(Name, Telephone, E-mail and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(b) of the Act
Securities registered or to be registered pursuant
to Section 12(g) of the Act: None
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of
each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 19,006,858
ordinary shares (excluding treasury shares)
Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: ¨ Yes
x No
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. ¨ Yes x No
Note—Checking the box above will not
relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). xYes ¨ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definitions
of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2
of the Exchange Act. (Check one):
If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards† provided pursuant
to Section 13(a) of the Exchange Act. ¨
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked in
response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item
17 ¨ Item 18
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes
x No
On November 2, 2017, we incorporated as
a private company, Grindrod Shipping Holdings Pte. Ltd., in accordance with the laws of the Republic of Singapore for the
purpose of acquiring the shipping business from Grindrod Limited, a public company incorporated in accordance with the laws of
the Republic of South Africa, or Former Parent. On April 25, 2018, Grindrod Shipping Holdings Pte. Ltd. was converted
from a private company to a public company incorporated in accordance with the laws of the Republic of Singapore and it changed
its name to Grindrod Shipping Holdings Ltd., or Grindrod Shipping. On June 18, 2018, or the Closing Date, Former Parent sold
all of the shares it held in its wholly-owned subsidiaries, Grindrod Shipping Pte. Ltd., or GSPL, and Grindrod Shipping (South
Africa) Pty Ltd, or GSSA, to Grindrod Shipping, in exchange for a market related consideration. On the Closing Date, Former
Parent made a pro rata distribution to its shareholders that resulted in its shareholders receiving Grindrod Shipping ordinary
shares in the same proportion as they held their Former Parent ordinary shares immediately prior to the distribution. We refer
to the entire transaction as described above as the Spin-Off.
As of the Closing Date, Former Parent and Grindrod
Shipping became independent, publicly traded companies having separate public ownership. Grindrod Shipping has its own board of
directors, a majority of whom do not overlap with Former Parent’s board of directors. Grindrod Shipping has its own management
team which was the same management team that operated Former Parent’s shipping business immediately prior to the Spin-Off.
Grindrod Shipping’s ordinary shares are
listed on the NASDAQ Global Select Market, or NASDAQ and quoted on the Main Board of the JSE Limited, or the JSE.
Our consolidated and combined financial statements
and, unless otherwise indicated, other financial information concerning us included in this annual report, are presented in U.S.
dollars. We have prepared our consolidated and combined financial statements in accordance with International Financial Reporting
Standards, or IFRS, as issued by the International Accounting Standard Board, or IASB.
Our audited consolidated and combined financial
statements presented in this annual report represent the combined financial statements of GSPL and GSSA prior to June 18, 2018
and represent the consolidated financial statements of Grindrod Shipping as a separate publicly traded company on and subsequent
to June 18, 2018 following the Spin-Off. In addition, for periods prior to January 1, 2018, the consolidated and combined financial
statements include components of Former Parent’s shipping business which were not transferred to us in the Spin-Off. In the
first quarter of 2018, GSSA sold two of its businesses, Ocean Africa Container Lines division, or OACL, and Unicorn Bunker Services
(Pty) Ltd, or Unicorn Bunker, to another Former Parent subsidiary and such businesses are not part of our results of operations
for periods following the disposal on January 1, 2018, however, the proceeds from these sales remained with us. The historical
consolidated and combined financial information has been prepared with the objective of presenting the results and net assets of
Grindrod Shipping over the periods presented. Consequently, this historical consolidated and combined financial information may
not necessarily be indicative of the financial performance that would have been achieved had Grindrod Shipping operated as a stand-alone
entity for the periods presented. Furthermore, it may not be indicative of the financial results in future periods.
This annual report includes estimates regarding
market and industry data that we prepared based on our management’s knowledge of and experience to date in the markets in
which we operate, together with information obtained from various sources, including publicly available information, industry reports
and publications, surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets
in which we operate.
In presenting this information, we have made
certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and
our experience to date in, the markets for our products and services. Market data is subject to change and may be limited by the
availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical
survey of market share data. In addition, customer preferences are subject to change. Accordingly, you are cautioned not to place
undue reliance on such market share data or any other such estimates. While we believe such information is reliable, we cannot
guarantee the accuracy or completeness of this information, we have not independently verified any third-party information and
data from our internal research has not been verified by any independent source. While we believe the estimated market and industry
data included in this annual report are generally reliable, such information, which is derived in part from management’s
estimates and beliefs, is inherently uncertain and imprecise.
