DHT Holdings is planning to reduce debt further with its large cash pile rather than save for vessel purchases, company executives have said.
Having prepaid $59.2m under its ABN Amro and Nordea credit facilities last quarter for instalments due in 2021, the New York-listed owner will redeem all $125m outstanding convertible bonds — also originally due next year — on 21 August.
The moves came as DHT’s cash reserves rose to $138m at the end of the second quarter from $67.4m on 31 December, following continued strong earnings.
When asked whether his company is now underleveraged in a conference call, co-CEO Trygve Munthe said it would be in the best interest of shareholders to cut down more interest expenses.
“Rather than building a war chest, earning nothing in deposit accounts…We will continue to prepay debt,” Munthe said.
Prepaying debt “takes down the leverage, increases the financial flexibility, and it also gives us an unbeatable cash break-even levels in the markets where we may be hit by negative surprises”, Munthe said.
With the financing efforts and 10 of its 27 VLCCs fixed on period charters, DHT estimates its ships in the spot trade will only need to earn $2,800 per day in the second half of 2020 and $11,400 per day in 2021 to cover cash costs.
This is to prepare for the choppy tanker market in the coming quarters, where the coronavirus pandemic is expected to continue affecting the supply-demand picture for oil.
“What we are experiencing now is a very, very unusual year,” said Munthe, adding that the third-quarter market is supported by congestion in China and on the US west coast following “phenomenally strong” earnings between January and June.
“If we see unwinding of the congestions around the world, then you could well see a situation where the fourth quarter is not as relatively strong as it normally is,” Munthe warned.
Even lower leverage ratio
DHT would be “even more excited” if it can reduce debt closer to “zero-percent leverage” at this point of the market cycle, Munthe added. “Then, we have tremendous financial muscle built in so we can go out and buy things when nobody else is there to do it.
“We're confident that the credit is going to be there when we think it's right to start to invest again.”
DHT would consider acquisitions of vessels built in 2015 or later or even newbuildings, but now does not seem the best time with asset prices likely to fall more, according to company executives.
“We are in no rush to make new investment…This might be next year’s event,” co-CEO Svein Moxnes Harfjeld said.
“Yards in general have got very, very little business and that might drive them to further reduce their pricing. That will also impact opportunities on secondhand ships.”
“We're just preparing the company,” he said. “The company needs to be ready when those things arrive.”
