CMA CGM blasts Bloomberg report on its fragile financial position

MARSEILLES` shipping giant CMA CGM has blasted Bloomberg`s recent pronouncement that the world`s third largest carrier faces a 90 per cent chance of default due to falling bond prices and shrinking freight rates.

"We are surprised to see the value of the debt drop so much," conceded CMA CGM chief financial officer Michel Sirat to Bloomberg. "Our bonds are whipsawed because of prevalent fears in financial markets and questions about our liquidity, but we have a strong cash position and are fully compliant with our debt covenants."


Facing the sharp decline in its bonds, the carrier was induced to issue a statement on August 3, saying it faced "poor performance very seriously," and had no plan for major new investments in 2011 and 2012.


Despite these earlier cautions, CMA CGM issued a statement against the Bloomberg assessment, denying the possibility of default and dismissing Bloomberg`s report as a "mixed bag of unrelated facts".


Said Guillaume Foucault, of Financial Dynamics public relations agency: "There is absolutely no liquidity on CMA CGM`s credit default swaps."


Mr Foucault said the swap price is "a theoretical calculation. Even on the group`s bond, there is a very limited liquidity."


But Bloomberg stressed the company`s heavy debt burden. CMA CGM posted US$5.3 billion of net debt at the end of June against a first half pre-tax profit of $685 million, showing debt three times operating income. CMA CGM has also issued $459 million in 8.875 per cent bonds maturing in April 2019.


In response to Bloomberg`s saying that freight rates had collapsed to "practically" zero excluding surcharges on Asia-Europe trade lanes, Mr Foucault said the softening Asia-Europe rates do not affect CMA CGM`s business much.


"Asia-Europe lines account for only 10 per cent of our trade, and thus give a misleading view of CMA CGM activity," he said. "Our revenues are not fully correlated to the freight rates, notably thanks to the group`s long-term contracts."


CMA CGM was one of the handful carriers that were able to gain in the first half of 2011. In August, it posted an eight per cent increase in first-half revenue to US$7.3 billion and had $675 million of cash at the end of July.