Projections, assumptions and estimates of our
future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty
and risk due to a variety of factors, including those described in “Item 3. Key Information—Risk Factors”
and “Cautionary Statement Regarding Forward-Looking Statements”. These and other factors could cause results to differ
materially from those expressed in the estimates made by any third parties and by us.
In this annual report, unless otherwise indicated,
all references to “we”, “us,” “our”, “Company” and “Grindrod Shipping”
refer to Grindrod Shipping Holdings Ltd. and its subsidiaries. Grindrod Shipping Holdings Ltd. is a public company incorporated
under the laws of the Republic of Singapore.
In this annual report all references to “Fleet”
mean the 35 vessels we operate, listed in “Item 4. Information on the Company—B. Business Overview—Our Fleet”.
In this annual report, all references to “Singapore”
mean the Republic of Singapore, all references to “South Africa” mean the Republic of South Africa, all references
to “EU” mean the European Union and all references to the “United States” and “U.S.” mean the
United States of America, its territories and possessions and any state of the United States and the District of Columbia.
In this annual report, “R” and
“Rand” refer to the South African Rand and “Rand cents” refers to subunits of the South African Rand, “¥”
and “Yen” refer to the Japanese Yen and “Yen cents” refers to subunits of the Japanese Yen, “$”,
“U.S.$” and “U.S. dollars” refer to United States dollars and “U.S. cents” refers to subunits
of the U.S. dollar.
This annual report contains descriptions of
shipping and the shipping industry. In order to facilitate a better understanding of these descriptions, below is a glossary defining
a number of technical and shipping terms as used in this annual report.
The following explanations are not intended
as technical definitions, but rather are intended to assist the reader in understanding some of the shipping terms used in this
annual report.
This annual report contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements, including,
among others, those relating to our future business prospects, revenue and income, are necessarily estimates and involve a number
of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.
Accordingly, these forward-looking statements should be considered in light of various important factors, including those set forth
in “Item 3. Key Information—Risk Factors” of this annual report. Important factors that could cause actual results
to differ materially from estimates or projections contained in the forward-looking statements include, without limitation:
We undertake no obligation to update publicly
or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report
or to reflect the occurrence of unanticipated events except as required by law.
PART I
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not applicable.
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
Selected Financial Data
The selected historical consolidated and combined
financial data set out below as of December 31, 2020 and December 31, 2019 and for the years ended December 31,
2020, December 31, 2019 and December 31, 2018 have been derived from the consolidated and combined audited financial
statements included in this annual report. The selected historical consolidated and combined financial data set out below as of
December 31, 2017 and 2016 and for the year ended December 31, 2017 and 2016 have been derived from our audited consolidated and
combined financial statements that can be found in the Registration Statement on Form 20-F (Registration No. 001-384401), initially
filed with the SEC on March 23, 2018, as amended, or the Registration Statement. The financial statements of the company represent,
prior to June 18, 2018, the combined financial statements of GSSA and GSPL and, on and subsequent to June 18, 2018, the consolidated
financial statements of Grindrod Shipping as a separate publicly traded company following the Spin-Off. See “Item 5.
Operating and Financial Review and Prospects” for additional information. The other financial and operating data presented
has been calculated as described in the footnotes to the table below. This table contains certain information regarding TCE per
day, vessel operating costs per day and long-term charter-in costs per day, which are non-GAAP measures. For a discussion and reconciliation
of these measures, see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures”.
