Himalaya Shipping CEO: We have the right ships at the right time
Bermuda-based shipping company Himalaya Shipping, a rising star in the dry bulk industry, is well on its way on its transition path into a fully operational company, thanks to timely investments in the ‘right ships’.
One of the key highlights of the first half of 2023 for the company was the delivery and initiation of operations of four out of twelve 210,000 dwt Newcastlemax LNG dual-fuel newbuildings, which were ordered from New Times Shipyard.
Upon delivery of the quartet, the company entered into sale-leaseback financing deals with subsidiaries of AVIC whereby the vessels were sold to special purpose vehicles (SPVs) owned by AVIC and leased back to the company under bareboat charters. The deal was made to finance 90% of the cost to install scrubbers on each vessel, an investment worth $8.8 million.
The shipowner is installing scrubbers on all 12 newbuilds enabling the vessels to run on LNG, LSFO or HSFO, boosting the ships’ flexibility and thus offering the company a strategic advantage in employment discussions.
To remind, Himalaya has a total of twelve LNG dual fuel Newcastlemax dry bulk carriers on order with delivery between Q2 2023 and Q4 2024 at the yard. The ships boast ECO design and LNG propulsion enabling them to meet the IMO goal towards 2030 and beyond. The vessels will also be prepared for next-generation fuels.
The delivered newbuilds contributed significantly to the company’s total operating revenues of $8.2 million. These results translate to an impressive average time charter equivalent (TCE) earnings of approximately $25,700 per day, gross.
This represents a 100% increase compared to the second half of 2022. Operating profit for the period was $1.8 million, against an operating loss of $1 million for the corresponding period in 2022.
In addition, Himalaya has secured time charter agreements for two vessels for 22 to 26 months’ time charter, plus an option exercisable by the counterparty for a further 11 to 13 months between January and July 2024. Both vessels are expected to earn an index-linked rate, reflecting a significant premium to the Baltic 5TC index (BCI).
In July, the company’s fifth newbuild, Mount Matterhorn, was delivered and commenced its 32-to-38-month index-linked time charter.
During the same month, the charterers of Mount Norefjell and Mount Matterhorn bunkered LNG on these vessels while in Singapore.
“The first half of 2023 has been transformational for Himalaya Shipping. From starting with an idea, to already having five ships in operations and being listed on the New York Stock Exchange (NYSE), we have achieved the first stepping stone in what is going to be many exciting years ahead,” CEO Herman Billung said, commenting on the timeliness of the company’s capital investments.
“We strongly believe that we have the right ships, at the right time.”
Billung’s conviction is backed by the fact that the order book for Capesize vessels currently sits at a 25-year low of below 5%. This scarcity, coupled with the lack of shipyard capacity to construct large dry bulk vessels before 2027, has led to quoted prices above $86 million for comparable ships.
Another key aspect of the new ships is their environmental performance, as Billung further highlighted the LNG-fueled Newcastlemax vessels can reduce CO2 emissions by more than 40% when powered by LNG.
With environmental regulations becoming more stringent, these vessels are well-positioned to meet and benefit from emerging compliance requirements. Furthermore, decreasing natural gas prices also provide Himalaya Shipping with an economic advantage in fueling their ships with LNG, he added.
“We have the right financing with 7-years fixed rate interest rates, giving the company an attractive cash break-even. Finally, the strategy we are following, with no plans for further investments in ships, means that most of the cash generated after debt service will be distributed to shareholder through monthly dividends. We think this is the right approach in a cyclical industry,” Bilung explained.
Himalaya Shipping completed its Initial Public Offering (IPO) in the United States in April 2023. The IPO garnered net equity proceeds of $44.9 million, which included the partial exercise of the over-allotment option.
The company’s financial health remains robust, with cash and cash equivalents amounting to $24.2 million by the end of June 2023. The company’s EBITDA for the first half of the year stood at $4.2 million, further cementing its stable position in the market.
However, Himalaya posted a net loss of $1.1. million for the first half of 2023, 10 percent higher than last year.
The company said that its newbuilding program is progressing slightly ahead of schedule.
“With one ship left to be delivered this year, and the rest coming in 2024, we are transitioning into a fully operational company, which has the main focus of delivering solid operations and profitable returns to shareholders through monthly dividends. With the limited supply growth, and currently solid underlying demand, we expect dry bulk earnings to improve going forward,” the company said.