Debt holders in A.P. Moeller-Maersk A/S (MAERSKB) are looking on as the world’s biggest shipping company uses its excess cash to enrich shareholders in a strategy shift that threatens to cap its bond gains.

Chief Executive Officer Nils Smedegaard Andersen said last week he will start the Copenhagen-based company’s first ever “formalized” share buy-back program, purchasing $1 billion in stock, or about 2 percent of Maersk’s market capitalization. According to Nordea Bank AB, Scandinavia’s biggest lender, the move means there’s now no prospect of the ratings upgrade some bondholders had been hoping for.

“If Maersk continues to sell assets and distribute the cash to shareholders, it may harm the credit profile over time,” Lars Kirkeby, chief credit analyst at Nordea in Oslo, said by phone. “We don’t see much room for Maersk to get a higher rating now.”

Maersk, once Europe’s biggest issuer of unrated corporate bonds, invited ratings companies to grade its debt back in September in a move designed to help it access the dollar bond market. It subsequently got a BBB+ rating at Standard & Poor’s and a Baa1 grade at Moody’s Investors Service, one step below the A- shadow rating that Danske Bank A/S and SEB AB gave Maersk at the time.

Photographer: Munshi Ahmed/Bloomberg

Spread Widens

Since then, Maersk’s 4.375 percent note due November 2017 has returned bondholders about 4 percent, including reinvested interest. The note’s spread relative to the government yield curve widened to 75 basis points today from 73 basis points at the end of last week. It reached a high of 97 in March, according to data compiled by Bloomberg.

The 2017 note’s annualized return this year of 5.6 percent compares with a 22 percent surge in the share price. Shareholders enjoyed an annualized return, including reinvested dividends, of 41 percent this year. The stock gained 0.7 percent to 14,400 kroner as of 1:48 p.m. in the Danish capital.

Maersk, which owns a container shipping line, an oil unit, a drilling division and a port operator, sold a stake in its supermarket unit in January, raising cash proceeds of about $3.2 billion. It’s also sold 15 so-called Very Large Crude Carriers for $980 million.

Brian Boersting, a credit analyst at Danske, said in an Aug. 19 note there’s still value in Maersk bonds under the current credit rating and repeated a buy recommendation.

Family Fund

“The share buy-back, in our view, signals no further deleveraging in A.P. Moeller-Maersk, which limits the upside in bond valuation,” Boersting said. “However, as metrics continue to be strong for the target rating of BBB+, we continue to see value in A.P. Moeller-Maersk’s bonds.”

The company’s shares jumped 4.9 percent on Aug. 19, when it raised its full-year profit forecast, announced the share-buy back and said it plans to increase dividend payments. Maersk’s biggest shareholder with a 41.5 percent stake is A.P. Moeller Holding A/S, a fund controlled by the family that founded the company in 1904.

“The share buy-back won’t have a direct effect on the credit profile,” Per Karlsson, a credit analyst with S&P in Stockholm, said in an e-mailed reply to questions. “The company has made several asset sales, which has given it flexibility to keep the financial risk profile commensurate with the rating category.”

Credit Negative

Marie Fischer-Sabatie, a Paris-based analyst at Moody’s said in an Aug. 20 note that the rating company is also keeping its Maersk grade unchanged.

“While Moody’s views share buybacks as credit negative, we positively note that Maersk’s announcement follows a strong set of first-half 2014 results, which resulted in Maersk revising upwards its profit guidance for the full year 2014 and the receipt, earlier this year, of around $4 billion of proceeds from disposals,” she said.

According to Kirkeby at Nordea, that doesn’t change the fact that bondholders now have fewer gains ahead of them.

“The credit profile has become a bit more stretched after the sale of the supermarket business,” he said. He has a market perform recommendation on the bonds. “Maersk is now more cyclical after the sale. We expect Maersk will have its BBB+ rating for quite some time.”