Red ink rising, Mercator Singapore will sell sole VLOC

FEBRUARY 13, 2013 – Indian owned, Singapore-listed dry bulk specialist Mercator Lines (Singapore) Limited reported results for the nine months ended December 31, 2012, that included revenues of US$ 84 million, down 23 percent from the $109.3 million in the equivalent period in the previous year.

Left: MV Sri Prem Putli

The company recorded a loss of $72.7 million for the latest nine month period, compared to a $6.8 million profit in the prior year’s equivalent period. The loss for the latest nine includes a one time impact of $58.0 million (comprising of compensation and provisions in relation to chartered in vessels amounting to $30.9 million and provision for loss on sale of MV Sri Prem Putli amounting to $23.0 million and other provisions of $4.1 million) out of which the non-cash loss is $38.7 million.

The company says the decrease in revenue is mainly due to fall in spot rates and renewal of long term contracts at rates lower than previous rates. It says the dry bulk shipping market continues to remain tough, with the Baltic Panamax Index (BPI) dropping 59% from 1738 at the closing of Q3 FY 2012 to 710 at the closing of Q3 FY 2013.

The planned sale of the vessel MV Sri Prem Putli will generate net proceeds of $44.4 million and is part of a plan to lower debt and liabilities and enhance cash flow. In line with the plan, Mercator has also entered into agreements for early termination of charters with the owners of two of its long term chartered in vessels. It is also negotiating change of terms for its third long term chartered in vessel. Compensation for these arrangements would be in cash and stocks. The proceeds from the sale of MV Sri Prem Putli will be partly used for paying down company’s debts and partly for payment of compensation & expenses relating to termination and change of terms of long term chartered in vessels.

The 279,022 dwt Sri Prem Putli is the company’s sole very large ore carrier.

“Basis the current market, the company would save around USD 25 million over the next two years,” the company says. “Further, based on numbers disclosed in the Balance Sheet as on 31 December 2012, after proposed part prepayment of debt and issuance of compensation shares to the owners of our long term chartered-in vessels, the debt equity ratio is expected to reduce down to around 0.64 times.”

Mr. Shalabh Mittal, Managing Director and CEO of Mercator, said, “We have been proactively working on de-risking the company and raising liquidity. Proceeds from sale of MV Sri Prem Putli would help us reduce long term debt and liabilities. The termination and rearrangement of terms of chartered in vessels are beneficial for the company as it would help reduce company’s liabilities and significantly improve its cash flows. Our cost reduction efforts have also resulted in lower operating expenses. We will continue to explore ways of bolstering our operating and financial strengths. The above initiatives will leave us in a strong position to face the industry challenges and also take advantage of the market to explore growth opportunities.”

Mercator Singapore’s parent, Mercator India, is one of the largest shipping companies in India. It has diversified business interests in tankers, offshore & oil and gas, dredging and coal logistics and mining.