|
|
Year Ended December 31,
|
|
(In thousands of U.S. dollars, other than per share data)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Summary Consolidated and Combined Statements of Profit or Loss Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
279,217
|
|
|
$
|
331,046
|
|
|
$
|
319,018
|
|
|
$
|
409,522
|
|
|
$
|
371,532
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
(83,441
|
)
|
|
|
(149,444
|
)
|
|
|
(151,705
|
)
|
|
|
(166,924
|
)
|
|
|
(140,727
|
)
|
Vessel operating costs
|
|
|
(47,477
|
)
|
|
|
(33,889
|
)
|
|
|
(32,657
|
)
|
|
|
(40,837
|
)
|
|
|
(42,911
|
)
|
Charter hire costs
|
|
|
(38,220
|
)
|
|
|
(61,668
|
)
|
|
|
(100,648
|
)
|
|
|
(127,748
|
)
|
|
|
(121,080
|
)
|
Depreciation of ships, drydocking and plant and equipment – owned assets
|
|
|
(23,849
|
)
|
|
|
(17,529
|
)
|
|
|
(14,094
|
)
|
|
|
(17,975
|
)
|
|
|
(19,806
|
)
|
Depreciation of ships and ship equipment – right-of-use assets
|
|
|
(26,413
|
)
|
|
|
(30,449
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other expenses
|
|
|
(980
|
)
|
|
|
(697
|
)
|
|
|
(1,146
|
)
|
|
|
(16,364
|
)
|
|
|
(27,860
|
)
|
Cost of ship sale
|
|
|
(43,731
|
)
|
|
|
(16,844
|
)
|
|
|
(7,675
|
)
|
|
|
(17,560
|
)
|
|
|
(13,351
|
)
|
Gross profit
|
|
|
15,106
|
|
|
|
20,526
|
|
|
|
11,093
|
|
|
|
22,114
|
|
|
|
5,797
|
|
Other operating (expense) income
|
|
|
(11,734
|
)
|
|
|
(23,559
|
|
|
|
6,022
|
)
|
|
|
(34,502
|
)
|
|
|
(12,406
|
)
|
Administrative expense
|
|
|
(24,608
|
)
|
|
|
(28,412
|
)
|
|
|
(31,599
|
)
|
|
|
(32,868
|
)
|
|
|
(30,140
|
)
|
Share of losses of joint ventures
|
|
|
(945
|
)
|
|
|
(1,420
|
)
|
|
|
(454
|
)
|
|
|
(12,946
|
)
|
|
|
(3,472
|
)
|
Impairment loss recognized on financial assets
|
|
|
(1,823
|
)
|
|
|
—
|
|
|
|
(1,583
|
)
|
|
|
—
|
|
|
|
—
|
|
Interest income
|
|
|
565
|
|
|
|
1,979
|
|
|
|
3,787
|
|
|
|
7,164
|
|
|
|
5,260
|
|
Interest expense
|
|
|
(16,938
|
)
|
|
|
(11,916
|
)
|
|
|
(6,517
|
)
|
|
|
(6,548
|
)
|
|
|
(4,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxation
|
|
|
(40,377
|
)
|
|
|
(42,802
|
)
|
|
|
(19,251
|
)
|
|
|
(57,586
|
)
|
|
|
(39,860
|
)
|
Income tax
|
|
|
(723
|
)
|
|
|
(685
|
)
|
|
|
(1,389
|
)
|
|
|
(3,226
|
)
|
|
|
(3,849
|
)
|
Loss for the year
|
|
$
|
(41,100
|
)
|
|
$
|
(43,487
|
)
|
|
$
|
(20,640
|
)
|
|
$
|
(60,812
|
)
|
|
$
|
(43,709
|
)
|
Basic and diluted loss per share
|
|
|
(2.05
|
)
|
|
|
(2.29
|
)
|
|
|
(1.08
|
)
|
|
|
(3.19
|
)
|
|
|
(2.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary Consolidated Statement of Financial Position Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and bank balances
|
|
$
|
41,261
|
|
|
$
|
35,553
|
|
|
$
|
35,636
|
|
|
$
|
46,522
|
|
|
$
|
67,711
|
|
Other current assets
|
|
|
41,350
|
|
|
|
55,946
|
|
|
|
87,313
|
|
|
|
140,680
|
|
|
|
93,112
|
|
Non-current assets
|
|
|
539,488
|
|
|
|
427,568
|
|
|
|
324,678
|
|
|
|
319,920
|
|
|
|
429,331
|
|
Total assets
|
|
|
622,099
|
|
|
|
519,067
|
|
|
|
447,627
|
|
|
|
507,122
|
|
|
|
590,154
|
|
Current liabilities
|
|
|
117,901
|
|
|
|
86,792
|
|
|
|
56,666
|
|
|
|
163,249
|
|
|
|
141,659
|
|
Non-current liabilities
|
|
|
250,179
|
|
|
|
180,337
|
|
|
|
98,458
|
|
|
|
24,137
|
|
|
|
85,400
|
|
Total liabilities
|
|
|
368,080
|
|
|
|
267,129
|
|
|
|
155,124
|
|
|
|
187,386
|
|
|
|
227,059
|
|
Equity attributable to the owners of the Company
|
|
|
212,237
|
|
|
|
251,938
|
|
|
|
292,503
|
|
|
|
319,736
|
|
|
|
363,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
41,782
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total equity
|
|
|
254,019
|
|
|
|
251,938
|
|
|
|
292,503
|
|
|
|
319,736
|
|
|
|
363,095
|
|
The following table sets forth certain other
financial and operating data for key segments(1) of our drybulk carriers and tankers businesses. This data should be
read together with “Item 5. Operating and Financial Review and Prospects.”
