Genco Shipping & Trading Limited Announces New Global Value Strategy Building on Strong Balance Sheet
Genco Shipping & Trading Limited (NYSE: GNK) (“Genco” or the “Company”), today announced a new global value strategy focused on paying quarterly cash dividends to shareholders on a cash flow basis after debt service less a reserve for the growth of the company’s assets, the pursuit of debt reduction and the general objectives of the company.
Genco believes that a strategy based on low leverage and an attractive dividend yield that includes a growth and deleveraging component will allow the Company to create significant shareholder value and be a key differentiator for Genco on the long term.
Building on one of the strongest balance sheets in the industry, Genco intends to use a phased approach to further reduce its debt and refinance its current credit facilities to reduce its cash flow and cash flow levels. position the Company to pay a significant quarterly dividend. in various market environments. We retain great flexibility to grow the fleet through acquisitions of accretive vessels. Genco is targeting fourth quarter 2021 results for its expected first dividend as part of its new corporate strategy, which would be payable in the first quarter of 2022.
In implementing this strategy, the company will focus on the following specific priorities for the remainder of 2021:
Continue to repay debt through regular quarterly repayments and prepayments from a combination of cash flow generation and on-balance sheet cash;
Opportunistically increase the fleet on a low leverage basis using the proceeds from previous vessel sales; and
Refinance credit facilities to increase flexibility, improve key terms and reduce breakeven cash flow rates
In view of the above actions, Genco’s year-end targets for implementing the strategy based on current management estimates are as follows:
20% net loan value based on current market values
Cash balance of approximately $ 75 million, with cash above this level used to repay debt
For quarterly dividends to be meaningful and sustainable in what has been a historically cyclical business, little or no leverage is paramount to maintaining a low breakeven rate in order to provide visibility and sustainability.
John C. Wobensmith, CEO, said: “Over the past four years we have implemented significant changes at Genco, with this new capital allocation strategy being the latest step in the evolution of the company. With one of the strongest balance sheets in the dry bulk industry, evidenced by a strong cash position and low leverage, Genco is uniquely positioned to transition to a business with even lower leverage and create a lasting value through the return of cash throughout shipping cycles. At the heart of our new capital allocation strategy, we are positioning Genco to become a company that pays a compelling dividend yield with low leverage and a low breakeven rate of cash flow, distributing dividends. important quarterly while maintaining the financial strength to continue renewing and developing our fleet. Our continued focus for the remainder of 2021 will be to further strengthen our strong financial base, continuing to reduce our leverage and lower our cash flow levels, which we believe will uniquely position us to provide shareholders with a significant and sustainable quarterly dividend. This strategy also fits ideally with our dumbbell approach to fleet composition in which our minor bulk fleet provides stable cash flow while our vessel Capesize provides significant and operational leverage. “
The implementation of our new corporate strategy is also aligned with our favorable view of the fundamentals of dry bulk supply and demand in the short and long term. The basis for our outlook is the record order book as a percentage of the fleet, which will limit net fleet growth until the end of 2021 and at least until 2022. We also believe that new orders constructions will be limited despite the solid freight rate environment. due to the lack of clarity regarding the future propulsion of the ships and the reduced availability of the new construction yard due to orders in other sectors. The low net growth of the fleet in the coming years provides a low threshold for demand growth to be exceeded to improve fleet-wide utilization. Demand catalysts include the unprecedented level of fiscal and monetary stimulus that the IMF is forecasting, leading to global GDP growth of 6.0% in 2021 and 4.4% in 2022. In addition, we forecast a Continued improvement in global economic activity after COVID-related lows of 2020 leading to increased steel production as well as increased demand for iron ore and small bulk products. Finally, we anticipate growth in Brazilian iron ore exports to support a key long-haul trade that we believe should support Capesize vessels. These catalysts fit well with Genco’s barbell approach to fleet composition, which is the ownership of Capesize and small bulk vessels, as well as our new value strategy.
Apostolos Zafolias, Chief Financial Officer, said: “Genco’s financial strength places the company in a unique position relative to its dry bulk public peer group to accomplish this strategy which will serve as a key differentiator. Importantly, during the first quarter of 2021, as a key first step towards implementing this strategy, the Company reduced its debt balance by $ 48 million or 11%, through a combination of repayments. programmed debt as well as the early repayment of its revolving credit. establishment. As of March 31, 2021, Genco’s cash position was approximately $ 164 million while outstanding debt was approximately $ 401 million. We are pleased with our continued progress in reducing our debt and look forward to further progress as we approach our first dividend expected under our new strategy. “
New dividend policy
As part of Genco’s new corporate strategy, the Board of Directors has adopted a new quarterly dividend policy for dividends payable as of the first quarter of 2022 with respect to the Company’s financial results for the fourth. quarter of 2021. Under the new quarterly dividend policy, the amount available for quarterly dividends must be calculated according to the following formula:
Operational cash flow
Less: debt repayments
Less: capital expenditure for the dry dock
Distributable cash flow in the form of dividends
For the purposes of the above calculation, operating cash flow is defined as travel income less travel costs, charter hire costs, vessel operating costs, general and other administrative costs. non-cash restricted stock charges, technical management charges and interest expense other than deferred cash financing charges. Intended uses of the reserve include, but are not limited to, vessel acquisitions, debt repayment and general corporate purposes. In order to set aside funds for these purposes, the reserve will be established on a quarterly basis prior to the following quarter at the discretion of our board of directors and should be based on future quarterly debt repayments and interest expense. The maintenance of a quarterly reserve as well as the optional nature of the uses of the reserve are important factors of the business strategy because they allow Genco to be flexible according to the market conditions and to provide a more adapted approach to the market. Genco’s global business model.
The board expects to reassess the payment of dividends from time to time. Until the first payment of dividends under the new quarterly dividend policy, the Company anticipates that its current policy of paying a quarterly dividend at the rate of $ 0.02 per share will remain in effect. The quarterly dividend policy and the declaration and payment of dividends are subject to legally available funds, compliance with the law and contractual obligations and the determination of the Board of Directors that each declaration and payment is at this time in the best possible way. interests of the Company and its shareholders.
Source: Genco Shipping & Trading