Maersk Split Option Bad for Bondholders While Owners Get Richerby
While shareholders in A.P. Moeller-Maersk A/S received a $3 billion gift last week after the century-old conglomerate signaled it was exploring a company split, bondholders took a hit.
Maersk shares jumped 12 percent on Thursday, marking their biggest gain in almost eight years and adding 20 billion kroner ($3 billion) to the company’s market value. But the yield on Maersk’s 1.75 percent 1 billion-euro ($1.1 billion) bond due 2021 rose three basis points, driving down the value of the note.
“We would see it as slightly credit negative to split up the conglomerate structure,” said Brian Boersting, an analyst at Danske Markets. The group’s current structure, with a “high level of diversification, is a credit positive.” Losing that effect threatens to reduce Maersk’s appeal to bond investors.
Over the past decade under Chief Executive Officer Nils Smedegaard Andersen, Maersk has sold off units including a stake in Danske Bank A/S and a supermarket chain to focus on its core areas of oil and shipping. On Thursday, Maersk’s board said it was replacing 57-year-old Andersen with Soeren Skou, the 51-year-old CEO of its container line unit. The move is intended to help Maersk prepare for a group restructuring that may include spinning off some units.
To be sure, bondholders in Maersk are benefiting from demand for Danish assets as part of a broader move into safe-haven markets following Britain’s decision to leave the European Union. But seen in isolation, any decision to break up the conglomerate is a risk for Maersk’s debt investors. S&P Global Ratings, which has a negative outlook on the BBB+ rating it gives Maersk, has signaled that without the conglomerate structure, the grade might be one step lower.
That one-step benefit “could be at risk longer term, in our view, should Maersk decide to divest parts of the current business segments if the proceeds are not used to lower debt and/or invested into new stable business segments,” Boersting said. Danske views it as unlikely Maersk will be cut to junk. “We believe that Maersk will stay committed to its defined financial ratios which are in-line with a strong investment grade credit rating.”