Hong Kong’s biggest shipowner, Pacific Basin, has issued a warning to shareholders and potential investors that due to the softness in the dry bulk market the company is expecting a one-off impairment of $198m on its handysize fleet to be reflected in its next set of earnings.
The impairment will drive the company to a significant loss, somewhere in the range of $212m to $227m, compared to a profit of $8m at the same point last year.
Pacific Basin said the impairment will not impact the operations or operating cashflows of the company, which has a cash balance in the region of $316m and access to around $100m in financing.
“Efforts to contain the Covid-19 pandemic in the first half of 2020, initially in China and later across the world, are causing the global economy and international trade to contract this year for the first time since 2009, negatively impacting demand for dry bulk shipping. The Covid-19 lockdown has added to demand challenges that have undermined the dry bulk market since early 2019, including major infrastructure and logistical disruptions in Australia, Brazil and the Mississippi River, and continuing trade tensions between the United States and China. This weakness in demand has coincided with continued dry bulk fleet growth and limited scrapping during 2019 and the first half of 2020. These developments have led to a significant reduction in market freight rates; during the first half of 2020, the average Baltic Handysize Index averaged US$5,590 per day net compared to US$7,520 per day net in the first half of 2019 and US$9,790 per day net in the first half of 2018,” the company explained.
According to VesselsValue, Pacific Basin owns a fleet of 115 dry bulk vessels valued at $1.09bn.