hapag-lloyd ag...with the addition of uasc's younger and larger fleet, the average age of...

CORPORATES

CREDIT OPINION20 February 2019

Update

RATINGS

Hapag-Lloyd AGDomicile Germany

Long Term Rating B1

Type LT Corporate Family Ratings

Outlook Stable

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Maria Maslovsky +44.20.7772.5502VP-Senior [email protected]

Joao De Almeida +44.20.7772.1393Associate [email protected]

Anke Rindermann +49.69.70730.788Associate Managing [email protected]

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

Hapag-Lloyd AGUpdate to credit analysis following upgrade to B1

Summary Rating RationaleHapag-Lloyd's B1 corporate family rating reflects (1) the company's strengthened businessprofile following the merger with UASC including a top five position with a 7.3% marketshare according to Alphaliner; (2) the flexibility of its fleet, owing to the high number ofchartered vessels that could be redelivered in the next 12 months; (3) an adequate liquidityprofile supported by moderate capex in the next few years owing to UASC's young fleetwith a number of large ships; (4) strong shareholder support; (5) moderate leverage (5.2xdebt/EBITDA in the first nine moths of 2018 including Moody's standard adjustments);(6) commoditized and competitive nature of the container shipping industry with limitedrevenue visibility due to prevalence of short-term contracts and spot trading; (7) downsiderisks including tariffs, rising oil prices and upcoming regulations.

Exhibit 1

Adjusted Debt/EBITDA

5.5x

9.4x

4.1x

4.9x

5.4x5.2x

4.4x

4.8x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

2013 2014 2015 2016 2017 LTM Q3 2018 12-18m Forward

View

Projected leverage calculations are based on the current accounting standard and Moody's estimates and standard adjustments.Source: Moody’s Financial Metrics™

Credit Strengths

» Top five market position in the global container shipping industry

» Strengthened business profile owing to UASC merger; synergies help offset cost pressures

» Strong group of committed majority shareholders with a solid track record of support

Credit Challenges

» Container shipping freight rates remain volatile

This document has been prepared for the use of Jan Ruhlandt and is protected by law. It may not be copied, transferred or disseminated unlessauthorized under a contract with Moody's or otherwise authorized in writing by Moody's.

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MOODY'S INVESTORS SERVICE CORPORATES

» Challenging overall economic environment encompassing lower projected GDP and trade growth globally, trade tensions especiallybetween US and China and upcoming IMO 2020 regulation

Rating OutlookThe stable outlook reflects Moody’s expectations of steady performance owing to the company's strong market position andexperienced management team despite likely cost increases combined with volatile freight rate environment.

Factors that Could Lead to an Upgrade

» Reduction in Moody’s-adjusted debt-to-EBITDA below 4x on a sustainable basis

» Increase in (funds from operations (FFO) + interest expense)/interest expense above 4x on a sustainable basis

» Good liquidity at all times

Factors that Could Lead to a Downgrade

» Increase in leverage above 5x debt/EBITDA for a prolonged period of time

» Decline in (FFO + interest expense)/interest expense below 3x

» Deterioration in the business environment for container shipping

» Any pressure on the company's liquidity profile

Key Indicators

Exhibit 2

Hapag-Lloyd AGUS Millions Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 (Sep-18) Forward View

Revenue 8,721.6 9,044.8 9,816.9 8,557.6 11,268.6 13,233.2 13000 - 14000

EBIT Margin (3 Year Avg) 1.3% -1.2% 1.3% 2.0% 4.3% 3.5% 3.5% - 4.5%

ROA (NPATBUI / Total Assets) (3 year Avg) -1.7% -3.4% -1.9% -1.6% -0.1% -0.5% -1% - 0%

Debt / EBITDA (3 Year Avg) 5.0x 6.6x 5.5x 5.2x 4.8x 5.4x 4.4x - 4.8x

RCF / Net Debt (3 Year Avg) 15.7% 11.5% 13.3% 13.5% 15.2% 13.8% 14% - 16%

(FFO + Interest) / Interest Expense (3 Year Avg) 3.1x 2.7x 3.0x 3.1x 3.5x 3.5x 3.3x - 3.6x

Size of fleet (number of ships) 151.0 191.0 177.0 166.0 219.0 222.0 222.0

All ratios reflect Hapag-Lloyd only, are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.Source: Moody's Financial Metrics™

ProfileHapag-Lloyd AG, headquartered in Hamburg, Germany, is the fifth largest container liner globally based on market share by volume. Asof 30 September 2018, it operated a fleet comprising 222 ships, including 112 owned/leased and 110 chartered-in vessels. The companyreported €8.4 billion in revenue in the nine months to September 2018.

