Nordic Shipholding Plans to End Tanker Business Due to Market Troubles
In a sign of the depth of the problems in the tanker market, Danish shipping company Nordic Shipholding announced that its management and lenders have agreed to offer the company’s last three tankers for sale. The plan is to wind down the operations of the company.
The group cited poor performance as the Time Charter Equivalent (“TCE”) rates were depressed due to low tonnage demand caused by the COVID-19 pandemic coupled with excessive tonnage in the market. As a result, the average daily TCE rate earned by the company during the first quarter of 2021 by the five vessels was 61 percent lower than the average daily TCE rate earned in Q1 2020. Nordic reported a loss of $1.5 million in the first quarter including a small impairment charge.
Since the fourth quarter of 2018, management said it has continuously worked with various initiatives to secure the long-term financing of the group and develop a plan for the future. Together with its majority shareholder, merger discussions commenced in late 2019. However, those merger discussions stalled due to “the diminished financial and economic visibility that have evolved and is still evolving from the COVID-19 pandemic.”
Faced with a declining financial situation, the company had sold individual assets while entering into further discussions with its principal investor. At the end of 2020, the company entered into an agreement with its lenders for an extension of its loan facility for an additional year to December 30, 2021.
Merger discussions had resumed with a new potential partner early in 2021. The company cautioned that if the merger plan did not materialize in the first half of 2021, that the company could face questions of its ability to continue as a going concern. Management expected that the lenders would finance the company beyond December 30, 2021, but in the absence of a definitive merger agreement they would be forced to sell their three remaining tankers.
According to today’s announcement, the board has again determined that the merger discussions are stalled. “In accordance with the group’s agreement with the lenders, management has put in place a process to sell the group’s three remaining vessels in an orderly fashion. Given the volatility in the sale and purchase market for these vessels, it is probable the group may recognize a further write-down of the vessels’ carrying value in the range of $4 to $5 million.”
The company which traced its origins to the 1980s reported that it did not see a path forward based on the current market conditions. As such, the board has also begun discussions with the group’s various stakeholders to ensure the proper winding down of the business.
Nordic Shipholding until recently owned five product tanker vessels, four handysize tankers, and one LR1. The handysize tankers were employed in the Hafnia Handy Pool, and the LR1 unit in the Hafnia LR1 Pool (formerly Straits Pool), both operated by Hafnia, Copenhagen. Their remaining fleet today consists of two handysize tankers and the LR1 tanker, each built in 2009.