Scorpio Bulkers Takes $500M Writedown to Shift to Offshore Wind Sector
NYSE-listed Scorpio Bulkers announced Sunday that its board has formally approved its plan to sell all of its remaining dry bulk fleet and exit the sector by the end of 2021. The remarkable move comes as Scorpio plans to invest in its first $250 million-plus wind turbine installation vessel (WTIV) from Daewoo Shipbuilding and Marine Engineering.
Scorpio has been steadily selling off its Kamsarmax and Ultramax bulkers at a steady clip of one to two (or more) per week since late September. The final decision to exit the sector means that Scorpio will take a write-down of up to $500 million on the value of its current and recently-sold vessels, including about $50-70 million in transaction costs and financing charges. It is also ending its relationship with its ship managers, the related companies Scorpio Commercial Management and Scorpio Ship Management.
Scorpio will soon have a new name to match its new occupation, the company said. The board plans to introduce a resolution to change its name by January 8.
The reason for Scorpio's transition is market-driven, according to chairman and CEO Emanuele Lauro. The EU plans to spend $1 trillion on offshore wind - primarily for transmission infrastructure - in order to achieve 300 gigawatts of capacity by 2050. The UK wants to install offshore wind turbines at the rate of one per day between now and 2030, enough to power every household in the country. Japan intends to install up to 45 gigawatts by 2040. And the U.S. market is primed to take off, though the timing depends heavily on federal permitting decisions.
Scorpio says that these rapidly accelerating plans offer an excellent opportunity for shareholder value and return on investment. Compared to a fleet of Kamsarmax bulkers, a handful of high value WTIVs will bring "more predictable, higher and better-quality returns over multiple years . . . at comparatively low levels of leverage," according to managing director David Morant.
Scorpio's first WTIV is due for delivery in late 2023, and it has options for three more. In its investor prospectus, the firm predicts that the global market needs at least 15 hi-spec WTIVs by 2024 in order to meet global demand, and there are only five today. One more is currently on order in the United States, one in Japan and at least two in China.