Belships ASA – Report 3rd quarter 2019



  • Operating income of USD 31.7 million (Q3 2018: USD 27.1m)
  • EBITDA of USD 8.1m (Q3 2018: USD 6.4m)
  • Net result of USD 0.3m (Q3 2018: USD 4.4m) impacted by one-off costs
  • Net TCE (Time charter equivalent) per ship of USD 11,118 per day versus net BSI index of USD 11,886 per day
  • About 65% of ship days in Q4 have been booked at about USD 12,625 net per day
  • Average cash breakeven per vessel about USD 9,000 per day for next 12 months
  • Reported EBITDA includes operating expenses of USD 1.3m arising from the service element embedded in long-term time charter lease agreements classified as financial leases
  • Increased 2020 bunkers hedge from 24,000mt to 36,000mt
  • Three bareboat charter agreements with purchase options concluded in the quarter
  • One bareboat charter agreement with purchase options concluded in October
  • Agreed bareboat charter and subsequent sale of the oldest vessel in the fleet in October
  • Modern fleet with an average age of 6 years including newbuildings

Fleet status
Time charter earnings per ship in the quarter were recorded at USD 11,118 net per day versus BSI index of USD 11,886 per day net for the same period. About 65% of ship days in Q4 have been booked at an average rate of USD 12,625 net per day. Net TCE per ship in the year to date period amounted to USD 10,877 versus BSI index of USD 9,170 net per day for the same period. Outperformance of the BSI index is due to the optimized portfolio of period charter coverage and outsized spot earnings earned by our subsidiary Lighthouse Navigation.

Belships took delivery of vessels SOFIE VICTORY and BELFRI in the quarter. In addition, BELRAY was delivered in October. PACIFIC LIGHT was off-hire in mid-September due to main engine damage. The vessel was repaired and resumed operations end of October. BELSTAR was dry docked in July. The remaining fleet sailed without significant off-hire in the quarter.

Vessel transactions
During July, Belships announced that it had entered into an agreement to bareboat charter a newbuilding resale for a period of up to 10 years. The vessel is a 64,000 dwt Ultramax bulk carrier and will be delivered from a Japanese shipyard in the second half of 2021. Belships has purchase options at around today’s market levels as from end of the fourth year and throughout the remaining charter period. This fully financed vessel calculates total cost of capital to about 5.5 per cent.

Furthermore, Belships has agreed 7 year bareboat charters for two 61,000 dwt Ultramax bulk carrier newbuildings. The vessels will be delivered by a Japanese shipyard during the fourth quarter of 2019 and first quarter of 2020. The estimated cash breakeven for the Vessels upon delivery is about USD 11,000 per day including operational expenses. Belships ASA will pay a sum of USD 3 million per Vessel prior to delivery. The agreements come with purchase options below current market values and can be exercised as from the fourth year until the end of the charter.

We believe this strongly signals the competitive advantage Belships has in sourcing ship finance.

Newbuilding program
Belships’ newbuilding program has been expanded and now consists of four vessels, all Japanese eco-design Ultramax bulk carriers. One vessel will be delivered during Q4/2019, two vessels in Q1/2020 and the fourth during 2H/2021. There is no unfinanced capex remaining.

Financial and corporate matters
Belships distributed a dividend of NOK 0.05 per share per share in the quarter.

The company has selected the option in IFRS 16 to separate the service element embedded in long-term time charter contracts to ship operation expenses. The company considers this option to provide more relevant information to the users of the financial statements through presentation of an interest and depreciation cost which excludes charges arising from the service element of long-term time charter contracts. Consequently, Belships’ EBITDA and operational performance will be comparable over time regardless of financing method. As a result, EBITDA decreased by USD 1.3m in the quarter, whereof USD 0.8m relates to the first and second quarter of 2019.

Belships has increased its hedge of the price differential between compliant 0.5% sulphur fuel oil (VLSFO) and 3.5% Sulphur fuel oil (HSFO) from 24,000 tons to 36,000 tons. The company has secured the fuel consumption for the equivalent of six vessels in 2020. The average fixed price differential is USD 214 per ton, with monthly settlements in 2020.

