Khalid Hashim, managing director of Precious Shipping Plc, says his hands are tied. Thailand's largest shipping line, specializing in bulk shipping, mainly of commodities such as rice and sugar, is unwilling to increase its equity in a market it says undervalues its shares. And it is unable to seek more debt from a Thai banking system badly burned during the Asian financial crisis of 1997/98.
So much cash flow goes on servicing debt it assumed before the crisis that it can scarcely afford to replace its 35 ships as they age. "If we don't expand the business, if we don't take any steps to get out of the restructuring cash flow trap that we're in..., then in four years' time we'll be debt-free but down to 17 ships," Hashim said. "That doesn't make sense."
Hashim says the company -- which turns a profit, has never missed an interest payment and pays down its debt regularly -- is stuck treading water. Its shares have outperformed Thailand's transport sector by 136 percent since the company went into restructuring last year. It has reduced its debt-equity ratio to 1.4:1 from 3.8:1 in 1996, and paid off $65-66 million of its $186 million in largely dollar debt since it underwent restructuring in July last year.
It generates income purely in dollars, holds the original floating asset -- ships -- and transports essential goods that people buy even in a downturn.
"We don't ship electronics. We ship things like rice and sugar. Investing in Precious Shipping is an excellent hedge against an economic downturn," he said. "But we are an exotic commodity. Nobody really understands us." Capital for Thailand's tiny shipping industry has dried up.
Hashim says he wishes the government would lend them the funds that wary Thai banks won't, recalling that a billion-dollar government support fund lent money at market terms until 1996.
"But we are not sitting on our backsides waiting for government handouts," he said. "We are exploring both debt and equity options." Only eight percent of the company's shares trade freely on the stock exchange, but Hashim says he has no immediate plans to increase that amount.
"Our shares are massively undervalued," he said.
Analysts agree. Marc Lavoie, head of research at Asset Plus Securities in Bangkok, says the company risks getting far less than fair market value by floating more shares, largely because the market doesn't understand its business.
"They're in the wrong country," Lavoie said. "If they were in Singapore, I can guarantee they'd be able to raise both the debt and the equity they need."
Hashim says he prefers to load up on debt to grow, and Precious Shipping has begun a charm offensive by restating its accounts in dollars.
Analysts say stating accounts in dollars is essential for a business whose assets, debt and revenues are dollar-denominated. Only some of the company's costs are in baht.
Hashim says market "misunderstanding" of his business comes from stating accounts in baht terms, making them appear more volatile. The perception that Precious Shipping is vulnerable to the same problems as other export-sensitive Thai companies doesn't help either.
"We hope that once banks see our second quarter results they will be convinced that we are a profitable company. We will do at least as well, if not better, than we did in the last quarter."
The company reported net income
of $3.27 million for the three months to March 31, helped by lower debt servicing costs. - (Reuters)