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UPDATE 1-Torm faces great uncertainty without debt deal
March 1, 2012 / 10:36 AM / 6 years ago

UPDATE 1-Torm faces great uncertainty without debt deal

(Adds details, quotes, background, share price)

* Shipping company says still seeking deal with banks

* CEO sees great uncertainty about company’s future

* 2011 pretax losses $451 mln vs avg forecast $246 mln

By John Acher and Ole Mikkelsen

COPENHAGEN, March 1 (Reuters) - Danish shipping company Torm A/S reported deepening 2011 losses and said it faced “great uncertainty” as no deal had been reached with lenders on refinancing $1.87 billion in debt by a March 1 deadline.

Like many shipping firms, Torm is suffering from a slump - now in its fourth year - in the sector, triggered by the global economic downturn and oversupply: a double whammy of fewer goods to ship and too many vessels to transport them.

Torm said it was in a “very difficult situation”.

“On the basis of the results and the debt we have, which still stands as a short-term commitment, there is great uncertainty about what is going to happen,” Chief Executive Jacob Meldgaard told Reuters on Thursday.

The most recent deferral of repayments and standstill on the company’s debt covenants expires on March 1.

“With the current freight rate level and the fact that the debt is payable on demand, Torm is required to conclude a long-term comprehensive financing solution shortly to ensure the Company’s operations and liquidity throughout 2012,” Torm said in a statement.

Meldgaard said that efforts continued to reach a deal with Torm’s creditors, and it was in the interest of Torm’s banks, investors and counterparties to find a solution.

Torm said its fleet, including the order book for new vessels, had a market value of about $1.80 billion at the end of 2011 based on brokers’ valuations, which was $612 million less than the impaired book value.

With year-end equity of $644 million, corresponding to an equity ratio of 23 percent, the company was in breach on its financial covenant requiring an equity ratio of at least 25 percent, Torm said.

“Accordingly, the company’s mortgage debt and bank loans have been reclassified as current liabilities,” it said.

ON THE BRINK

Because of the uncertainty surrounding the company as a going concern, Torm’s independent auditors have issued a disclaimer in their opinion of the accounts, Torm said.

That prompted the Copenhagen stock exchange to move Torm’s shares to the observation list - a warning to investors of problems at a company.

Torm, a dry-bulk and tanker operator with about 165 vessels, is one of several shipping companies that have been forced to the brink of, or into, bankruptcy by the global economic slump that has hit demand for cargo, freight rates, ship values and stock prices.

Its pretax loss grew in 2011 to $451 million from $136 million in 2010, exceeding analysts’ average estimate of $246 million in a Reuters survey.

The company booked an impairment of $200 million related mainly to tanker fleet values.

Torm had warned in December that full-year pretax losses would be deeper than earlier expected, in a range of $230 million to $250 million, after the company sold two shipbuilding contracts at a loss.

Torm initially said in mid-November that it would need more time to repay its debts and it aimed to ask investors to contribute $300 million in a rights issue of stock as part of a comprehensive financing solution.

The most recent deferral of instalments and standstill of Torm’s debt covenants was announced in mid-February as Torm continued to pursue a deal with representatives of 15 banks, including Danske Bank, Nordea, Danish Ship Finance and others.

Shares in Torm, which plunged by 90 percent last year and have been volatile at low levels in 2012, were flat at 3.60 crowns at 1026 GMT, putting the company’s market capitalisation at about $47.1 million. ($1 = 5.5577 Danish crowns) (Additional reporting by Mette Fraende)

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