(The following was released by the rating agency)
TOKYO (Standard & Poor‘s) July 4, 2012--Standard & Poor’s Ratings Services today said Japan-based transportation and shipping company Kawasaki Kisen Kaisha Ltd.’s (BB/Stable/--) planned equity issuance and subordinated loan financing announced July 2 had no impact on the ratings on the company.
Kawasaki Kisen plans to raise about JPY28.6 billion through an issuance of new shares and a secondary share offering and JPY30 billion through a subordinated loan. The company plans to use the funds for capital expenditures and repayment of existing debt. We view the planned equity issuance positively because it should enhance the company’s capital, which deteriorated due to an over JPY40 billion net loss in fiscal 2011 (ended March 31, 2012). Nevertheless, we do not believe the equity issuance would materially change the company’s financial risk profile.
We assess the planned subordinated loan as having low equity content and treat it as debt in our calculation of financial ratios. At the same time, the company’s intention to use some of the funds raised through the subordinated loan to repay its existing debt leads us to believe the subordinated loan financing will likely have only limited adverse impact on Kawasaki Kisen’s financial risk profile.
Under our criteria, we may recognize as intermediate equity a corporate issuance of a hybrid security with a moderate step-up in coupon rate before the 10th year of its duration and a legally binding replacement capital covenant, but would recognize as low equity one with a mere intent-based replacement provision. However, in our opinion, the company’s intention to use some of the funds raised through the subordinated loan to repay existing debt should limit a potential increase in debt to some extent. Moreover, given the loan’s long-term characteristics, we view subordinated loan financing favorably because it should help stabilize the company’s financing structure.
Factoring in planned equity issuance as capital and the subordinated loan as debt, our calculations suggest the ratio of Kawasaki Kisen’s debt to capital (before adjustments) will remain high at 68%, compared with 69% as of March 31, 2012. The current ratings reflect our expectation that the company’s weak financial standing will recover over the next two years.