Chartering a course in choppy waters, TOP Ships lightens debt levels and locks in revenues

The global economy’s recovery is «fragile,» according to the head of TOP Ships, an operator of bulk carriers and tankers, who plans to keep lightening his company’s debt load in view of the choppy conditions ahead. «I don’t see the world economy as being great for the next couple of years,» Evangelos Pistiolis, CEO of Nasdaq-listed TOP Ships, told Kathimerini English Edition in an interview in Athens yesterday. «There is instability everywhere. You see small things effect the stock market heavily; this shows how fragile things are.» TOP Ships owns 13 vessels, eight tankers and five dry-bulk carriers, ships used to transport items such as iron ore, coal and grain. With contracted revenues seen rising to $353 million (274 million euros) in 2017, from $91 million in 2010, the company operates all its vessels on long-term charter, which means that it locks in a fixed daily income for its ships for a period of normally between one to seven years. This helps minimize exposure to market fluctuations and ensures a steady cash flow, crucial to reducing debt, currently at $375 million, down from $405 million at the end of 2009. The industry, however, has seen daily freight rates fall on concerns about the health of the global economy and a potential oversupply of ships. With average delivery time for a vessel at three years, owners started ordering ships in massive numbers in late 2006, anticipating a surge in demand. These ships have started to enter the seas, boosting supply levels but demand growth has been less than first thought. «[The global industry] has a large order book, a very large order book. Surprisingly, up until the present, it has been absorbed quite well, mainly due to large expansion rates in China and India,» Pistiolis said. Greek shippers, who own a fifth of the global fleet, have been busy expanding but at a slower pace than their sector peers. Recent data showed the fleet owned by Greek shippers grew just over 5 percent in June to 2,125 vessels, while the global fleet’s growth rate accelerated to 14-15 percent in the last year. Downward pressure on freight rates is likely to continue after a massive drop over the last two years, triggered by the collapse of Lehman Brothers. Figures from Athens-based shipbroker Cotzias show that the average daily amount paid for a dry-bulk cargo vessel of 60,000-79,000 deadweight tonnage, fell in July to $19,638 from $27,076 in June and $34,091 in May. It stood at around $95,000 in July of 2008. «I see a further downside from current levels. My feeling is that for some years things will be a bit depressed,» Pistiolis said. With conditions encouraging the adoption of more conservative strategies, according to the CEO, TOP Ships will tackle its debt load in a bid to boost shareholder value. TOP Ships plans to lower its debt by $50 million over the next 16 months to $325 million. It has about $25 million in cash. «By paying down debt, you boost your [share’s] net asset value, this is my strategy and what I intend to do,» he said. Analysts believe the firm is on track to reduce leveraging but highlight risks that could derail its plans, such as poor customer negotiations or any untimely ship sales that may arise along the way. Adam Fleck, an analyst at Chicago-based research company Morningstar, said any missteps by the company could leave it in a difficult position, adding that «the margin for error remains quite slim.» The company’s financial picture improved in the first half of the year but figures remain in the red. In the first half of 2010, the company narrowed its losses to $0.9 million, from $14.5 million in 2009 and losses of $24.3 million in the first half of 2008. [email protected]

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