At the end of the quarter, cash and cash equivalents totalled USD 43.8m. The mortgage debt was USD 137.2m, while net lease obligation was USD 54.9m. Refinancing of Belships mortgage debt is now completed and Belships liquidity position is solid. Undrawn loan facility amounts to USD 15 million.

The fleet will be cash positive at a day rate of about USD 9,000 for the remaining coming 12 months. The rate includes dry docking and finance cash flows.

At the end of the quarter, the book value per share amounted to NOK 6.67 (USD 0.73), while the equity ratio was 42.2 %.

Market highlights                                                                                                                                                The Supramax/Ultramax market improved strongly in the third quarter, with the BSI58 index averaging USD 11,886 net, up from USD 8,061 net in the second quarter. Inventory restocking following supply disruptions earlier this year, inefficiencies caused by prolonged dry dockings ahead of IMO 2020 and reduced sailing speeds contributed to the sharp upturn. Supramax/Ultramax supply growth is hovering around the lowest levels since 2001. The main reason for the volatile and at times weak markets have been due to negative demand developments, with global economic growth projections also being revised downwards. However, dry bulk growth remains at decent levels as China stimulated the economy through interest rate cuts and increased infrastructure spending. Growth in the South East Asian countries has also been strong, with the region on track to increase raw material imports by 20% this year. Global economic growth is expected to support dry bulk demand growth in excess of three per cent.

We have not registered new Ultramax bulk carrier orders since the summer, and just 15 dry bulk vessels in total were ordered the last three months according to industry orderbooks. Bank financing for speculative orders remain scarce and the upcoming environmental regulations makes for uncertainty as to which ship types to order. The Supramax/Ultramax orderbook to existing fleet ratio stands at just 7 per cent, which is the lowest level since 1999. This ratio may continue to drop, which in turn presents an opportunity for better shipping markets.

The lack of newbuilding orders is positive for the market balance as the supply side will eventually be reduced. Uncertainty and scarcity of competitive financing has also affected the values of second hand vessels and therefore earnings and values have decoupled from historically very high correlation. The current situation reminds us of the period in 2016/17 when asset values did not react to the underlying market improvements before the following year.

However, the current market environment displays considerable short term volatility and we have seen a sharp downward correction taking place in the start of the fourth quarter. We remain with a constructive view of the markets, which should continue to be aided by inefficiencies from preparations and effects of IMO 2020 contributing to reducing the supply side. In our view, the Supramax/Ultramax segment continues to offer the greatest risk/reward within dry bulk markets.

Subsequent events
In the beginning of October Belships entered into an agreement with Marti Shipping & Ship Management of Turkey for a bareboat charter and subsequent sale of BELEAST. The 50,000 dwt bulk carrier was built in 2006, and is the oldest ship in Belships’ fleet of 22 Supramax and Ultramax vessels, including newbuildings. BELEAST will enter the bareboat charter during the fourth quarter of 2019 and Belships will realize a gain of approximately USD 4.0 million. The Charterer has an obligation to purchase the vessel within 24 months and the net cash flow during the period will be approximately USD 3.5 million after repayment of outstanding loans.

In October Belships also agreed a 7 year bareboat charter for a 61,000 dwt Ultramax bulk carrier newbuilding. The vessel will be delivered by a Japanese shipyard during the first quarter of 2020.
The estimated cash breakeven for the Vessel upon delivery is about USD 11,000 per day including operational expenses. Belships ASA will pay a sum of USD 3 million prior to delivery. The agreement comes with purchase options below current market values and can be exercised after the fourth year until the end of the charter. Cost of capital is similar to the previous transactions.

The Company controls a fleet of 23 dry bulk carriers, including newbuildings, and continues to enhance its earnings with a combination of charter backlog and spot exposure.

Belships’ strategy going forward is to grow as a fully integrated shipowner and operator of geared bulk carriers. Through the vessel acquisitions, financing and share issues, Belships has demonstrated its ability to deliver on this strategy. Belships expects that further transactions may be available, and intends to pursue such transactions where accretive.

Following the transactions already announced and the issuances of new shares, the company has increased the free float in the Belships share, as well as broadened the shareholder base. It is Belships’ intention to make further steps to increase the liquidity in the share.

Introducing dividends is an important part of developing Belships, and returning capital to the shareholders on a regular basis is an important part of the company’s strategy.

15 November 2019

This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act