CENTRO INTERNAZIONALE STUDI CONTAINERS
ANNO XXXVIII - Numero MAGGIO 2020
WAN HAI STAYS IN THE BLACK, BUT EVERGREEN AND YANG MING'S RED
INK RAISES MERGER SPECULATION
Niche carrier Wan Hai was the only Taiwanese container line to
post a net profit in the first quarter of this year as its larger
compatriots, Evergreen and Yang Ming, traded in the red.
The parlous position of the liner industry has renewed
speculation of a merger of these two into one state-sponsored
container line, a development that would be strongly resisted by
their individual managements.
Following a $27m loss recorded by Yang Ming in Q1, Evergreen
reported a net loss of $15m. But Wan Hai managed to stay in the
black, with a profit of $3m, significantly below its $35m profit for
the first three months of last year.
The trio's results were impacted by weak demand in the latter
weeks of the quarter, due to the coronavirus outbreak in China, and
it is expected that Q2 will be far worse for the liner industry.
Taiwan's Ministry of Transport and Communications announced on
Tuesday it had launched a $1bn funding package targeting its
distressed shipping sector.
Transport and communications minister Lin Chialung is said to
have met with the heads of Evergreen and Yang Ming regarding the
funding package, but there is no evidence that merger talks were on
There is, however, precedence for the consolidation of stoutly
independent compatriot carriers in the merger of Cosco and China
Shipping Container Line in January 2016, and the joining of the
container businesses of K Line, MOL and NYK into ONE, two years
Mr Lin said the ministry would "fully support" the
shipping industry through the pandemic, "to stabilise the
confidence" of customers and meet the need for working capital.
A statement from Evergreen welcome the government's approach but
stressed that the commitment was to act as reassurance for the
country's banks in lending to the shipping industry, rather than as
"Evergreen appreciates the government's initiative, which
is evidence of a forward-looking and precautionary policy. This
government assurance to financial institutions will enable them to
provide soft loans to the local shipping industry. In the face of
the epidemic's impact, the more abundant sourcing of finances will,
if required, strengthen the industry's credit position and ensure
smooth operation of shipping services."
Last time Taiwan's government stepped in to support its two
largest carriers was in 2016, in the wake of the Hanjin Shipping
bankruptcy, when it approved a $1.9bn credit line relief package
with preferential terms to prop up Evergreen and Yang Ming's balance
sheets and boost market confidence.
Subsequently, the state has built up a 48% shareholding in Yang
Ming, but the carrier has struggled to achieve sustained
profitability, in contrast to its larger rival. Indeed, Yang Ming's
board recently approved a private placement for 300 million
preferred shares, expected to be mostly taken up by the state.
Evergreen, ranked seventh in the league of global carriers, is
twice the size of Yang Ming in terms of capacity with a fleet of
1.2m teu. Both have large orderbooks, although Evergreen has 540,000
teu of newbuild ships on order, compared with the 200,000 teu Yang
Ming has under construction.
Unless they can defer the vessel deliveries, the Taiwanese lines
will need to fund high levels of capex in the next two years,
exerting additional pressure on their balance sheets.
Moreover, Evergreen has the biggest commitment to scrubber
technology of all of its peers, with a reported 75% of its 190-ship
fleet earmarked for installations.
Although it is likely to have cancelled some, due to the
substantial narrowing of the price of IMO 2020-compliant low-sulphur
fuel with traditional heavy fuel, the circa-$5m price of
installation and the indirect cost of vessels being out of service
for weeks will have dented its results.
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