Wednesday, June 22, 2011

Berlian Laju losses widened significantly in 2010

Berlian Laju Tankers (BLT) delays in releasing latest corporate earnings never boded well for investors There is a lot of money out on this too big to fail company with its recent massive US$ 685 mio senior debt restructuring by a 6-bank consortium plus a US$ 90 mio sale leaseback deal with Standard & Chartered (S&C). What if these lenders are wrong on their turnaround story and market recovery does not come as anticipated?

Albeit BLT was hampered by computer glitch, there certainly was not much incentive for a timely release of the results.

This beleaguered, over-indebted group dropped deeper into the red in 2010 as finance and operating costs stacked up. Losses were substantially higher than analysts had predicted. The net loss for 2010 amounted to US$ 150 mio, versus a loss of US $117 mio in 2009. Its chemical operating profits were down by US $7 mio from last year. Even its much touted FPSO arm recorded an operating loss of US $11.8 mio compares with a gain of just over US$ 14 mio a year ago.

What is very scary is that the loan restructuring and lease deals will increase substantially the finance costs that plagued them last year even if operating profits do improve. BLT will get some liquidity relief from senior lenders, but a larger share of their operating income will be sucked up by finance charges.

BLT management has always seemed very indifferent about its cost of capital. Whilst is peer rival Stolt is paying only 6,63% on its latest bond issue. BLT revels in high leverage and expensive leases with ever mounting finance charges. Whilst Stolt has good collateral earnings from a very profitable liquid chemical storage business that is complimentary to its parcel chemical tanker operation, BLT is making losses on its FPSO venture. Its spin-off Indonesian cabotage business is only a very small operation to soak up the magnitude of losses in the parent company.

BLT is a turnaround story because of its high financial and operating leverage. Its management has a firm expectation of a killing in a coming boom in the chemical tanker market and its bankers seem to agree in maintaining and even increasing their exposure to the group.

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