Ship purchases weigh on cruise line's credit

Jason · September 9, 2006

Source: Alman Loong, The Standard

Purchases of new ships by Star Cruises (0678) will weaken the cruise operator's liquidity position and its financial risk profile, two global credit ratings agencies said separately Friday.

Standard & Poor's placed a BB corporate credit rating on Star Cruises and put its fully-owned subsidiary Norwegian Cruise Line on CreditWatch with negative implications.

Moody's Investors Service downgraded Star Cruises Thursday to B1 from Ba3, with a negative outlook.

The world's third largest cruise ship operator, with 22 ships, has placed orders to build two HK$14.7 billion cruise ships to beef up operations. Each will be able to carry more than 4,200 passengers. Star Cruises said it has also entered into an option agreement with Norwegian shipbuilder Aker Yards to build one more vessel for HK$6.98 billion. The option may be exercised any time on or before August 31, 2007.

Star Cruises, a unit of Malaysian casino operator Genting listed in Hong Kong and Singapore, said it will use internal resources and arrange external financing to fund the two new vessels. This may involve bank loans, bond issues and asset disposals.

"At the group level, the acquisitions are expected to increase Star Cruises' financial risk. Star Cruises' current financial measures, reflected in debt to earnings before interest, taxes, depreciation and amortization of eight times in 2005, were weaker than peers at a similar rating level," S&P said. The agency added the company's financial profile could weaken further and its credit rating will be under further pressure if it buys the third ship and uses substantial debt to finance the purchase.

The two vessels are expected to be ready for delivery in the fourth quarter of 2009 and in the second quarter of 2010, respectively, S&P said.

Shares of Star Cruises slipped 2.67 percent Friday to close at HK$1.46.

Star Cruises reported a US$68.9 million (HK$537.4 million) loss for the six months to June this year.

elfed · September 9, 2006

Good Morning Jason,

Yes, I read somewhere that NCL lost money in their last financial quarter. It's not surprising really when you think of the other lines on the high seas. NCL just has to catch up with the Royal Caribbean's Voyager Class ships not to mention the new Freedom Class. Then of course you have Carnival's 110,000 mega ships taking a large bite out of the cruise pie.

Although NCL today appears not to be of the NCL of old I guess some people are still wary of their product and office admin: problems. I'm sure you agree that there is an awful lot of competion out there. Even this morning I received an e-mail from Princess offering 7 days on the Caribbean Princess for just 399!!I've never seen a 7 day cruise offered that cheap from a cruise line-travel agency maybe, but not a cruise line. Great for us consumers of course but not good for the cruiselines' bottom line.

Regards,

James.

JoeyandDavid · September 9, 2006

so i wonder if they will be bought up... anyone want to pool their money? .(any fat ladies..ugh ...that way we get it for a song )

JohnG · September 9, 2006

The NCL investor briefing indicated that the NCL America operation (the three ships in Hawaii with U.S. crews, and U.S. wages were a drain on operations.

Also:

August 15, 2006 - NCL Corporation Ltd. (Ã¢â‚¬Å“NCLÃ¢â‚¬Â or the Ã¢â‚¬Å“CompanyÃ¢â‚¬Â) today announced second quarter 2006 results, including a 9.2% increase in Net Yields; a reduction in controllable Net Cruise Costs per Capacity Day; significantly increased profitability at the operating income level; but steeply increased fuel and interest costs and foreign exchange translation losses, resulting in a net loss of $35.1 million.