Cash Flow and Cash

The Group’s four main sources of funds are operating cash flows, secured loans, convertible bonds and equity. The major factors influencing future cash balances are operating cash flows, purchases of dry bulk vessels, sale of assets, and drawdown and repayment of borrowings.

As part of the ordinary activities of the Group, the Treasury function actively manages the cash and borrowings of the Group to ensure sufficient funds are available to meet the Group’s commitments and an appropriate level of liquidity is maintained during different stages of the shipping cycle.

Over the long term, the Group aims to maintain a consolidated net gearing of no greater than 50% – defined as the ratio of net borrowings to net book value of property, plant and equipment – which we believe is appropriate over all stages of the shipping cycle.

Sources and Uses of Group Cash in 2016

Current Position and Outlook

During 2016:

  • We raised US$143 million of cash, after expenses, through the issue of rights shares at the subscription price of HK$0.60 each on the basis of one rights share for every one existing share. US$124 million of such proceeds were used to repay the 2018 convertible bonds in October following the exercise by all bondholders of their right to redeem the bonds.

  • Borrowings decreased by US$94 million, after:
    • The 2016 convertible bonds principal repayment of US$106 million upon its maturity in April;
    • The 2018 convertible bonds principal repayment of US$124 million in October following the exercise by all bondholders of their right to redeem the bonds;
    • Our net repayment of US$70 million of secured borrowings and revolving facilities; and
    • We drew down US$205 million in total, comprising US$171 million under our Japanese export credit facilities in respect of nine delivered newbuildings and US$34 million of borrowings on other owned vessels.

  • We received sale proceeds of US$22 million for towage and other non-core assets.

As at 31 December 2016:

  • The Group’s cash and deposits were US$269 million reflecting a 34% net gearing ratio.

  • Our undrawn committed borrowing facilities of US$158 million comprise:
    • US$140 million of Japanese export credit facilities for our newbuilding commitments of US$119 million payable over the next six months; and
    • US$18 million of other secured borrowings which were subsequently drawn down in February 2017.

Cash and Deposits

The split of current and long-term cash, deposits and borrowings is analysed as follows:

US$ Million 2016 2015 Change
Cash and deposits 269.1 358.3
Restricted bank deposits - non-current 0.1 0.1
Total cash and deposits 269.2 358.4 -25%
Current portion of long-term borrowings (95.7) (292.7)
Long-term borrowings (743.5) (633.3)
Total borrowings (839.2) (926.0) +9%
Net borrowings (570.0) (567.6) 0%
Net borrowings to net book value of
     property, plant and equipment
34% 35%
Net borrowings to shareholders' equity 55% 59%
Net working capital 160.6 40.8 >100%

Treasury is permitted to invest in a range of cash and investment products subject to limits specified in the Group Treasury Manual. These include overnight and term deposits, money market funds, liquidity funds, certificates of deposit, structured notes and currency-linked deposits.

Treasury enhances Group income by investing in a mix of financial products, based on the perceived balance of risk, return and liquidity. Cash, deposits and investment products are placed with a range of leading banks, mainly in Hong Kong.

The Group’s cash and deposits at 31 December 2016 comprised US$255.6 million in United States Dollars and US$13.6 million in other currencies. They are primarily placed in liquid deposits of three months or less and saving accounts. This maintains liquidity to meet the Group’s vessel purchase commitments and working capital needs.

During the year, Treasury achieved a 1.0% return on the Group’s cash.


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