Hapag-Lloyd was established in 1970 as a result of the merger of Hapag (1847) and North German Lloyd (1857). On 2 December 2014,Hapag-Lloyd merged with the Chilean shipping company Compania Sud Americana de Vapores (CSAV). On 24 May 2017, Hapag-Lloyd completed a business combination with United Arab Shipping Company (UASC), whereby the merger of the two entities wasaccomplished via an in-kind contribution.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 20 February 2019 Hapag-Lloyd AG: Update to credit analysis following upgrade to B1



Detailed Rating ConsiderationsTop five market position and strengthened business profileTogether with UASC, Hapag-Lloyd is the fifth-largest global operator in terms of capacity worldwide. According to Alphaliner, it has a7.3% share of the container shipping market behind Maersk Line (owned by A/P Moller-Maersk, Baa3 stable, 17.9% including HamburgSud), Mediterranean Shipping Company (14.4%), COSCO (12.2% including OOCL) and CMA CGM (B1 negative, 11.5%).

Exhibit 3

Global container shipping companies

17.7%

14.4%

12.2%11.5%

7.3%6.7%

5.3%

2.8%1.9% 1.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

APM-Maersk(Baa3/Sta)

MSC COSCO Group CMA CGM(B1/Neg)

Hapag-Lloyd(B1/Sta)

ONE* Evergreen Line Yang Ming Hyundai M.M. PIL

*ONE is a Joint Venture of MOL (Ba2 stable), NYK (Ba1 stable) and K-Line.Source: Alphaliner

With the addition of UASC's younger and larger fleet, the average age of Hapag-Lloyd's fleet was 7.5 years at 30 September 2018,compared with 11.3 years for global container fleet according to Drewry Maritime Research. Also, Hapag-Lloyd's average vessel sizewas 7,190 TEU, compared to 4,180 TEU for world fleet, based on Drewry data. Larger and more modern ships are more cost efficient inoperation and position the firm favourably.

Moreover, Hapag-Lloyd's business profile is supported by a balanced geographical presence with 23% of transported volume comingfrom Latin American trades, 18% from the Far East, 16% from Transpacific and 15% from the Atlantic trades.

Strengthened business profile owing to UASC merger; synergies help offset cost pressuresIn the first nine months of 2018, Hapag-Lloyd continued to make progress on its successful integration of UASC (closed in May 2017)toward the target $435 million annual synergies starting in 2019. The company reported that it expected to realize approximately 90%of those synergies in 2018 which was very timely to offset the negative freight rate and bunker cost developments experienced byHapag Lloyd and the whole container shipping industry in the first half of 2018.

In the first six months of 2018, container liners had to contend with anaemic growth in freight rates coupled with a sharp rise in fuelcosts on the back of increasing oil prices. As typically occurs in container shipping, the application of the bunker adjustment factor – amechanism for passing fuel cost increases to customers – lagged by a few months resulting in depressed earnings in the first half of theyear for all liners including a guidance revision from Hapag-Lloyd in June 2018. Positively, this dynamic reversed in the third quarter of2018 with liners introducing emergency bunker surcharges to recoup increased costs. As a result, for the nine months of 2018, HapagLloyd posted a 23% increase in revenues to $10.1 billion and a 20% rise in EBITDA to $972 million with an EBIT margin of 3.6% only0.1% below prior year period.

