March 1, 2012 / 1:06 PM / 6 years ago

UPDATE 3-Shipping group Torm sees another debt reprieve

* Still seeking deal with banks

* CEO sees great uncertainty about company’s future

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

* Shares close down 6.4 pct (Releads with expected extension, adds quotes; updates shares)

By John Acher and Ole Mikkelsen

COPENHAGEN, March 1 (Reuters) - Danish shipping company Torm A/S expects its banks to extend a temporary halt on repayment of its $1.87 billion debt, giving the firm more time to seek a way out of its funding crisis.

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

Torm, which said in November it would need more time to repay its debt, is in talks with representatives of 15 banks, including Danske Bank, Nordea, Danish Ship Finance and others.

An initial deferral of repayments and standstill on debt covenants announced in December has been extended twice in the past two months and the current agreement expires on Thursday.

Chief Executive Jacob Meldgaard told analysts in a conference call that he expected to announce a new extension later on Thursday or on Friday.

“My personal expectation is that the extension of the standstill will progress pretty much the same way as it has the last couple of times,” Meldgaard said.

He was speaking after the company, controlled by Greek shipping tycoon Gabriel Panayotides, reported a wider pretax loss for 2011.

Meldgaard said that the company’s goal was to reach a long-term financing solution as soon as possible.

“We breached the cash covenant in January, but...we do not plan to run out of cash,” he said.

Sydbank senior analyst Jacob Pedersen said that with the debt due on demand, Torm’s creditors could shut down the company to get their money back, but he did not see that happening.

“We will see some kind of agreement to keep Torm afloat in some construction or other, probably different from what it is today,” Pedersen said. “There will possibly be some haircuts on the debt, possibly a takeover of Torm that would be conditioned on a haircut.”

Torm is reported to have approached a number of private equity and other potential new investors in an effort to raise capital and to has engaged Evercore to advise it.

Meldgaard on Thursday declined to identify any prospective investors.

Norwegian newspaper Finansavisen said in an unconfirmed report in January that Nordea Bank had offered Norwegian shipping tycoon John Fredriksen a chance to take over Torm for “very cheap”.


Torm, a tanker and dry-bulk operator with about 165 vessels, said it needed to conclude a long-term financing solution soon to ensure operations and liquidity throughout 2012.

“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,” Meldgaard told Reuters earlier in the day.

Shares in Torm, which plunged by 90 percent last year and have been volatile at low levels in 2012, closed down 6.4 percent at 3.37 crowns, leaving the company’s market capitalisation at about $44 million, dwarfed by its debt.

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 and 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.

Because of the uncertainty surrounding Torm as a going concern, Torm’s independent auditors issued a disclaimer. That led the bourse to move Torm’s shares to the observation list, a warning to investors of problems at a company.

Pretax losses widened in 2011 to $451 million from $136 million in 2010, exceeding analysts’ average estimate of $246 million in a Reuters survey.

An impairment of $200 million related mainly to tanker values knocked the results below Torm’s December guidance range of a loss of $230 million to $250 million. ($1 = 5.5763 Danish crowns) (Additional reporting by Mette Fraende; Editing by Helen Massy-Beresford and Erica Billingham)

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