Pacific Basin Shipping saw its share price plunge by more than 6 per cent yesterday, a day after the firm said it expected a first-half loss after taking a US$190 million impairment on its fleet of roll-on/roll-off vehicle ferries.
The stock slumped 6.34 per cent to end the day at HK$3.25 after chief financial officer Andrew Broomhead indicated there was little short-term prospect of an improvement in the sector, particularly in Europe, the main roll-on/roll-off ferry market.
He said Europe's 'protracted debt crisis and continued economic and political uncertainties are significantly delaying prospects of a recovery in demand and the possibility of opening new routes for ro-ros'.
Broomhead said demand from operators for 'long-, medium- and short-term chartered ro-ro vessels has significantly reduced in the past few months'.
The firm has six ro-ros, one of which is on charter until the third quarter of this year. Another vessel is operating in the Mediterranean and two are on short-term charter in the US Gulf region. The final two are idled in Britain while Pacific Basin seeks charters for the ships.
Broomhead said the company is looking at other markets outside Europe, including Asia, where the ships could be deployed. But he said it was a 'challenge' for areas such as Vietnam and cross-strait trade between Taiwan and the mainland to become 'viable in the short term' given cargo volumes and regulatory issues.
He reiterated the company ultimately aimed to sell the ships, but Broomhead said 'dysfunctional conditions' in the market meant an early disposal of the ships was unlikely.
The US$190 million impairment followed an US$80 million charge in last year's interim results. Broomhead said the total impairment of US$270 million was 45 per cent of the total investment in the ships, which were contracted from Denmark's Odense Shipyard in 2008. The first ship was delivered in 2009, but delivery of three of the six was delayed until last year due to poor conditions in Europe's road haulage industry.
He would not comment on the possibility of further impairment charges, but said some investment - to either improve the vessels or obtain employment in a joint venture with another operator - might be necessary to 'unlock trading opportunities'. The firm also downgraded its earnings outlook for the ferries to reflect a much flatter recovery in charter rates. Some 41 per cent of the ships' charter coverage this year had been fixed at US$18,600 per day. The proportion of coverage will increase to 49 per cent if the leases are extended, but the average charter rate will fall to US$17,850 per day.
The ships generated operating cash flows of US$7.5 million, but reported a net loss of US$10.6 million last year. Pacific Basin's core dry-bulk fleet of 140 ships generated a net profit of US$81.4 million.
Pacific Basin's cash balance, in US dollars. It has borrowings of US$860 million and a net borrowings ratio of 14.5 per cent