Financial leverage is a useful tool for investors who want a quick glance at a company’s debt standing. But it’s important to dive more deeply into the cash balances, capex (capital expenditure) needs, debt borrowing capacity, and debt maturity schedule to have a fuller picture. Since the market isn’t showing encouraging signs of a significant pickup next year, dry bulk companies might need to weather a prolonged downturn. This means they need to manage their liquidity prudently in order to make it through the current down cycle.
No unfunded capex
At the end of 3Q15, Navios Holdings (NM) had cash and cash equivalents of $174.5 million. The company has no unfunded capex and no material debt maturities until 2019. Management commented that the company’s liquidity is dedicated to expansion opportunities and operating needs.
Navios Partners (NMM) had a cash balance of $33 million at the end of 3Q15 with no unfunded capex and no debt maturities until 2018.
Cash balances and capex needs
As highlighted in the previous article, Scorpio Bulkers (SALT) has substantial remaining newbuild payments of $645.7 million with a cash balance of $237.6 million. It has $590 million in debt capacity still available. It has been selling its vessels for the last few months to reduce debt.
Safe Bulkers (SB) has entered into a sale and leaseback deal. This will help the company build on cash reserves to the tune of $47 million. At the end of 3Q15, SB had liquidity of $347 million with $141 million in cash and $165 million in undrawn credit facility. This is against remaining capital expenditure of $197 million for eight newbuilds.
Diana Shipping (DSX), on the other hand, has a strong balance sheet that management is using to acquire assets at a cheap value. During the 3Q15 earnings call, management commented, “Reflecting our strategy of maintaining the company’s financial flexibility last month we announced term loan facility of up to $39.7 million with ING Bank m/v London branch. The proceeds will be used to partially finance the acquisition cost of two vessels.” The company had three newbuilds in the pipeline at the end of 3Q15 with $132.5 million unpaid on them.
Investors interested in broad exposure to industrials can invest in the SPDR Dow Jones Industrial Average ETF (DIA).