Revisiting VLCCF in 2012
Board: Value Hounds
I started the "Tankers in 2012" theme with Knightsbridge Tankers (VLCCF). While I start the
"Revisiting [Tanker Co] in 2012" with VLCCF, I'm not sure the order will stay consistent with the first theme. The "revisiting" theme is a lot easier because the foundation has already been laid. VLCCF also works particularly well because it is among the smaller, publicly-traded, shipping companies.
Here's the initial VLCCF analysis--
So we had a shipping company with a fleet of 4 VLCCs (Very Large Crude Carrier) and 4 Cape vessels (transporting dry bulk goods). What has changed in the last six months? Well, there's been a Noah-type effect. Huh?
- Dividend cut: Two of those, 50c => 35c => 17.5c
- Charter issues: Two of those, both involving Cape vessels
- Vessel sales: Two of those, both transactions involving a VLCC
In my opinion, just a cascading effect. The initial revenue picture was okay, but got weaker as
the charter cancellation events occurred. That meant VLCCF could not maintain its dividend payout.
In addition, a previously time-chartered VLCC had an expiring charter in April 2012, and entered
the Spot market about a month prior to rates in that market starting a general slide. The VLCC sales
have been a more recent activity. The first VLCC, Hampstead, sale was supposed to have completed
in July/Aug 2012, but the transaction failed. The company did manage to sell the vessel on the second try, but at a lower rate. Since VLCCF kept the deposit for the first transaction, the transaction value was around the same as the first deal. Details on the two transactions can be found here--
VLCCF had about $48M in cash at the end of Q2. The two VLCC sales netted about $18M for the
company. I believe the company still has access to a $75M credit facility, arranged when the
company was financing its fourth Cape vessel, and was in a stronger financial position. VLCCF
are in a reasonable position with regards to debt, perhaps $120M - $125M across the remaining
six vessels. That's not too bad given that each of the Cape vessels is less than 5 years old.
One of the Cape vessels that had a charter termination issue has secured a short-term charter
(about 6 months). While the revenue outlook has weakened, the two vessel sales suggest there might be ome plan to create new revenue and cash flow streams. A prior financing arrangement required the ompany to maintain some restricted cash. I will defer to HockeyPop as to how, and what
type of situations would allow VLCCF to tap those funds. Although shipping in general is dealing
with a glut of vessels, owning vessels in two sectors (crude oil tankers and dry bulk) helps diversify risk some i.e. one sector could have some type of recovery before the other.
Q3 is generally the toughest revenue quarter in the annual cycle, especially if a tanker company has
spot trading vessels. But with four Cape vessels in its fleet, VLCCF isn't really a pure-play
tanker company. Too much uncertainty, not enough upside points to make VLCCF compelling for me here.
No VLCCF position