UASC posts biggest operating loss of any major container line

United Arab Shipping Company (UASC) has posted its financial figures publically for the first time, revealing a -9% operating loss – the greatest of any major container carrier, according to analysis by Alphaliner.

The consultancy said the loss could have big implications for UASC’s merger with publically listed German carrier Hapag-Lloyd, which was agreed in July.

The Kuwait-based container line posted an operating loss of -$299m and a net loss of -$384m in 2015. Revenue for the year was $3.32bn.

UASC’s operating losses have continued this year, and have been surpassed only by the container divisions of struggling Korean lines Hanjin Shipping and Hyundai Merchant Marine, Alphaliner said in its newsletter on Tuesday.

The Korean lines reported operating losses of -9.8% and -18.5% respectively during the first six months of 2016, while UASC posted a loss of -8.6%.

Alphaliner attributed UASC’s persistent losses to its rapid fleet expansion and newbuilding programme for ultra-large container vessels, which since 2013 has comprised six 19,870-teu and eleven 14,993-teu boxships. Two of the latter newbuildings are awaiting delivery.

“The expansion has come at a heavy price for UASC. While the total value of ships owned by the company has increased by $1.72bn since the end of 2014, the carrier’s net debt has increased by some $1.81bn. Over the same period, UASC’s total equity has shrunk from $2.46bn to only $1.89bn due to the heavy losses incurred despite the addition of these new ‘eco’ ships,” Alphaliner said.

The losses also cast a shadow over UASC’s merger with Hapag-Lloyd, which the consultancy called “lop-sided”.

UASC’s contribution to the merged company was valued between 28% and 49% of the combined entity, based on the two companies’ relative net book values at the end of 2015. The broad range is dependent on whether goodwill and other intangible assets were taken into account, Alphaliner noted.

“The final relative valuation agreed by UASC leads its shareholders to obtain only 28% of the shares of the combined entity, at the very low end of the valuation range. They would also not enjoy any benefits from the potential synergy savings from the merger,” the consultancy said.

“Based on Hapag-Lloyd’s current market capitalisation of €1.92bn [$2.16bn], the total value of UASC’s shares would be worth only €745m ($845m), or a massive 55% discount to its current book value.”