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Banks throw ailing shipping firm Torm lifeline
Banks are taking control of Danish shipping group Torm A/S in a rescue deal that extends repayments on $1.8 billion of debt and provides fresh funds, giving the firm time to wait for the tanker market to improve.The debt-laden tanker and dry-bulk firm has been fighting for survival in a sector slump, now in its fourth year, caused by a weak global economy, oversupply of vessels and low freight rates.
Tuesday’s long-awaited deal will see Torm’s banks take a 72.7 percent stake in the business, while time charter partners will get a 17.3 percent stake. Existing shareholders will retain 10 percent of the business.
“This deal is the rescuing of Torm,” said Sydbank analyst Jacob Pedersen.
“The banks will run it and I do not expect them to throw in the towel,” Pedersen said. “But it is a rescue that involves Torm buying time to wait for the market to turn around.”
Torm’s shares jumped on the announcement and traded up 30 percent at 3.56 Danish crowns at 1008 GMT against a 1.03 percent rise in the Copenhagen stock exchange’s benchmark index .
Its shares have lost more than 90 percent of their value since October last year.
“It has taken extraordinarily long time to reach this agreement and inflicted very high costs on the company,” said Chairman of the Board, N. E. Nielsen, in a statement.
“Torm will now be able to continue its business even in a continued difficult market,” he said.
Waiting for Recovery
Scant financing and the industry slump have forced the restructuring of many shipping firms across the globe, from Norway-listed Frontline and Italy’s Deiulemar Shipping to Indonesia’s Berlian Laju Tanker and Sanko Steamship in Japan.
As a result, banks have increasingly been seen pulling pack from ship financing.
Torm’s creditors include Danske Bank, Nordea Bank and Danish Ship Finance.
Chairman Nielsen told Reuters it would be unrealistic to hope for a fast turnaround of the tanker market.
“If we did not believe the market would improve, we would not have spent 14 months negotiating this deal,” Nielsen said.
“But we are not saying that a turnaround is just around the corner. One has to be realistic, and the market will likely see a long period of recovery,” he said.
Torm has been in talks with its 14 banks for months, trying to secure a comprehensive financing solution.
Under the deal announced on Tuesday, Torm’s $1.8 billion of debt will be extended until the end of 2016, loan repayments will be deferred and it will have access to a $100 million working capital facility available until Sept. 30, 2014.
Torm’s pretax losses grew to $132.1 million in the second quarter, from $23.7 million in the same period last year.
The company said on Tuesday it expected to be cash flow positive even at the current low freight rate levels, but forecasts a loss before tax of $350-380 million for the full financial year.
The figure excluded accounting effects from the execution of the restructuring, further vessel sales and potential impairment charges. (Reuters)
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