Himalaya Shipping Ltd. — Form 6-K Summary
Filing date: November 15, 2023. The filing contains unaudited consolidated financial statements for the three and nine months ended September 30, 2023, with comparable 2022 periods. Amounts are in U.S. dollars unless otherwise stated.
Business Context and Reporting Period
Himalaya Shipping is a dry bulk shipping company focused on Newcastlemax vessels of approximately 210,000 dwt equipped with dual-fuel LNG technology, fuel-saving devices and exhaust gas scrubbers. As of September 30, 2023, six vessels were operating and six additional vessels were under construction, with the remaining vessels expected to be delivered by July 2024.
Three of the operating vessels had bunkered LNG since July 2023. The company reports under U.S. GAAP and has one reportable segment.
Financial Performance and Key Metrics
| Metric | Three months ended September 30, 2023 | Nine months ended September 30, 2023 | Comparable period |
|---|---|---|---|
| Operating revenue | $10.2 million | $18.4 million | $0 in 2022 |
| Operating profit | $3.0 million | $4.8 million | Operating loss of $0.5 million and $1.5 million, respectively |
| Net loss | $2.0 million | $3.1 million | Net loss of $0.4 million and $1.4 million, respectively |
| Basic and diluted loss per share | $0.05 | $0.08 | $0.01 and $0.04, respectively |
| EBITDA | Not clearly provided in the filing text | $10.3 million | EBITDA loss of $1.4 million |
Nine-month gross average time charter equivalent earnings were $23,400 per day over 817 fleet operating days. Average vessel operating expense was $6,100 per day. Based on reported figures, the nine-month operating margin was approximately 26% and EBITDA margin was approximately 56%; these are analytical calculations and EBITDA is a non-GAAP measure.
Interest expense, net of capitalized interest, was $7.9 million for the nine months, compared with none recognized in the prior-year period because interest was then capitalized while vessels were under construction. Total financial expenses, net, were $7.9 million, contributing to the net loss.
Cash Flow, Liquidity and Debt
- Cash and cash equivalents were $12.8 million at September 30, 2023, compared with $0.3 million at December 31, 2022.
- Net cash used in operating activities was $1.9 million for the nine months, compared with $0.8 million used in 2022.
- Net cash used in investing activities was $384.1 million, primarily for newbuilding installment payments.
- Net cash provided by financing activities was $398.6 million, including $46.2 million of net IPO proceeds and substantial sale-leaseback financing draws.
- Gross principal debt was $436.3 million, or $421.9 million net of deferred finance charges. The current portion of debt was $16.7 million.
- Debt repayments due during the last three months of 2023 were $3.4 million and repayments during the first nine months of 2024 were $14.7 million.
- The company had $15.0 million available under an unsecured revolving credit facility with Drew Holdings, a significant shareholder. The facility bears interest at the applicable reference rate plus 8% and is available through December 31, 2023, with final repayment due by December 31, 2024.
The balance sheet showed total assets of $560.4 million, total liabilities of $427.9 million and shareholders’ equity of $132.6 million at September 30, 2023.
Material Changes Versus the Prior Comparable Period
- The first six vessels were delivered and commenced operations during 2023, generating $18.4 million of nine-month time charter revenue compared with no revenue in the prior-year period.
- Operating expenses increased as the fleet entered service, including $5.0 million of vessel operating expenses and $5.5 million of depreciation and amortization.
- General and administrative expenses increased 82% to $2.8 million, primarily due to higher directors’ and officers’ insurance, audit fees, and director and employee costs following the IPO.
- Debt increased substantially to support vessel deliveries and construction, from $74.9 million gross at December 31, 2022 to $436.3 million at September 30, 2023.
- The company completed its U.S. IPO in April 2023 and a partial over-allotment exercise in May 2023, issuing 8.63 million shares at $5.80 per share and receiving net proceeds of $44.9 million.
- Newbuildings declined to $108.8 million as six vessels were reclassified to vessels and equipment, which had a net book value of $432.3 million at September 30, 2023.
- The company recorded a $0.3 million net increase in other financial expenses, primarily from the write-off of deferred finance charges associated with the novation of financing for two vessels from CCB Financial Leasing to Jiangsu Financial Leasing.
Guidance, Outlook, Risks and Unusual Items
In October 2023, the company secured 24-month time charters beginning in the first half of 2024 for its three remaining uncontracted vessels. The charters are index-linked at a significant premium to the Baltic 5TC index, include profit sharing from scrubber and LNG benefits, and may be converted to fixed rates. Following these agreements, the entire fleet was employed: one vessel on a fixed-rate charter and 11 on index-linked charters.
The company also extended six time charters by one year through the end of 2026. No specific revenue, earnings or dividend guidance was provided.
As of September 30, 2023, remaining commitments under the six newbuilding contracts, including scrubber installations, were approximately $331.5 million, of which $310.8 million was scheduled for 2024. The company stated that approximately $316.5 million would be funded through CCBFL and Jiangsu sale-leaseback arrangements.
Management stated that the substantial doubt regarding going concern disclosed previously had been alleviated by the IPO proceeds and additional AVIC financing. Management believes available resources, including $12.8 million of cash and the $15.0 million revolving facility, are sufficient for obligations during the 12 months following issuance of the financial statements. This assessment remains subject to execution of financing arrangements, vessel deliveries, charter performance, market conditions and covenant compliance.
Principal risks include dry bulk charter rates and vessel values, vessel delivery and acquisition execution, debt refinancing and financing availability, compliance with financing covenants, operating costs, fuel prices, environmental and climate regulation, shipping-route disruptions, foreign exchange movements, and the company’s ability to pay dividends. Sale-leaseback financings include purchase options, security interests, minimum cash requirements and, in the AVIC arrangements, a $25.0 million per-vessel cash penalty if purchase options are not exercised.
Facts Investors Should Verify
- Whether all six remaining newbuildings are delivered by the expected July 2024 timetable and whether the approximately $331.5 million of remaining commitments are fully financed.
- Actual charter rates, index-linkage mechanics, scrubber and LNG profit-sharing outcomes, and the conversion rights under the new time charters.
- Debt maturities, interest-rate exposure, sale-leaseback covenants, minimum cash requirements and refinancing needs beyond the disclosed near-term repayments.
- Whether the company’s $12.8 million cash balance and $15.0 million undrawn related-party facility are adequate under weaker dry bulk market scenarios.
- The effect of vessel operating costs, LNG economics, scrubber performance and environmental regulations on cash generation and margins.
- The company’s ability to transition from reported net losses to sustainable positive net income after interest, depreciation and debt service.
- Potential related-party effects, including Drew’s 30.85% ownership, the Drew revolving facility and commissions paid to Affinity.