Pacific Basin sticks to investment plan

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Oct 2008

Hong Kong-based bulk shipping firm Pacific Basin Shipping will stick to its plans to buy new ships and have all financing ready for future capital commitments of more than $720 million, a senior executive said. But the firm will be cautious toward any new investments due to uncertainties in the international shipping market, which has seen an unprecedented fall in freight rates amid the global financial crisis, said Klaus Nyborg, deputy chief executive officer, on Friday. "It's a very drastic and deteriorating market we have been facing and there are a lot of uncertainties for the immediate future," he told Reuters in an interview at his office in the commercial Central District.
The Baltic Exchange's dry sea freight index for global raw materials trade has plunged more than 90 percent from its peak in May to a more than 6-year low on Thursday.
Shares in Pacific Basin rebounded 17 percent this week but have still lost 68 percent of their market value this year, lagging a 50 percent drop in Hong Kong's benchmark Hang Seng Index.
The stock is trading at 2.6 times 2009 earnings against bigger rivals China COSCO's 2 times and China Shipping Development's 3.6 times.
Nyborg said the company sold out its stock portfolio in early 2008 and had no speculative foreign exchange trading.
Its relatively small position in forward freight agreements (FFA) was "predominately for hedging purposes," he said.
Shipping is a notoriously cyclical business and a lengthy industry boom in the past few years, partly fuelled by China's demand for energy and raw materials, has amplified the impact of the recent downturn, Nyborg said.
With a long-standing order for new ships in the market, Pacific Basin played safe and sold 13 ships in 2007 and 7 in 2008.
"We have $800 million at hand in cash and we have addition bank credit facilities," he said, adding that would be enough to cover its capital expenditure requirements of $721 million for dry bulk and non dry bulk assets.
DIM OUTLOOK
Pacific Basin is expected to post a record profit in 2008 with average forecast earnings of $621 million by 14 analysts polled by Reuters Estimates.
But it warned of much lower time charter earnings for 2009 and trading of handysize vessels, which generated about $150 million profit for the company, has come to a halt since August.
"It is difficult to predict when the market will improve," the company said in a statement late on Thursday.
Orders for its core handysize fleet services were covered by 93 percent in 2008 and 43 percent in 2009. But the average daily time charter rate fell about 28 percent to $22,580 in 2009 from $31,340 in 2008.
Nyborg would not disclose the breakeven point of the company's operation but said the blended daily vessel costs for its handysize vessels rose 25 percent to $12,840 in the first half of 2008.
Traffic demand for its core handysize ships was weaker as trade credit restrictions curbed demand. But the wide varieties of cargoes that the ships carry, ranging from ore to sugar and fertilizers, could help mitigate the impact, he said.
Nyborg expects mergers and acquisitions to increase and sees buying opportunities emerging when the market stabilises.
"Because of the cyclicality in shipping, of course opportunities may arise at some point of time."

Source: Alibaba.com