Thai-based handy-sized dry bulk owner Precious Shipping has taken a US7m hit and abandoned a planned bond issue due to the fall-out from the US sub-prime lending banking crisis.
Managing director Khalid Hashim declared his satisfaction at the latest quarterly figures: "The net profit for Q3 2007 was a respectable US$25.14m excluding extraordinary losses! The net profits in Q3 2007 excluding extraordinary losses were US$5.10m more than that in Q2 2007 excluding gain on sale of fixed assets and represent the first significant Q on Q growth of this year in terms of profit from operations. The earnings per day per ship during Q3 came in at US$13,281, on the higher side of our forecast for this year of between US$11,000 and US$13,000 per day per ship. In this quarter, daily operating costs were US$3,976. This figure is expected to average around US$3,950 per day per ship for the year."
Explaining the provision in the Q3 accounts Mr Hashim said: "The one time extraordinary loss that we have provisioned this quarter of US$6.84m was a result of the step we undertook by entering into a treasury lock transaction (T-Lock) with a foreign bank, as a hedge to fix the treasury rate (which would have been the basis of pricing of the bond) for the bond Issue that would have raised some very long tenor funds at a very reasonable cost. Due to the after-effects of the sub-prime crisis, the extremely favourable conditions which existed in the financial markets have now disappeared or at best have rendered our bond issue cost-ineffective in terms of pricing, as a result of which, we have to indefinitely put on hold, our plans to issue the bonds. Consequently, in the absence of the "underlying", we have since unwound the T-Lock with an actual loss of US$7.07m."PROSPECTS over the next 12 months still look very good compared to long term historical averages. In the current freight cycle, the low point in daily earnings on our ships was reached in Q2 2002 at USD 5,497. The high point was achieved in Q1 2005 at USD 15,928 per day per ship which may be breached in the coming years. To place these numbers in perspective, we must remember that the average for 2003, which was our best year ever before 2004 and 2005,was USD 7,870 per day per ship.When freight rates are moving in an upward direction, as the BDI has been indicating,we can, and have employed this strategy to effectively lock in rates by putting away the spot ships for longer terms. This policy was very successfully employed in 2004 and 2005 and allowed us to ride out the volatile nature of the spot market with relative ease during those years.THE CHINA FACTOR continues to have a disproportionate impact on the dry bulk markets with their Q3 GDP growth number at a headline 11.5%. Just to give you a flavour of what this means for Dry Bulk Shipping, we quote from an article that appeared in Fairplay International Shipping Weekly issue dated 25 October 2007."From now to 2012, CVRD intends to throw nearly $60Bn at these projects.Its targets include increasing iron ore output from 290M tonnes this year to 422M tonnes in five years. That might not sound a lot, just a big pile on the quayside. But it amounts to 800 more Capesize bulkers, or more than two per day. This is almost half as many again as are on order at present."
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