As a result of this turnaround, Hapag-Lloyd'd leverage declined to 5.2x debt/EBITDA for the twelve months ending 30 September2018 from 5.4x in 2017; we expect the full year figure to be still lower below 5.0x. At the same time, the company maintained stronginterest coverage of around 3.5x measured as (Funds from Operations + Interest Expense) / Interest Expense which we expect will atleast remain at this level going forward. Furthermore, Hapag Lloyd has been cash-generative (after capex and dividends) in the past twoyears which is a strong plus in the volatile container shipping industry. The company was able to generate this free cash flow as a resultof low capex (no new vessels) and virtually no dividends in 2017. We expect Hapag Lloyd to continue generating positive free cash as itsoperations benefit from UASC synergies and despite introducing a moderate dividend in 2018.




Positively, Hapag-Lloyd has no plans to buy new vessels in the next 12-18 months thanks to UASC’s new and large fleet. Therefore,Hapag-Lloyd’s capex is expected to be limited to around $0.4 billion in 2018, primarily slated for container purchases. In anticipationof low sulphur regulation scheduled to commence in January 2020 (IMO 2020), Hapag-Lloyd will also need to consider its options forcompliance, some of which, such as scrubbers or conversion to LNG, entail capital expenditures. To date, Hapag-Lloyd announced thefirst conversion of a large (15,000 TEU) container ship to LNG. We expect the company to rely to a significant extent on low sulphurfuel to comply at least immediately upon the implementation of IMO 2020.

Strong group of committed majority shareholders with a solid track record of supportHapap-Lloyd's largest equity owners comprise historical shareholders CSAV Germany Container Holding GmbH (“CG Hold Co”)(25.8%), HGV Hamburger Gesellschaft für Vermögens-und Beteiligungsmanagement mbH (“HGV”) (13.9%) and Kühne MaritimeGmbH and Kühne Holding AG (together, “Kühne”) (25.0%), as well as new key shareholders Qatar Investment Authority thoughits subsidiary Qatar Holding LLC (“Qatar Holding”) (14.5%) and The Public Investment Fund of the Kingdom of Saudi Arabia (“PIF”)(10.2%).

As outlined in the merger agreement with UASC, in October 2017, Hapag-Lloyd successfully completed a capital increase raisinggross proceeds of approximately €352 million ($414 million) from the issuance of 11.7 million new no-par value shares. The majorityof existing shareholders (96.5%) exercised their subscription rights strengthening the company's capital base and liquidity while re-affirming the commitment of its equity owners.

Historically, Hapag-Lloyd has benefitted from having a pool of long-term shareholders that have supported the group in difficulttimes and for strategic transactions. During the 2009 financial crisis, Hapag-Lloyd's shareholders injected a large amount of equity.In addition, the acquisition of CSAV's container liner activities was conservatively financed and entailed a EUR370 million capitalincrease, with contribution from CSAV's shareholders (70%) and from Hapag-Lloyd's shareholders (30%), which benefitted thecombined group's financial profile. In 2015, Hapag-Lloyd completed an initial public offering and raised approximately EUR265 million.Simultaneously with the initial public offering, two existing shareholders (Kuehne and CSAV) increased their stakes in the company,demonstrating again the shareholders' long-term support.

Container shipping industry remains volatile and highly competitive in the wake of global growth slowdownThe container shipping industry continues to be characterised by strong competition and imbalance between supply and demandowing to necessarily chunky capacity additions and limited revenue visibility resulting from short-term (or even spot) contracts. Wecurrently have a stable outlook both for the shipping industry as a whole and for the container sector specifically; however, we arecognizant of significant downside risks including tariffs announced by the US and China, as well as possible retaliation, and involvementof other countries, which could lead to reduced transport volume.

