Danish tanker carrier Torm would like to see a consolidation take place in the product tanker market which is currently at the bottom of a cycle following several years of strong rates.
The rationale is that bigger carriers will in the longer term lead to better business for all stakeholders while also helping to increase interest from investors, who are currently giving the sector wide berth.
Our platform is performing at a higher level than the rest of the market. And it would therefore make sense for us to see a degree of consolidation"
"One could imagine creating bigger units in the product tanker segment, and that these would thus have better access to the capital markets and be more attractive to the lender banks," says Executive Director Jacob Meldgaard.
"In my view, this is a valid argument for launching a consolidation," he tells ShippingWatch following publication of the carrier's first quarter interim report on Tuesday.
The report shows a profit of USD 4.8 million before taxes, a significant setback from the same period last year when the rates were still riding high on the boom from 2015.
But this result is satisfactory for the Danish carrier, considering the weak market. And executive management can be pleased that the carrier's cash holdings grew almost USD 100 million to USD 215 million at the end of the first quarter.
Money in the coffers
Along with unused credit facilities, Torm's liquidity stood at a total USD 405 million at the end of March.
What this money will be used for has yet to be decided, though it is clear that the cash puts Torm in a beneficial position if opportunities to purchase vessels or companies emerge in the product tanker market.
"Of course we need to look into what this money should be used for. Everything else would be unnatural. And there is, as such, nothing we're not looking at within our core segment, which is product tanker," Meldgaard tells ShippingWatch.
"But we would welcome opportunities for consolidation. Our platform is performing at a higher level than the rest of the market. And it would therefore make sense for us to see a degree of consolidation. It would, all things considered, create higher returns over time," says the executive director.
Could wake investors
The statement comes at a time when Torm is still planning a double IPO in New York and Copenhagen.
According to numerous observers, investor interest has for a long time been lukewarm, and Meldgaard has on several occasions noted that product tanker rates need to increase in order to reawaken appetite for the shares in the capital markets.
However, he does point out that it would generally be easier for a large carrier to go public.
I think most people would agree that you become more attractive on the stock exchange and to shareholders the bigger you are, and thus become more liquid"
"I think most people would agree that you become more attractive on the stock exchange and to shareholders the bigger you are, and thus become more liquid. Such a move would also make you more attractive to lenders, as it would put your company on the radar of the large financing institutions. It's hard not to agree with this view," says Meldgaard, though he declines to speculate about the chances of mergers or acquisitions happening this year.
"There could be cases in which several other conditions are prioritized higher at the individual companies. This could relate to strategic goals for the owners in terms of their business, so it's not just a matter of what's rationally best for the market," he says.
Torm is currently listed on the Nasdaq exchange in Copenhagen and has a fleet of around 80 product tanker vessels.
English Edit: Daniel Logan Berg-Munch