ASX Announcement
Highlights
- Sale of MV Ocean Shearer for US$53.0 million (approx. A$77.8 million1) to reduce Wellard financial debt to US$16.7 (approx. A$24.6 million)2;
- US$42.3 million (approx. A$62.0 million) reduction in existing debt;
- US$10.7 million (approx. A$15.8 million) increase in cash on hand;
- Wellard’s fleet right-sized to three vessels (two owned and one exclusively leased);
- Successful sale transaction will complete Company recapitalisation without further shareholder dilution, providing greater financial flexibility.
Wellard Limited (ASX:WLD) (Wellard or the Company) is pleased to announce that it has signed a Term Sheet to sell the MV Ocean Shearer for US$53.0 million, which would complete the Company’s recapitalisation program on successful closure of the transaction.
Wellard intends to apply approximately US$42.3 million (approx. A$62.0 million) of the sale proceeds to reducing the Company’s financial debt to just US$16.7 million (approx. A$24.6 million), a level more appropriate to current activities and market conditions. The remaining US$10.7 million (approx. A$15.8 million) will be retained as cash for operations, significantly strengthening Wellard’s working capital position.
The Company can now focus exclusively on maximising earnings and profits from the company-owned MV Ocean Drover and MV Ocean Ute, and the long-term chartered MV Ocean Swagman.
Wellard is selling the MV Ocean Shearer to Livestock Transport & Trading Co KSC, Kuwait, a company controlled by Al Mawashi Limited, a Kuwaiti publicly listed company, which trades in Australia as Kuwait Livestock Transport and Trading Company (“KLTT”) and which, among other activities, is one of the largest exporters of sheep from Australia to the Middle East.
The vessel, which was delivered in 2016, is the world’s largest purpose-built livestock vessel.
“The sale of the MV Ocean Shearer cuts Wellard’s financial debt to very manageable levels while crystallising value from an under-utilised vessel in our fleet,” Wellard Executive Chairman John Klepec said.
The sale is subject to final documentation under the Norwegian Shipbrokers’ Association’s Memorandum of Agreement for Sale and Purchase of Ships (BIMCO Form Rev, 2012), which provides standard terms and conditions adopted internationally for sale of oceangoing ships, and is subject to standard conditions precedent including final vessel inspections. The mortgage to Intesa Sanpaolo Bank S.p.A. (“Intesa”) will be paid out and discharged. The transaction is anticipated to complete no later than end-March 2020.
The principal terms of the transaction are attached.
Wellard’s Board will proceed with the transaction in absence of a superior offer.
Funds will be directed to the following:
- US$38.4 million (approx. A$56.3 million) full repayment of vessel finance to Intesa;
- US$3.9 million (approx. A$5.7 million) full repayment of debt to noteholders; and
- US$10.7 million (approx. A$15.8 million) minus transaction costs, will be retained as Wellard cash reserves and working capital.
The agreed price is slightly higher than the consolidated net book value of the vessel and the vessel will be treated as an asset held for sale when the Company’s interim accounts are lodged in February 2020.
Mr Klepec said that Wellard was paying approx. US$8 million (approx. A$11.7 million) in principal and interest costs on the MV Ocean Shearer annually, in addition to various other fixed costs such as maintenance and crewing.
“Given our comparable sized vessel, the MV Ocean Drover has completed three times the number of voyages as the MV Ocean Shearer in 2019, it makes financial sense to release value and reduce debt from an under-utilised asset, adding A$15.8 million to our cash reserves and reducing our annual debt servicing by US$8 million,” he said.
Wellard’s Executive Chairman, Mr John Klepec said Wellard’s high debt load, which had become a millstone around its neck, would be consigned to history on the successful settlement of the transaction.
“Wellard can now focus on charter utilisation and running its vessels efficiently. Our Company has changed its approach and has become an international livestock logistics business, with more robust systems and processes, best-in-class animal welfare outcomes, a leaner overhead structure, and a more reliable revenue stream from its highly specialised charter operations.
“The Ocean Shearer has been the biggest vessel in our fleet, but it has been consistently underutilised in the current very volatile environment. It has been predominantly deployed in the South America-Turkey trade route, which has twice been closed suddenly, leaving Wellard with fixed financing and overhead costs but without revenues.
“KLTT’s purchase offer of US$53.0 million (approx. A$77.8 million) represents a significant de-risking of Wellard’s business, and allows the Company to concentrate on the three remaining more economically attractive vessels, being the Ocean Drover, the Ocean Ute and the Ocean Swagman.
“KLTT will deploy the Ocean Shearer to the Australia–Middle East trade route, which I am pleased to note will likely be an ongoing benefit to Western Australian farmers and other businesses in the related supply-chain. Wellard certainly wishes KLTT every success in their ownership and operation of this very impressive vessel.”
Subsequent impacts
In discharging the Intesa loan, the remaining “key-man” restrictions relating to the Balzarini family will also cease to exist. Accordingly, parties owned or controlled by former Wellard CEO Mr. Mauro Balzarini will no longer be required to hold a minimum 12.5% shareholding in Wellard Limited. Wellard has been advised that when this restriction is lifted, creditors associated with Mr. Balzarini’s private interests will take possession of the majority of those previously restricted shares. Wellard has no influence over the timing and execution of that transfer, and an appropriate announcement will be made in due course.
Shareholder approval not required
The transaction does not represent a substantial change in Wellard’s principal activities.
ASX has advised that it will not exercise its discretion under Chapter 11 (Significant Transactions), and therefore Wellard’s shareholders are not required to approve this transaction.
This ASX announcement was approved by Wellard’s Executive Chairman, Mr. John Klepec.
For further information:
Investors
Executive Chairman, John Klepec
Phone: + 61 8 9432 2800
Media
FTI Consulting, Cameron Morse
Phone: + 61 8 9321 8533
Mobile: + 61 (0) 433 886 871
1 US$/A$ exchange rate of 1.4678 as at 11 December 2019
2 Financial Debt includes future non-cancellable lease obligations