The first rule was simply “Never buy ships at the top of the market”. Britannia Bulk was used as a warning story of the effects of buying when prices are high and loading debt at the top of a cycle: bankruptcy.
Speaking at the inaugural Saudi Maritime Congress in Dammam, Hashim recited his commandments to Saudi and international delegates on the first day of the event.
“Sell older ships when the market is high” was the second lesson. Older vessels are less fuel efficient, have higher maintenance costs, are prone to mechanical failures, have higher insurance costs and are harder to fix long term. Selling such vessels reduces the average fleet age, brings operating costs down and strengthen’s a company’s balance sheet.
Resisting the obvious thous and shalts, rule three was simply “Do not speculate.” Asset price speculation, purchasing Forward Freight Agreements (FFAs), bunker hedges, interest rate swaps, local currency borrowing and spot market deals were all on the forbidden list.
“Lock in ships into long term time charters” was up in fourth place. Long charters reduce exposure to the volatile Baltic Dry Index (BDI).
The fifth piece of financial discipline was “deleverage the balance sheet during the good times.” Hashim used Precious Shipping as an example, showing how by pre-paying a seven year loan in the two years to 2007 it managed to wipe the debt from its balance sheet, reduce finance costs, shelter itself from the downturn and prepare for the next upturn.
Opening his second stone tablet was “minimise dividends when highly leveraged.” Precious Shipping was this time used as an example of how not to do it, as Hashim recalled a dividend of 44% of earnings per share announced in 1996. Part of that dividend was paid in 1997, when the Asian financial crisis struck and Precious made a net loss for the year, leaving the company low on cash and high in debt when the crisis struck.
Fleet management was up again at seven, “Only buy ships in the cyclical downturn.” The time to buy ships is now, the md stated in no uncertain terms. Showing a graph of sale and purchase activity, Hashim highlighted how a similar number of vessel sales in 2007 and 2014 had significantly different price tags. In 2007, 427 sales were worth a total of $16.8bn, whereas in 2013 409 vessels were sold at a total around $5.5bn.
“Funding – don’t make commitments you can’t keep.” Financing advice came in the form of a list of dos and don’ts. For Hashim, shipping debt must be taken with a 15-year profile with a tenor of 8-10 years as a bare minimum. Prepayment of a loan with EBITDA without fee is essential, and any prepayments must be made in maturity order with the bullet payment only prepaid if it’s the last item outstanding.
Lesson nine is one that the maritime industry in general has noticed the benefits of greatly in recent years: “control operational expenses.” Precious Shipping has historically operated at around $1,500 per day below the industry average cost for a handysize ship through a focus on cost control.
Hashim’s main message on cost control was to recruit good staff, train them properly and treat them well to encourage retainment.
The last commandment was also focused on staff. “Don’t underestimate the importance of onshore staff.” Shore staff levels should not fluctuate with fleet size and the BDI. Job security is guaranteed, but with zero tolerance for unethical behaviour.
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