Himalaya Shipping Ltd. — Form 6-K Summary
Filing date: August 8, 2023. The filing includes unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023, with comparable 2022 periods. Amounts are in U.S. dollars unless otherwise stated.
Business Context and Reporting Period
Himalaya Shipping operates Newcastlemax dry bulk vessels of approximately 210,000 dwt equipped with dual-fuel LNG technology, fuel-saving systems and exhaust gas scrubbers. Four vessels were delivered and operating during the six months ended June 30, 2023; a fifth vessel, Mount Matterhorn, was delivered in July 2023 and entered its time charter shortly thereafter. The filing describes the remaining fleet program somewhat inconsistently: management refers to five operating vessels and seven additional vessels under construction, while Note 1 states that four vessels were operating as of June 30 and eight were under construction, one of which was delivered in July.
Financial Performance and Position
| Metric | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|
| Operating revenues | $8.2 million | $nil |
| Operating expenses | $6.4 million | $1.0 million |
| Operating income/(loss) | $1.8 million | $(1.0) million |
| Net income/(loss) | $(1.1) million | $(1.0) million |
| EBITDA | $4.2 million | $(1.0) million |
| Net cash used in operating activities | $(3.5) million | $(1.2) million |
| Cash and cash equivalents | $24.2 million | $0.3 million at December 31, 2022 |
| Gross principal debt | $319.4 million | $74.9 million at December 31, 2022 |
- Average gross TCE earnings were $25,700 per operating day across 330 fleet days. Vessel operating costs averaged $6,200 per day.
- Operating margin was approximately 22% based on reported operating income and revenue; net margin was approximately negative 13%.
- Second-quarter revenue was $6.7 million, operating income was $1.5 million and net loss was $1.1 million.
- Net financial expense was $2.9 million, including $2.9 million of net interest expense and $0.3 million of other net financial expenses, partly offset by $0.3 million of interest income.
- Total assets were $459.8 million and shareholders’ equity was $134.4 million at June 30, 2023. Vessels and equipment were recorded at $286.8 million, and newbuildings at $143.6 million.
- Debt, net of deferred financing charges, was $305.9 million, including $13.0 million classified as current and $292.9 million classified as long term. Approximately $5.8 million of gross debt was scheduled for repayment during the remainder of 2023 and $8.5 million during the first half of 2024.
Cash Flow, Financing and Liquidity
- Investing cash outflow was $256.6 million, primarily reflecting newbuilding installment payments, including $199.5 million for the first four vessels delivered during the period.
- Financing cash inflow was $284.0 million, including $46.2 million of net IPO proceeds, $200.0 million drawn under AVIC sale-and-leaseback financing, $27.4 million from Jiangsu Financial Leasing and $20.6 million from CCB Financial Leasing.
- The company completed its U.S. IPO in April 2023 and a partial over-allotment exercise in May, issuing 8.63 million shares at $5.80 per share. Gross proceeds were $50.0 million and net proceeds were $44.9 million.
- The company had $15.0 million available under its unsecured Drew revolving credit facility at June 30, 2023. The $7.5 million DNB bridge facility drawn in March was repaid and terminated in April 2023.
- Remaining contracted installments under the newbuilding contracts, including scrubber installations, were approximately $441.5 million as of June 30, 2023, of which $422.1 million was expected to be funded through CCBFL and Jiangsu sale-and-leaseback arrangements.
Material Changes Versus the Prior Comparable Period
- Revenue commenced in 2023 as the first four vessels entered operation, compared with no operating revenue in the first six months of 2022.
- Operating results improved from a $1.0 million operating loss to $1.8 million of operating income, and EBITDA improved from a $1.0 million loss to $4.2 million.
- Net loss nevertheless increased modestly to $1.1 million because of interest expense, depreciation and other financing costs associated with delivered vessels and their financing.
- General and administrative expense increased 80% to $1.8 million, primarily due to higher directors’ and officers’ insurance, management fees and director and employee costs following the IPO.
- Debt increased substantially as vessels were delivered and newbuilding installments were financed. Four vessels were reclassified from newbuildings to vessels and equipment, and depreciation expense began in 2023.
- The novation of financing for Mount Bandeira and Mount Hua from CCBFL to Jiangsu was treated as a debt extinguishment; associated deferred financing charges were written off, contributing to other financial expense.
Outlook, Commentary, Risks and Unusual Items
- Management states that the IPO proceeds and additional AVIC financing alleviated the substantial doubt about going concern previously disclosed. Management reported $24.2 million of cash, $10.7 million of working capital and $15.0 million of undrawn Drew capacity at June 30, 2023, and expects sufficient resources for the 12-month period from issuance of the financial statements.
- Management expects the net IPO proceeds to fund working capital and scrubber installation on the remaining vessels. The filing does not provide a formal revenue, earnings or dividend forecast.
- In July 2023, Mount Matterhorn was delivered and LNG bunkering was successfully completed on Mount Norefjell and Mount Matterhorn.
- The sale-and-leaseback arrangements are accounted for as financing transactions because of fixed-price purchase options and, for AVIC arrangements, a $25.0 million-per-vessel cash penalty for not exercising purchase options. Bareboat payments average $16,567 per day.
- Key risks include dry bulk charter rates and vessel values, completion and financing of newbuildings, debt and covenant compliance, refinancing and access to borrowing capacity, operating costs, environmental and climate regulation, shipping-route disruption, foreign exchange movements, related-party conflicts and the company’s ability to pay dividends.
- The company has pledged its vessels and newbuildings as security for long-term financing. Subsidiary-level cash reserve requirements also restrict distributions to the parent.
Investor Verification Priorities
- Reconcile the filing’s inconsistent fleet counts: four vessels operating at June 30, five after the July delivery, and the stated seven versus eight vessels remaining under construction.
- Verify the funding plan and execution for approximately $441.5 million of remaining newbuilding commitments, including the expected $422.1 million of CCBFL and Jiangsu financing.
- Assess liquidity after scheduled debt repayments, bareboat payments, operating costs and scrubber-related expenditures, including the availability and terms of the Drew facility.
- Monitor charter rates, utilization, TCE performance and vessel operating costs as the fleet expands.
- Review sale-and-leaseback covenants, cash reserve requirements, purchase options and potential penalties, as well as the substantial leverage created by these arrangements.
- Confirm whether management’s going-concern assessment remains supported if charter rates, vessel values or financing availability weaken.