Hapag-Lloyd : Hapag-Lloyd has tapped its 2022 notes to raise an additional € 200m

Hapag-Lloyd has tapped its 2022 notes for € 200m. Proceeds will be used to partially redeem its 2018 notes. - >We change our recommendations on the 2018 notes from Neutral to Reduce and on the 2022 notes from Buy to Neutral - Basically, we expected the partial premature redemption of the 2018 notes. In particular, we expected Hapag-Lloyd to start to redeem its 2018 notes using the proceeds from the capital increase expected this summer. In a footnote in the roadshow presentation held in the context of the 2022 notes issuance, Hapag-Lloyd mentioned that it may redeem € 250m of its 2018 corporate notes with the proceeds from the capital increase. We still believe the company will use the proceeds from the capital increase to redeem its 2018 notes. We believe this is more likely to happen after October 2017, when the call price falls to 100% from currently 101.938%.We change our recommendation from Neutral to Reduce. Looking at the 2018 notes, they are trading at around 103%, meaning that the YTC will be negative for the € 200m part, which will be repurchased at 101.938%. The call notice period for the 2018 notes is 30-60 days. We keep our Neutral recommendation on the 2019 notes.A premature redemption of the 2019 notes also seems possible, in our view. Redemption of the 2019 notes is most likely to happen after October 2018. In October 2018, the 2018 notes will be completely redeemed and the call price for the 2019 notes decreases to 100%. The table on the next page shows our yield analysis based on our assumed redemption dates. These yields are comparable to our peer group (Appendix 3). Given the recent successes in the capital market, we see a risk of another bond issuance in order to redeem the 2019 notes, which have a relatively small volume of € 250m. We change our recommendation on the 2022 notes from Buy to Neutral. The 2022 notes are currently trading at a YTM of 5.9%, well below their initial pricing of 6.75%. This seems overpriced considering i/ our peer group’s average YTW of 6.2% (Appendix 4), and ii/ the company’s deteriorating credit profile after the UASC merger (the combined pro-forma net debt/EBITDA ratio will be 10.5x). Having said that, the improving outlook for the shipping market and the company’s commitment to deleverage its balance sheet in the coming years are supportive for the notes.