Torm has boosted its share buyback and dividend pot to $1.12bn through a piece of accounting wizardry.
The Danish tanker owner said the English High Court approved a $900m capital reduction on Tuesday, following shareholder backing at its annual general meeting on 15 April.
This will not reduce underlying net assets, but will increase distributable cash by transferring reserves from a restricted share premium account.
The move will "provide the company with additional flexibility to undertake future share buybacks or dividend payments, should circumstances make this desirable", Torm said.
Court registration of the measure may take more time than usual due to the coronavirus pandemic, Torm added. But this is expected to be finalised within a month.
Legacy of Oaktree takeover
The capital reduction is a legacy of the takeover and recapitalisation of the company by private equity fund Oaktree in 2016. This saw Torm A/S acquired by the successor company Torm plc.
The deal initially left it with zero distributable reserves, even though the underlying business within Torm A/S had significant such reserves.
Torm is now well consolidated with an equity ratio of over 75%, it said, but it has limited flexibility to pay dividends.
At the end of 2019, it had distributable reserves of nearly $223m, but the "discrepancy" between this figure and the $900m that was unavailable posed a risk to its ability to hand out cash in the future, the shipowner added.
"This would particularly be the case if there was a future revaluation of Torm A/S in the accounts of the company," Torm said.
The capital will now be reduced to address this, through getting rid of the credit in the share premium account, which is currently non-distributable.
Shares issued at a premium
The shares in Torm A/S received by Torm plc in 2016 were measured at the quoted share price at the date of the exchange offer, amounting to $813.7m.
But they were issued at a premium, so this extra money was credited to the share premium account.
Further share issues have also led to further increases in this account.
The company is not permitted to undertake share buy‐backs nor pay any dividends unless it has distributable reserves.
"In light of the group’s prospects and current strong financial position, the directors believe it is now desirable to consider future potential share buy‐backs or payment of dividends to shareholders," Torm said.
A total of $11.6m will be left in the premium account. The number of company shares is not affected.
In March, Torm filed its strongest financial results in three years.
Net profit for 2019 was $166m, which was up by 574% since the loss of $35m seen during 2018.