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Other Financial and Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drybulk Carriers Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handysize Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
6,882
|
|
|
|
6,495
|
|
|
|
6,704
|
|
|
|
7,942
|
|
|
|
7,616
|
|
Available days(3)
|
|
|
6,713
|
|
|
|
6,405
|
|
|
|
6,565
|
|
|
|
7,840
|
|
|
|
7,559
|
|
Operating days(4)
|
|
|
6,584
|
|
|
|
6,352
|
|
|
|
6,495
|
|
|
|
7,720
|
|
|
|
7,460
|
|
Owned fleet operating days(5)
|
|
|
5,354
|
|
|
|
4,546
|
|
|
|
4,915
|
|
|
|
5,114
|
|
|
|
5,190
|
|
Long-term charter in days(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
221
|
|
|
|
365
|
|
|
|
1,186
|
|
Short-term charter-in days(7)
|
|
|
1,230
|
|
|
|
1,806
|
|
|
|
1,359
|
|
|
|
2,241
|
|
|
|
1,084
|
|
Fleet utilization(8)
|
|
|
98.1
|
%
|
|
|
99.2
|
%
|
|
|
98.9
|
%
|
|
|
98.5
|
%
|
|
|
98.7
|
%
|
TCE per day(9)
|
|
$
|
6,629
|
|
|
$
|
7,770
|
|
|
$
|
9,032
|
|
|
$
|
7,675
|
|
|
$
|
5,881
|
|
Vessel operating costs per day(10)
|
|
$
|
5,030
|
|
|
$
|
5,040
|
|
|
$
|
5,201
|
|
|
$
|
5,034
|
|
|
$
|
5,091
|
|
Long-term charter-in costs per day(11)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
8,600
|
|
|
$
|
8,600
|
|
|
$
|
5,975
|
|
Supramax/Ultramax Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
7,787
|
|
|
|
6,670
|
|
|
|
6,401
|
|
|
|
7,702
|
|
|
|
7,700
|
|
Available days(3)
|
|
|
7,736
|
|
|
|
6,626
|
|
|
|
6,345
|
|
|
|
7,702
|
|
|
|
7,700
|
|
Operating days(4)
|
|
|
7,526
|
|
|
|
6,601
|
|
|
|
6,315
|
|
|
|
7,584
|
|
|
|
7,654
|
|
Owned fleet operating days(5)
|
|
|
2,514
|
|
|
|
959
|
|
|
|
704
|
|
|
|
692
|
|
|
|
560
|
|
Long-term charter in days(6)
|
|
|
2,261
|
|
|
|
2,351
|
|
|
|
2,299
|
|
|
|
2,524
|
|
|
|
2,023
|
|
Short-term charter-in days(7)
|
|
|
2,751
|
|
|
|
3,291
|
|
|
|
3,312
|
|
|
|
4,368
|
|
|
|
5,071
|
|
Fleet utilization(8)
|
|
|
97.3
|
%
|
|
|
99.6
|
%
|
|
|
99.5
|
%
|
|
|
98.5
|
%
|
|
|
99.4
|
%
|
TCE per day(9)
|
|
$
|
10,072
|
|
|
$
|
12,067
|
|
|
$
|
11,878
|
|
|
$
|
10,551
|
|
|
$
|
7,861
|
|
Vessel operating costs per day(10)
|
|
$
|
5,073
|
|
|
$
|
4,545
|
|
|
$
|
4,641
|
|
|
$
|
4,519
|
|
|
$
|
4,433
|
|
Long-term charter-in costs per day(11)
|
|
$
|
12,005
|
|
|
$
|
12,650
|
|
|
$
|
12,866
|
|
|
$
|
13,092
|
|
|
$
|
12,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tankers Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium Range Tankers Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
1,434
|
|
|
|
2,253
|
|
|
|
2,733
|
|
|
|
3,055
|
|
|
|
3,140
|
|
Available days(3)
|
|
|
1,434
|
|
|
|
