Nordic Shipholding A/S: Negative equity due to further write down on vessels
2020 started on a very positive note, where the Group enjoyed high Time Charter Equivalent (“TCE”) rates arising from the short-term surge in demand for tonnage caused by the COVID-19 pandemic and the oil price war which started in Q1 2020. However, TCE rates started spiralling downwards from May 2020, and continued to slide through the end of the year. Despite the sharp correction in the TCE rates in H2 2020, the average daily TCE rates earned in 2020 by the 5 vessels was approximately 21% higher than the average TCE rate earned in 2019.
Including the impairment losses of USD 6.1 million arising from the reclassification of Nordic Hanne and Nordic Pia to assets held-for-sale, and impairment losses of USD 14.9 million on the remaining vessels to fair market value, the Group incurred a loss after tax of USD 16.5 million in 2020 compared to a loss after tax of USD 3.9 million in 2019.
Apart from the additional impairment loss on the vessels, the actual results for 2020 was in line with the revised expectations of the Board, as indicated in the Company Announcement 11/2020 on 11 December 2020.
Given the healthy cash flows arising from the relatively strong product tanker market for most of 2020, the Group managed to pay down the loan liabilities by USD 14.8 million from a combination of cash sweep and loan amortization. However, despite the generally good operating performance, the Group’s equity was completely erased and entered into negative territory primarily due to the writing down of the carrying value of the rest of the fleet. Regardless of the Group’s negative equity, the Board remains optimistic that a merger may be consummated as active discussion with potential merger partners are progressing well.
In the event the merger discussion fails, it is management’s expectation that the lenders will finance the Company in a period longer than 31 December 2021 to secure an orderly sale of the vessels.
Nordic Shipholding Now Expects Losses Between $5 -7 Million, Revised From a Profit of $2.5 – 5 Million
As mentioned in Company Announcement 7/2020 following a strong product tanker market in 1H 2020, the market softened significantly going into 2H 2020. This impacted earnings but even more so, the build-up of products in storage, the declining demand and the continued uncertainty in relation to the COVID-19 pandemic, resulted in a very soft second-hand market with declining values for all tanker segments including product tankers.
As announced in Company Announcement 8/2020 the Nordic Hanne was re-classified as an asset held for sale and in this connection an impairment loss of USD 2.0 million was experienced in H1 2020. Given the softening second-hand market an additional impairment loss of USD 2.2 million will be recognised in Q3.
Consequently, the net carrying value of the remaining fleet has been reassessed and an additional impairment loss of USD 6.5 million has been applied towards these four vessels.
Outlook
The above additional impairment losses totalling USD 8.7 million will be included in the annual result for 2020.
For the rest of 2020, the five vessels will continue to be commercially deployed on a pool basis (including the vessel currently earmarked for sale). Barring unforeseen circumstances, the TCE revenue for 2020 is marginally adjusted and now forecasted to be in the region of USD 27.0 million – USD 29.0 million, revised from USD 28.0 million – USD 31.0 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 2020 is in the range of USD 13.0 million – USD 15.0 million, revised from USD 14.0 million– USD 17.0 million. The result before tax will therefore be a loss between USD 5.0 million – USD 7.0 million including the impairment loss of USD 10.7 million, revised from a profit of USD 2.5 million – USD 5.5 million. The outlook for 2020 does not take into account any further impairment or write-back of impairment of vessels’ carrying values.
The Q3 2020 announcement will be released on 25 November 2020.