Maersk’s $6.5 Billion Shareholder Gift Leaves Bonds Dry

As A.P. Moeller-Maersk A/S prepares to return a record $6.5 billion to shareholders next month, its bond investors are losing out.

Denmark’s biggest company is selling its 20 percent stake in Danske Bank A/S, which will trigger extra dividends of about $5.5 billion in April. In addition, Maersk will pay ordinary shareholder dividends of about $1 billion.

“We see the sale as another step toward creating as much value for the shareholders as possible,” Jesper Langmack, managing director at PFA A/S, Denmark’s biggest commercial fund, said in an e-mailed reply to questions. Copenhagen-based PFA owns about $375 million in Maersk shares but hasn’t invested in the company’s bonds.

Maersk said in its Feb. 25 earnings report it expects the Danske sale to be credit neutral. But according to a note published by Moody’s Investors Service the next day, the sale is credit negative.

“Maersk will no longer benefit from the financial flexibility related to the Danske Bank stake,” Marie Fischer-Sabatie, a senior vice president at Moody’s, said in the note. “The 20 percent stake in Danske Bank was indeed an asset of a large value, which Maersk had the possibility to monetize in case of need.”

Less Headroom

Standard & Poor’s also said the sale will reduce Maersk’s flexibility. It gives Maersk “somewhat less headroom within the rating,” Per Karlsson, a credit analyst at S&P, said in a note. Both Moody’s and S&P said they won’t change their ratings because of the divestment.

Maersk, once Europe’s biggest issuer of unrated corporate bonds, invited the two ratings companies to grade its debt in September 2013 and got a BBB+ rating at S&P and a Baa1 grade at Moody’s.

After an initial drop in yields the next day, Maersk’s 4.375 percent note due November 2017 has since returned bondholders about 5.5 percent, including reinvested interest. The shares have delivered investors about 51 percent, included reinvested dividends, over the same period. So far this year, the bond has returned 0.52 percent compared with 23 percent for the share.

Danske Markets on Feb. 25 lowered its recommendation on Maersk bonds to market-weight from overweight, citing “shareholder friendly initiatives,” a “tight valuation,” as well as a risk that the company increases debt by making acquisitions.

Shareholder Friendly

“The shareholder friendly steps include share buy-backs and increased dividend payments,” Brian Boersting, an analyst at Danske, said in the note. “We continue to believe that Maersk has strong credit metrics for the BBB+ rating but as Maersk has stated that the company sees itself as a BBB+ company, we doubt rating agencies will make a rating upgrade.”

Maersk, which owns a container shipping line, an oil unit, a drilling division and a port operator, last year sold a stake in its supermarket unit, raising cash proceeds of about $3.2 billion. The sale prompted the company to start its first ever share buy-back program, purchasing $1 billion in stock.

The company said in September it planned to be more active in the bond market after selling its first dollar-denominated note. Maersk will raise the bond portion of its debt to about half from roughly a third, Jan Kjaervik, head of group finance, said at the time.

While the sale of Danske created value for Maersk share holders, any effect for bond holders is “limited,” Langmack at PFA said.

“The credit was strong before and also after this news,” he said.

Before it's here, it's on the Bloomberg Terminal.