Exhibit 4

Moody's expectations for supply demand balance in the shipping sectors Dry Bulk (DWT) Containers (TEU) Tankers (DWT)

Fleet as of 31 December 2017 (million DWT, thousand TEU) 818 20,713 471

Supply growth in 2018 (million DWT, thousand TEU) About 10 About 900 About 20

Expected supply growth About 1% About 4% About 4%

Expected demand growth About 2% About 3.5% About 1%

Supply growth vs. demand growth -1% 0.5% 3%

Segment views Stable Stable Negative

Deadweight tonnage (DWT) is a measure of a ship’s volume, including bunker oil, fresh water and ballast water tanks, and crew and provision stores. Twenty-foot equivalent unit (TEU) isthe standard measure of a container ship’s capacity.Supply growth: New buildings less postponements, cancellations and scrapping.Source: Drewry Maritime Research and Moody's Investors Service estimates

Freight rates have been very volatile over the past years. In 2018, the first half of the year was marked by weak freight rates and risingbunker fuel costs which resulted in earnings pressure for container liners. Positively, in the third quarter, most liners, including Hapag-Lloyd, introduced bunker surcharges that helped offset high fuel prices. Furthermore, China Containerised Freight Index (CCFI), abenchmark freight rate index, strengthened toward the end of the year.



https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121542


Exhibit 5

China Containerised Freight Index (CCFI)

600

700

800

900

1,000

1,100

1,200

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Source: FactSet

In 2019, we expect that overall slowdown in GDP and global trade growth will be less supportive of container shipping than the morebuoyant macroeconomic environment in 2017-2018. Moody's Global Macro Outlook published in November 2018 calls for a reductionin global GDP growth from 3.3% in 2018 to 2.9% in 2019 and further to 2.7% in 2020. In addition, the ongoing US-China tradetensions (currently under negotiations and tariff standstill until 3 March 2019) are a concern for the shipping industry as a whole, andcould crimp demand for container shipping on the Transpacific trade lane which comprised 16% of Hapag-Lloyd's volumes in the firstnine months of 2018. The excess supply would then likely spread from the Transpacific trade lane to other routes and temporarilydampen global demand for container shipping services. While longer term we anticipate that liners will successfully reconfigure theirnetworks to adapt to new supply chain patterns, in the near term, increased tariffs could cause a disruption and pressure earnings.

Liquidity AnalysisWe view Hapag-Lloyd’s liquidity as adequate. The company had $694 million of cash and $470 million of revolving credit facilityavailability as of 30 September 2018. Given the high volatility typical for container shipping, the company’s covenants includeminimum equity and minimum liquidity, but no leverage or coverage ratios. Hapag-Lloyd has a number of unencumbered vesselsvalued at over $550 million that could be pledged to raise additional liquidity. Also, Hapag-Lloyd’s headquarters building in Hamburgcould be refinanced, yielding additional proceeds.

Hapag-Lloyd's bond maturities are not until 2022 and 2024 with two bond issuances totaling $1 billion. The company prepaid €170million of its 2022 note in February 2019 primarily with proceeds of a UASC receivable. In addition to bonds, Hapag-Lloyd hasapproximately $5.1 billion of secured vessel and container financings which can typically be refinanced on a secured basis as they comedue; approximately $800 million of primarily bank debt is due in 2019.

Hapag-Lloyd's capex in 2019 is expected to be slightly over $400 million reflecting no new vessel deliveries.

Hapag-Lloyd current dividend policy is to pay a dividend of 20% to 30% of Group's after-tax earnings.

Structural ConsiderationsHapag-Lloyd's bond rating is two notches below its corporate family rating reflecting contractual subordination to the secured debtexisting within the group (primarily vessel and container financing), as well as pari passu ranking with all other unsecured indebtednessissued by Hapag-Lloyd.




Rating Methodology and Scorecard FactorsIn assessing the credit quality of Hapag-Lloyd, we apply our Global Shipping Rating Methodology, published in December 2017.

