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Wednesday, May 27, 2009

Mitsui O.S.K. Says It May Acquire Bulk Shipping Line

Wednesday, 27 May 2009

Mitsui O.S.K. Lines Ltd., the world’s largest merchant fleet operator, may bid for an overseas bulk- shipping line as plunging demand and the global recession send company valuations tumbling. “We’re willing to spend several tens of billions of yen on an acquisition,” Kenichi Yonetani, a senior managing executive officer at the company, said in an interview in Tokyo yesterday. He declined to elaborate further on possible targets.
Japan’s most profitable shipping line expects to be able to borrow funds as it has avoided the worst of a collapse in commodity-shipping rates by locking in fees through long-term contracts. The rates meltdown, caused by rising capacity and slower Chinese demand for iron ore, has pushed at least four dry-bulk shipping lines into bankruptcy.
“This year is a chance for people who can buy,” Yonetani said. “We don’t see a problem in getting financing from banks to pay for our investment.”
The shipping line’s interest-bearing debt will increase 27 percent to 890 billion yen in the year ending March 31 as the company buys new vessels. The following year, it may increase another 12 percent to 1 trillion yen, he said. The company will pare capital spending in the fiscal year starting April 2011, he added.
Economic Recovery
“In the short term, we may see a further drop in demand but I’m forecasting a recovery in the global economy in 2010,” said Masayuki Kubota, who oversees the equivalent of $1.9 billion in assets in Tokyo at Daiwa SB Investments Ltd. “Demand for iron ore will increase in the long term.” Kubota holds Mitsui O.S.K. shares, he said.
The shipping line fell 0.5 percent to 628 yen at the close of trading in Tokyo. The shares have gained 16 percent this year. Nippon Yusen K.K., Japan’s biggest shipping line by sales, has fallen 22 percent.
Pacific Basin Shipping Ltd., Hong Kong’s largest operator of commodity vessels, has also said it may bid for bulk-shipping lines as plunging rates press weaker players. Armada (Singapore) Pte, Denmark-based Atlas Shipping A/S, Odessa, Ukraine-based Industrial Carriers Inc. and London-based Britannia Bulk Holdings Inc. have all turned to courts for protection from creditors since the rates collapse began last year.
The Baltic Dry Index, a measure of commodity-shipping rates, has plunged 76 percent from a record last year. The measure has more than tripled this year to 2,786 points on May 22 as China’s economic stimulus helps revive demand.
Mitsui O.S.K predicts a profit of 40 billion yen this fiscal year, a drop of 69 percent compared with last year. Rival Nippon Yusen forecasts a 68 percent decline in profit to 18 billion yen.
Mitsui O.S.K. plans to boost its fleet of bulk carriers, tankers and car carriers by 6.5 percent to 740 ships by the end of this fiscal year. Its overall fleet will increase to 900 ships from 861.
Source: Bloomberg