Nordic Shipholding: Excessive Tonnage Hurts Q1 Earnings

Nordic-Shipholding

The first quarter of this year saw the Nordic Shipholding Group performed poorly as the Time Charter Equivalent (“TCE”) rates were largely depressed due to low tonnage demand caused by the COVID-19 pandemic coupled with excessive tonnage in the market. As a result, the average daily TCE rate earned in Q1 2021 by the five vessels was 61% lower than the average daily TCE rate earned in Q1 2020.

For the 3 months ended 31 March 2021, the Group incurred a loss after tax of USD 1.5 million (including a one-off impairment loss of USD 0.2 million on the vessels), compared to a profit after tax of USD 3.6 million for the same period last year. The significant decline in TCE rates drove the loss incurred in Q1 2021.

Expenses relating to the operation of vessels in Q1 2021 remained unchanged at USD 2.9 million (USD 2.9 million).

EBITDA decreased significantly to USD 0.4 million (USD 6.4 million) due to the lower TCE revenue generated in Q1 2021. Other external costs remained unchanged at USD 0.3 million (USD 0.3 million).

The Group recognised an impairment loss of USD 0.2 million in Q1 2021 (USD NIL) due to the recognition of certain incremental expenses relating to the sale of Nordic Pia which took place in April 2021.

After accounting for depreciation, impairment losses, interest expenses and other finance expenses, the loss after tax was USD 1.5 million in Q1 2021 (profit of USD 3.6 million).

Between 31 December 2020 and 31 March 2021, equity decreased from negative USD 8.5 million to negative USD 10.0 million as a result of the cumulative loss incurred during the quarter.

Following successful negotiations between the major shareholder of the Group, management and the lenders in December 2020, an agreement was reached with the lenders for an extension of the Company’s loan facility by another year to 30 December 2021. Terms of the re-negotiated financing agreements include but are not limited to (i) the sale of two vessels, Nordic Hanne and Nordic Pia, within the first half of 2021, (ii) extension of the existing USD 3.85 million banker’s guarantee provided by the majority shareholder until early 2022, (iii) reinstatement of quarterly loan instalments from December 2020, and (iv) new financial covenants such as revised minimum liquidity level and minimum value clauses. The loan extension was to give the Company more time to explore various sustainable scenarios, including the possibility of a merger.

The Group is also subject to a quarterly cash sweep mechanism under which the Group, after payment of instalments and interest under the loan agreement, must apply any cash and cash equivalents of the Group in excess of USD 6.0 million towards prepayment of the loan. There was no cash sweep in Q1 2021 (cash sweep of USD 3.3 million was used to pay down the loan in Q1 2020).

During the financial quarter under review, cash flow from operations was a net cash outflow of USD 0.4 million (net cash inflow of USD 4.0 million) after payment of periodic interest expenses on the term loan. The Group made a partial repayment of USD 1.5 million on the term loan facility. As a result, cash and cash equivalents reduced to USD 3.5 million as at 31 March 2021 from USD 5.4 million as at 31 December 2020.

The outlook for 2021 remains unchanged as indicated in the 2020 Annual Report.

As part of the loan restructuring with the lenders that concluded in December 2020, Nordic Hanne and Nordic Pia were sold in Q1 2021 and delivered to their respective new owners in April 2021. The net proceeds from the sale of these two vessels were used to pay down the respective loans associated with the vessels.

Since early 2021, preliminary discussions have been held with potential merger partners to evaluate the possibility of a combination to grow the Company and reverse the negative equity position. As of the date of this report, discussions are still continuing. While the Board remains optimistic that a merger may be consummated, it is still too early to provide any indication whether these discussions will lead to a successful transaction.

In the event the merger discussion fails, it is management’s expectation that the lenders will finance the Company in a period longer than 30 December 2021 to secure an orderly sale of the vessels.

If no merger is to take place, the outlook for 2021 remains unchanged as indicated in the 2020 Annual Report. Assuming the remaining three vessels remain in the Hafnia Handy Pool and Hafnia LR Pool respectively until the end of 2021, the TCE revenue for 2021 is maintained in the region of USD 13.5 million – USD 15.5 million. After accounting for operating expenditure budgeted by the respective technical managers, the Group’s expected EBITDA (earnings before interest, tax, depreciation and amortisation) for 2021 is maintained in the range of USD 3.0 million – USD 5.0 million, and the result before tax, as indicated in the 2020 Annual Report, is unchanged at USD -2.5 million – USD -0.5 million. The outlook for 2021 does not take into account any further impairment or write-back of impairment of the vessels’ carrying values.

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