Debt crisis looming for CMA CGM

CMA CGM may soon need to pay a heavy price for the aggressive expansion program it has undertaken as it seeks to reduce its estimated $5.6Bn debt burden.

The French company announced last week that it has been forced to establish a committee comprising its main lending banks that will address the carrier?s immediate funding needs. The move comes as the carrier faces an unprecedented cash haemorrhage, spending more than $1.2Bn in the first half of 2009 alone to cover operating losses as well as to pay for new ship purchases.

The dramatic growth of CMA CGM since 2000, when it operated only 123,000 teu of slot capacity to its current 1.02 Mteu, has transformed it from a niche carrier to become the third largest liner operator globally. Over the same period, CMA CGM has seen its market share grow from 2.4% in 2000 to its current 7.6%.

The carrier has also grown its owned fleet by 850% during the last ten years, from 36,500 teu in 2000 to 345,500 teu as at October 2009. The owned ship capacity is due to double over the next few years, as a further 40 owned ships (total 369,500 teu) are

in the carrier?s orderbook with delivery originally scheduled for 2009-2011.

Part of the $5.1Bn orderbook, comprising the 40 owned ships, will now be delayed and a few of them may be cancelled. The company confirmed that it was in negotiation with shipyards but did not provide further details on its plans. All of CMA CGM?s ships currently committed have been ordered from Korean shipbuilders Hanjin, Hyundai, Samsung and Daewoo.

Apart from the owned ships, CMA CGM also has 14 post-Panamax ships committed on long term charter arrangements due over the next few years. CMA CGM did not indicate whether it was seeking to renegotiate the charter rates like some of the major carriers have already done.

The creditor banks? committee has six weeks, until mid-November, to come up with proposals for a restructuring of CMA CGM?s debt. Apart from a moratorium on debt repayment, some of the company?s debts may be converted into equity. The carrier was also reported to be seeking fresh capital injections, including from the French FSI sovereign wealth fund.

The carrier is expected to post significant losses this year, with limited prospects of a recovery in 2010. Its debt had stood at $5.2Bn as at December 2008 and has increased since then as CMA CGM sought to fund its massive newbuilding program. In addition, the company also has significant commitments to new port projects and is due to complete the construction of its 33-floor Marseille office building in the next few months.