Exhibit 6

Rating FactorsHapag-Lloyd AG

Global Shipping Industry Grid [1][2]

Factor 1 : Scale (20%) Measure Score Measure Score

a) Revenues (USD Billion) $13.2 A $13 - $14 A

b) Size of Fleet 222.0 A 222 A

Factor 2 : Profitability (17.5%)

a) EBIT Margin (3 Year Avg) 3.5% Caa 3.5% - 4.5% Caa

b) ROA (NPATBUI / Total Assets)(3 Year Avg) -0.5% Ca -1% - 0% Ca

Factor 3 : Leverage and Coverage (30%)

a) Debt / EBITDA (3 Year Avg) 5.4x B 4.4x - 4.8x B

b) RCF / Net Debt (3 Year Avg) 13.8% B 14% - 16% Ba

c) (FFO + Interest) / Interest Expense (3 Year Avg) 3.5x B 3.3x - 3.6x B

Factor 4 : Fleet Characterestics (17.5%)

a) % Revenues from LT Charters Ca Ca Ca Ca

b) Unencumbered Assets Caa Caa Caa Caa

Factor 5 : Financial Policy (15%)

a) Financial Policy Ba Ba Ba Ba

Rating:

a) Indicated Rating from Grid B1 B1

b) Actual Rating Assigned B1

Current

LTM 9/30/2018

Moody's 12-18 Month Forward View

As of 2/18/2019 [3]

[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.[2] As of 9/30/2018 (L);[3] This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divestitures.Source: Moody’s Financial Metrics™




Appendix

Exhibit 7

Peer Comparison

(in US millions)

FYE

Dec-16

FYE

Dec-17

LTM

Sep-18

FYE

Dec-16

FYE

Dec-17

LTM

Sep-18

FYE

Dec-16

FYE

Dec-17

LTM

Sep-18

Revenue $8,558 $11,269 $13,233 $15,977 $21,116 $22,660 $27,266 $30,945 $37,277

EBITDA $1,540 $1,831 $1,997 $1,937 $3,690 $2,864 $4,732 $5,785 $5,787

Total Debt $7,174 $10,494 $10,085 $15,874 $16,318 $16,827 $23,115 $27,962 $27,580

Size of fleet (# ships) 166 219 222 453 504 506 639 676 723

EBIT Margin 3.3% 3.9% 3.5% 2.4% 9.0% 4.7% 0.8% 3.9% 1.8%

ROA(NPATBUI)/Avg Assets -0.8% -0.2% -0.4% -2.1% 2.5% 0.4% -1.3% -0.3% -0.6%

FFO + Int Exp / Int Exp 3.4x 3.6x 3.4x 2.3x 4.0x 3.1x 9.8x 8.0x 9.2x

Debt / EBITDA 4.9x 5.4x 5.2x 8.2x 4.4x 5.9x 4.9x 4.8x 4.8x

RCF / Net Debt 14.4% 15.0% 13.4% 7.4% 17.6% 11.7% 33.1% 25.1% 25.1%

Hapag-Lloyd AG CMA CGM S.A. A.P. Moller-Maersk A/S

B1 Stable B1 Negative Baa3 Stable

Source: Moody’s Financial Metrics™.All figures & ratios calculated using Moody’s estimates & standard adjustments. FYE = Financial Year-End.

Exhibit 8

Hapag-Lloyd AG Adjusted Debt BreakdownIn EUR millions 2015 2016 2017 LTM Q2 2018

As Reported Debt 3,907 4,181 6,336 6,279

Operating Leases 2,665 2,376 2,113 2,113

Pensions 192 245 291 291

Moody's Adjusted Debt 6,764 6,801 8,739 8,682

Source: Moody's Financial Metrics™. All figures & ratios calculated using Moody’s estimates & standard adjustments.

Exhibit 9

Hapag-Lloyd AG Adjusted EBITDA BreakdownIn EUR millions 2015 2016 2017 LTM Q3 2018

As Reported EBITDA 831 628 1,042 1,138

Operating Leases 888 792 704 704

Pensions (3) (4) (2) (2)

Unusual (41) 3 (85) (133)

Non-Standard Adjustments (29) (27) (38) (30)

Moody's Adjusted EBITDA 1,647 1,392 1,620 1,678

Source: Moody's Financial Metrics™. All figures & ratios calculated using Moody’s estimates & standard adjustments.




Ratings

Exhibit 10Category Moody's RatingHAPAG-LLOYD AG

Outlook StableCorporate Family Rating B1Senior Unsecured -Dom Curr B3/LGD6

Source: Moody's Investors Service




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hapag-lloyd ag...with the addition of uasc's younger and larger fleet, the average age of...

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