Star Cruises rating downgraded after orders for new ships

Moody's cites firm's weak earnings and financial profile after it buys two new vessels for HK$14.7b with option for a third

Star Cruises, the world's third-largest luxury-cruise operator, had its debt rating further downgraded by Moody's Investors Service after the company announced a HK$14.66 billion order for two new cruise ships with a HK$6.98 billion option for a third. Standard & Poor's put the firm on negative watch.

Star Cruises is increasingly taking on debt to renew its fleet with larger, more luxurious vessels in an era of soaring fuel costs and intense pricing competition from industry giants Carnival Cruise Lines and Royal Caribbean International.

Ordering the new vessels, twice the size of Star Cruises' largest ships in Asia, 'is a quantum leap for us', a spokesman said. 'We feel very strongly that these new builds will generate healthy returns.'

The two new 150,000-tonne ships, ordered by subsidiary Norwegian Cruise Lines and due for delivery in the fourth quarter of 2009 and the second quarter of 2010, each features 4,200 lower berths. The company's fleet had 22 vessels either in service or on order before the latest purchases.

Star Cruises did not announce financing details but a spokesman said new builds were typically funded by 80 per cent debt, mainly in the form of bank loans, and 20 per cent equity. Analysts expected the firm to sell older ships.

Moody's issued a B1 junk credit rating on Star Cruises, four notches below investment grade, down from Ba3. The agency indicated the lower rating was still one notch higher than it would be without the potential support of the company's controlling shareholders, Malaysia's Genting group and the family of Lim Kok Thay.