http://www.euroinvestor.dk/Debat/debat.a...

Google translate:

I have on a few occasions over the last month voiced deep skepticism about the company Torm, which I think is pressed in a way which is Amagerbanken, Sjælsø Group, H + H International and Skælskør Bank dignified. It is the combination of high debt and low freight rates best of my knowledge makes first massive write-downs and then an equally extensive reserves of more than a latent threat to the current valuation of the company. I will hereafter express these views in detail.

TORM is well known overwhelmingly a product tanker shipping company and it is precisely in this segment that the rate-related poverty is most pronounced. After six months of sheer distress experienced spot rates over the past week further pressure from above and thus reached a level (under $ 5.000/dag) where there is absolutely no options to satisfy even the most makeshift variable costs. The point where the ships earnings to finance interest costs and amortization of debt was crossed long ago.

As pointed out in previous posts it is far worse that period the market has completely collapsed. Not only that the activity is extremely limited, the same can be said of the rate levels, which has halved over the past year. For SR / MR tankers speaker independent brokers as on 1 - and 3-year T / C in the range of USD 10-11000 and 12-13000, respectively. How devastating it is for profitability can be ascertained by looking at Torm Q2 accounts where the company's tank division made an EBITDA profit of $ 19 million. But it was the light of significantly higher results than the rates in force, including approx. USD 16.500/dag for SR / MR tankers. In other words: Even in the highly theoretical cases where TORM could actually cover the entire unpaid portion of the tanker fleet with high 3-year term rates, would the secondary earnings are not nearly sufficient to match interest and principal on debt.

If there were only talking about a handful of ships would be limited extent of the problem, but it is unfortunately not the case for the TORM to end-Q2 2009 had only identified 22% of the known capacity of the tanker segment for 2010. That leaves the company with approx. 20,500 unemployed ship days, including a number of chartered entity whose cash flow breakeven is obviously much higher than the variable costs on their own ships.

Even so deadly prospects would probably be handled if the TORM had solid economic-based, which I do not find the case. End of Q2 2009 the company had thus a net interest bearing debt of $ 1670 million. If the settlement of this so can not be financed operation. Unused credit facilities and cash balances amounted to but $ 400 million., Well, rather USD 460 million. Because it was still to settle the sale of two dry bulk carriers. The problem is that it will soon likely to face head on the ceiling, partly because of the miserable service, partly because of its payment obligations in particular newbuilding program. According to the annual report for 2008 amount to purchase obligations related to this item USD 278 million. and $ 261 million. the veins in 2009 and 2010, respectively, so in principle I think that something must be done on this front last at the turn.

The TORM eventually be expected to have exhausted its credit line in full is not in itself a problem. That there are several possible solutions:

The most obvious would be simply to extend credit facilities, which, however, I find highly doubtful. Which financial institutions would initiate or expand loan limits for a company with an already very high financial leverage, creepy little operation and, not least, extremely limited opportunities for their own power to reverse the trend?