Taipei, May 9, 2008 (CENS)--Taiwan Ratings Corp. (TRC) recently affirmed its `twA-` long-term corporate credit rating and `twA-2` short-term rating on Yang Ming Marine Transport Corp. The outlook is stable. At the same time, TRC lowered its rating on the company`s unsecured corporate bonds to `twBBB+` from `twA-`.

Thanks to strong demand on Asia-Europe routes, Yang Ming`s EBITDA (earnings before interest, taxes, depreciation and amortization) margin rose to 14% in 2007 from 10% in 2006. Accordingly, its adjusted ratio of funds from operations (FFO) to debt improved to 22% from 18%. Yang Ming will incur substantial cash outflow from its high capital expenditures of NT$26.6 billion (US$875 million at US$1:NT$30.4) in 2008 and substantially increase its adjusted debts (including operating lease obligations). However, TRC expects Yang Ming`s adjusted ratio of FFO to debt to be above 20% over the next two years.

TRC noted Yang Ming is highly exposed to volatile Trans-Pacific and Asia-Europe trade routes, which accounted for about 45% and 35%, respectively, of its revenues over the past several years. These two markets exhibit higher risks than short-haul routes, such as intra-Asia routes. Moreover, the TRC believes that Yang Ming`s aggressive fleet expansion program could overly expose it to the risks of the industry`s huge order book driving down freight rates amid the weakened global economy at present. Yang Ming`s current order book, including 36 container vessels and 12 dry bulk carriers (equivalent to 219,900 ton equivalent units and 1,160,000 dead weight) to be delivered during 2008-2013, which accounts for 86% of its current capacity, compared with the industry average of about 50%.

With the Taiwan government being the largest shareholder of Yang Ming and given its strategic importance as the only state-controlled container shipper, the government is likely to provide support in times of financial stress.

The TRC said Yang Ming`s liquidity position remains strong. The carrier had cash and cash equivalent of NT$12.6 billion (US$414.47 million) at the end of 2007, compared with long-term debt maturing in 2008 of just NT$2.4 billion (US$78.94 million). Its liquidity position is enhanced by unused credit facilities of NT$11.5 billion (US$378.28 million) as of the end of 2007. Moreover, the carrier will initiate a sales and leaseback program on its 10 vessels over the next two years, which will provide an additional cash flow of about US$950 million.

The stable outlook is based on TRC`s expectation that Yang Ming will maintain adequate credit metrics amid the trough of the industry cycle, and without the government reducing its shareholding in the company. Upside potential is very limited given the risks related to a potential industry capacity glut.

(by Ben Shen)