2,253
|
|
|
|
2,721
|
|
|
|
2,999
|
|
|
|
3,140
|
|
Operating days(4)
|
|
|
1,432
|
|
|
|
2,253
|
|
|
|
2,660
|
|
|
|
2,994
|
|
|
|
3,140
|
|
Owned fleet operating days(5)
|
|
|
1,063
|
|
|
|
1,523
|
|
|
|
1,587
|
|
|
|
1,893
|
|
|
|
1,983
|
|
Long-term charter in days(6)
|
|
|
369
|
|
|
|
730
|
|
|
|
1,073
|
|
|
|
1,101
|
|
|
|
1,157
|
|
Short-term charter-in days(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fleet utilization(8)
|
|
|
99.9
|
%
|
|
|
100.0
|
%
|
|
|
97.8
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
TCE per day(9)
|
|
$
|
16,339
|
|
|
$
|
14,341
|
|
|
$
|
11,258
|
|
|
$
|
11,691
|
|
|
$
|
13,902
|
|
Vessel operating costs per day(10)
|
|
$
|
6,723
|
|
|
$
|
6,691
|
|
|
$
|
6,888
|
|
|
$
|
6,869
|
|
|
$
|
7,053
|
|
Long-term charter-in costs per day(11)
|
|
$
|
15,300
|
|
|
$
|
15,300
|
|
|
$
|
14,995
|
|
|
$
|
14,756
|
|
|
$
|
15,283
|
|
Small Tankers Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
425
|
|
|
|
908
|
|
|
|
1,268
|
|
|
|
1,469
|
|
|
|
1,657
|
|
Available days(3)
|
|
|
425
|
|
|
|
897
|
|
|
|
1,234
|
|
|
|
1,461
|
|
|
|
1,603
|
|
Operating days(4)
|
|
|
409
|
|
|
|
896
|
|
|
|
1,223
|
|
|
|
1,461
|
|
|
|
1,572
|
|
Owned fleet operating days(5)
|
|
|
409
|
|
|
|
896
|
|
|
|
1,223
|
|
|
|
1,264
|
|
|
|
1,206
|
|
Long-term charter in days(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
197
|
|
|
|
366
|
|
Short-term charter-in days(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fleet utilization(8)
|
|
|
96.2
|
%
|
|
|
99.9
|
%
|
|
|
99.1
|
%
|
|
|
99.0
|
%
|
|
|
98.1
|
%
|
TCE per day(9)
|
|
$
|
12,374
|
|
|
$
|
12,190
|
|
|
$
|
11,392
|
|
|
$
|
13,014
|
|
|
$
|
12,154
|
|
Vessel operating costs per day(10)
|
|
$
|
6,384
|
|
|
$
|
6,321
|
|
|
$
|
7,069
|
|
|
$
|
7,427
|
|
|
$
|
7,479
|
|
Long-term charter-in costs per day(11)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
10,905
|
|
|
$
|
9,835
|
|
(1)
|
Segment results of operations include the proportionate share of joint ventures, which differs from the consolidated statements of profit or loss in our consolidated and combined financial statements which account for our investments in joint ventures under the equity method.
|
(2)
|
Calendar days: total calendar days the vessels were in our possession for the relevant period.
|
(3)
|
Available days: total number of calendar days a vessel is in our possession for the relevant period after subtracting off-hire days for scheduled drydocking and special surveys. We use available days to measure the number of days in a relevant period during which vessels should be available for generating revenue.
