Record drop sparks fears for dry bulk owners
Courage Marine is one and only shipping stock I own and their specialisation is in buying second hand ships rather than new ones. I was surprise as to why they bought a new shipping if its going to be tough for them going forward:
The Board of Directors of Courage Marine Group Limited (the “Company”) is pleased to
announce that Zorina Navigation Corp. (“Zorina”), a wholly-owned subsidiary of the
Company’s wholly-owned subsidiary, Courage Marine (Holdings) Co., Limited, has on 2
October 2008 entered into a Memorandum of Agreement with Soft Holdings S.A., to
purchase a secondhand vessel, MV Marigold (the “Vessel”), for US$16 million.The Vessel was built in 1982 in Korea with 48,355.1 Dead Weight Tons.
The purchase price of the Vessel will be funded from the proceeds of the Company’s initial public offering (“IPO”) and the Company’s retained earnings. This is in accordance with the use of proceeds as stated in the prospectus dated 3 October 2005 issued in connection with the IPO.
The price of US$16 million was arrived at on a willing buyer, willing seller basis, taking into account recent transactions for the sale and purchase of vessels of similar type and age. No formal valuation was commissioned on the Vessel as the market practice is to consider the value of a vessel to approximate that of the prevailing market prices (which are available on the open market) of vessels of similar type and age.
Zorina expects to take delivery of the Vessel between 15 October 2008 and 30 October 2008 and subject to the charter or hire of the Vessel thereafter, the Company expects the Vessel to contribute to the revenue of the Group for the last quarter of FY2008.
For the avoidance of doubt, as the acquisition of the Vessel is carried out in the ordinary course of the business of the Group, it does not fall under Chapter 10 of the Listing Manual.
None of the Directors or controlling shareholders of the Company has any interest, direct or indirect, in the acquisition of the Vessel.
Perhaps second hand ships are really getting very cheap, as according to this article from Lloyds:
DRY bulk owners could find themselves in breach of their loan conditions and some may face bankruptcy after a record drop in secondhand values.
The issue of falling asset values that are linked to loans is now a big problem according to brokers.
“As long as secondhand vessel prices continue to fall, which seems likely in the short-term, and equity prices fall or at the very least remain at current levels, our industry has a serious problem,” Imarex frieght options broker Jeffrey Landsberg told Lloyd’s List.
“As the weeks and months progress, I expect more companies will have problems paying back their loans.”
In the last 12 days there has been on average one bankruptcy every three days, which is “just the start”, according to Tufton Oceanic research director Andreas Vergottis.
Mr Vergottis told Bloomberg that a fifth of the world’s listed dry bulk companies may soon have a “negative net worth,’’ based on fleet value compared with outstanding debt.
“Maybe by some fluke, these 20% of companies will find money from somewhere, but then there will be others,” he said.
While companies such as Industrial Carriers and Svithoid Tankers marked the start in a chain of bankruptcies this month, Britannia Bulk Plc’s recent problems are being seen as the first signs of the effects of falling ship prices for many listed dry bulk companies.
On Wednesday, Nordea Bank Denmark and Lloyd’s TSB Group asked dry bulk operator Britannia Bulk for immediate repayment of $158.7m outstanding on a loan due to a default on the terms.
By today the New York Stock Exchange had suspended trading of Britannia Bulk Holdings and said that the company was in the process of de-listing.
“The Company is currently in ongoing negotiations with the lenders regarding a sale of certain of its operating assets to settle this bank default, which if consummated, would not be expected to result in any return to the Company’s common shareholders,” the NYSE explained in a statement.
Britannia Bulk had previously warned of the high risk of it breaching the terms as the asset values of the five ships used to secure the loan had plummeted.
Loans agreements normally include a loan to value clause that states the loan should only be 70% of the value of the ships used to secure it, and if the value falls then the bank can ask the borrower to repair it.
The secondhand cost of capesize carriers has dropped to $68.8m, from an all-time high of $153.8m in July, according to the Baltic Exchange.
DVB Bank board member Dagfinn Lunde told Lloyd’s List that he expects the larger dry bulk listed companies will be OK, as many are “cash rich and should be able to repair” the loan.
Repair can include providing extra cash or security and also if the owner finds additional income for the ship that makes it look “OK for the bank”, said Mr Lunde.
“If you have bought a ship in last two years and leveraged it very high or done newbuildings at higher prices then that is where the big issues will come up from.“For the moment it will be only the marginal players that leveraged up recently [that are most at risk]. I would expect that to be the smaller players,” Mr Lunde added.
Related posts:
- Ship Owners are cancelling their orders
- Dairy Farm–The STI Singapore Stock that doesn’t drop even during recession!
- Weekly Roundup and possible next shoe to drop
- Courage Marine 3rd Quarter Announcement
- Yield Watch:Capitamall,Capitacommercial,Sing Post big drop
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