requirements for its fleet expansion programme, with greater reliance placed on internal cash generation and spending on new vessels deferred. This led to stronger than forecasted funds from operations debt coverage (FFODC) of 0.57 times for fiscal 2023 and more moderate gearing of 0.53 times.
The volatile supply and demand dynamics of the shipping industry remain a limiting factor to the Company’s ratings. The Red Sea attacks since late 2023 have reintroduced strain on supply chains and pushed rates back up this year, which were further elevated in mid-2024 by a demand surge following US tariff hike announcements on goods imported from China. Further demand-driven shifts are expected to arise from the outcome of the US elections, other geopolitical tensions and a relatively weaker post-pandemic global economic outlook.
Still, MTT Shipping benefits from relative stability as its income is derived from plying domestic and some regional routes which have a more stable trade volume base and exhibit less aggressive freight rate movements. Further income protection is afforded by the recent reinstatement of the cabotage policy in Sarawak. Even under RAM’s conservative scenario of declining container shipping volumes and gaps between charter hire contracts at lower rates, MTT Shipping’s projected debt coverage holds up well, with FFODC standing at 0.40 times and above over the next few years. As no significant debt drawdown is anticipated for further major fleet expansions beyond this year, our overall expectations of steady credit metrics will hinge on management’s ability to generate sufficient returns on its expanded fleet.
Analytical contacts
Julian Chan
(603) 3385 2486
julian@ram.com.my
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2024 by RAM Rating Services Berhad
