A disclosure of financial results by the largely private Navig8 Group this week was driven by the company’s previously unreported issue of $100m in Norwegian bonds in April.
The secured bonds were extended through Norwegian house Pareto Securities at an expensive 12% interest coupon, according to available public records.
The entity reporting the positive results this week is called Navig8 Topco Holdings — the same name used in connection with the bond raise.
It is evidently a private umbrella vehicle for the group’s far-flung investments in tanker ownership, commercial management/pooling, bunkering and other activity.
A Navig8 spokesman was not immediately available for comment.
The reasons for Navig8’s previously undisclosed bond issue are not clear. But one logical conclusion points to the group’s large newbuilding programme at China’s New Times Shipbuilding yard.
Under its Navig Product 2020 vehicle, Navig8 ordered 16 newbuildings split equally between 49,000-dwt medium-range tankers and 110,600-dwt long-range two tankers.
All are fitted with exhaust-gas scrubbers in a play on the impending IMO 2020 emissions deadline 1 January. The vessels will continue to use cheaper high-sulphur fuel with emissions screened by the scrubbers.
Navig8 to date has taken delivery of all eight LR2s and five of the eight MRs.
A coupon rate of 12% on secured bonds is typically looked at as punitive and possibly unsustainable for a public shipowner.
However, bond market sources point to factors suggesting it may be less oppressive for Navig8.
Double-digit interest rates often don’t work for pure shipowners because their typical return on operations is lower — perhaps an average 8%.
However, with its various management platforms and pools, Navig8 is also a services provider, and those operations typically generate a higher return.
Sources also suggest that Navig8 Topco, as a private company, would have paid a higher coupon than a similar public entity, but may have found the cost worth it as opposed to selling one or two of the newbuildings to generate liquidity in a rising tanker market.
Valuations on the newbuildings have increased from the order price and may well continue to appreciate if the IMO 2020 effect on rates meets expectations.
And while public databases show the bonds as having a five-year term, the payback period may actually be shorter and have less time as part of the group’s capital structure, they said.
Finally, there are this week’s reported results, which offered a rare window into the financial status of the privately held group.
The view was positive.
The private investment company, registered in the Marshall Islands, posted net profit of $6.9m to 30 June, against $2.2m in the same period of 2018.
The fleet of 20 owned or partially owned LR1s, LR2s, MRs, bunker tankers and a VLCC brought in revenue of $774.4m, compared to $699.4m in 2018.
Operating costs rose more slowly to $741.2m from $678m last year.
Navig8 Group CEO Nicolas Busch said the group's results "continue to reflect the benefits derived from a diversified business model.”
"Despite relatively subdued markets across the crude, product and chemical segments – and amidst a significant newbuilding delivery program – we delivered a year-on-year increase in both EBITDA and post-tax profit."
