Pacific Basin may sell its towing business

PB-MurrumbidgeeOCTOBER 22, 2013 — Hong Kong headquartered bulker operator Pacific Basin is looking at the possibility of selling its towage operations.

PB Towage harbor tug

These include harbor towage in Australia through PB Towage Australia and fleet and offshore project and module transportation throughout Australia, New Zealand, Asia and the South Pacific through PB Sea-Tow.

Commenting on reports that it had retained Citigroup to explore exit options for its towage business, the company said in an October 15 statement: "The Board confirms that it has approved sounding out the market to establish if there is interest in a third party acquiring the PB Towage business, as part of its responsibility to shareholders to maximize the value of the company. However, the process is at a very preliminary stage and there is no certainty that the company will proceed with any transaction."

Releasing its third quarter financial results on October 18, the company gave the following update on its towing operations:

PB Towage's harbor division continues to experience good support in Australia's main liner ports and the dry bulk port of Townsville. Our third quarter harbour job numbers increased 15% year-on-year. In July, we commenced operations in the bulk port of Newcastle where our initial job numbers are encouraging. We are especially fortunate to have secured NYK as our foundation client. We expect to benefit from the support of our Australian customer base and see steady growth in job numbers for our four-tug operation in Newcastle in the months ahead.

In the offshore project and logistics sector, our OMSA joint venture's contract to supply marine logistics services to the Gorgon project was recently extended from April 2014 to December 2015. This extension represents welcomed recognition of the quality of OMSA's service to the Gorgon project. While we are encouraged by this contract extension, we expect a gradual and phased decline in the construction work scope as the project approaches its production phase. Accordingly – and having also completed project work in Gladstone earlier in the year – we have been pursuing new opportunities, preferring to focus on longer term rather than spot market work. In a significant step in generating new business, we have secured a five-year contract for the trans-shipment of iron ore at a new location in Australia's Northern Territories. Commencing in November, this business will provide employment for four of our tugs which completed their QCLNG and APLNG deployment in Gladstone earlier in 2013 or were operated in the spot market. We will also acquire four barges for the project.

The Middle East oil and gas sector is showing some improvement, but demand for aggregates for marine construction work has weakened considerably on uncertainty over long-term projects in Qatar and the UAE.

PB Towage continues to tender for other LNG related projects, work on longer-term opportunities to fill gaps in the market for project cargo transportation services, and pursue potential expansion into neighboring geographic and niche markets.

PB Towage's third quarter results have been significantly impacted by: i) the costs incurred in winding down the Gladstone projects; ii) the mobilization costs incurred ahead of the Northern Territories project commencing this November; iii) the initial Newcastle operational costs while business builds up; and iv) the reduction in revenue from the OMSA joint venture as construction work nears completion and our work on the Gorgon project becomes increasingly maintenance related. However, the one-off nature of some of these factors means that PB Towage's performance in the fourth quarter is expected to support a positive contribution overall in the second half of the year.

The company again noted that its board "has recently confirmed its approval to sound out the market for potential third-party acquisition interest in PB Towage; the process is at a preliminary stage and there is no certainty that we will proceed with any transaction."

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