|
(4)
|
Operating days: the number of available days in the relevant period a vessel is controlled by us after subtracting the aggregate number of days that the vessel is off-hire due to a reason other than scheduled drydocking and special surveys, including unforeseen circumstances. We use operating days to measure the aggregate number of days in a relevant period during which vessels are actually available to generate revenue. Comparability of the operating days was affected by the consolidation of the IVS Bulk vessels in February 2020.
|
(5)
|
Owned fleet operating days: the number of operating days in which our owned fleet is operating for the relevant period.
|
(6)
|
Long-term charter-in days: the number of operating days in which our long-term charter-in fleet is operating for the relevant period. We regard chartered-in vessels as long-term charters if the period of the charter we initially commit to is 12 months or more. Once we have included such chartered-in vessels in our fleet, we will continue to regard them as part of our fleet until the end of their chartered-in period, including any period that the charter has been extended under an option, even if at a given time the remaining period of their charter may be less than 12 months.
|
(7)
|
Short-term charter-in days: the number of operating days for which we have chartered-in third party vessels for durations of less than one year for the relevant period.
|
(8)
|
Fleet utilization: the percentage of time that vessels are available for generating revenue, determined by dividing the number of operating days during a relevant period by the number of available days during that period. We use fleet utilization to measure a company’s efficiency in technically managing its vessels.
|
(9)
|
TCE per day: vessel revenue less voyage expenses during a relevant period divided by the number of operating days during the period. The number of operating days used to calculate TCE revenue per day includes the proportionate share of our joint ventures’ operating days and includes charter-in days. Please see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures” for a discussion of TCE revenue and a reconciliation of TCE revenue to revenue.
|
(10)
|
Vessel operating costs per day: vessel operating costs per day represents vessel operating costs divided by the number of calendar days for owned vessels. The vessel operating costs and the number of calendar days used to calculate vessel operating costs per day includes the proportionate share of our joint ventures’ vessel operating costs and calendar days and excludes charter-in costs and charter-in days. Please see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures” for a discussion of vessel operating costs per day.
|
(11)
|
Long-term charter-in costs per day: charter costs associated with long-term chartered-in vessels divided by long-term charter-in days for the relevant period. Please see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures” for a discussion of long-term charter-in costs and its reconciliation to adjusted charter hire costs. That discussion also shows an analysis of adjusted charter hire costs split between long-term charter-in costs and short-term charter-in costs.
|
Capitalization and Indebtedness
Not applicable.
Reasons for the Offer and Use of Proceeds
Not applicable.
RISK FACTORS
In addition to the other information included
in this annual report, the considerations listed below could have a material adverse effect on our business, financial condition
or results of operations, or cash flows, or ability to pay dividends, or future prospects, or financial performance, resulting
in a decline in the trading price of Grindrod Shipping’s ordinary shares. The risks set forth below comprise all material
risks currently known to us. These factors should be considered carefully, together with the information and financial data set
forth in this annual report.
Risks Related to Our Industry
Weak economic conditions throughout the
world, in particular in China and the rest of the Asia-Pacific region, could negatively affect the markets in which we operate
which could have a material adverse effect on our business, financial condition, cash flows, results of operations and ability
to obtain financing.
Negative trends in the global economy that
emerged in 2008 may continue to adversely affect global economic conditions. In addition, the world economy is currently facing
a number of new challenges, including the COVID-19 pandemic and recent turmoil and hostilities in various regions, including Ukraine,
Azerbaijan, North Korea, Myanmar, the Middle East, including Iran, Iraq, Syria, the Persian Gulf, Yemen, North Africa and the Gulf
of Guinea. The weakness in the global economy has caused, and may cause, a decrease in worldwide demand for certain goods, and,
thus, shipping. Additionally, there has historically been a strong link between the development of the world economy and demand
for energy, including oil and gas, and other commodities. An extended period of deterioration in the outlook for the world economy
could reduce the overall demand for oil and gas and other commodities and for our services. Continuing economic instability could
have a material adverse effect on our ability to implement our business strategy.
The United States, Europe and other parts of
the world have exhibited weak economic trends as reflected in a GDP contraction in the United States and the Eurozone in 2020.
The credit markets in the United States and Europe have experienced significant contraction, deleveraging and reduced liquidity,
and the United States federal and state governments and European authorities have implemented and/or are considering a broad variety
of governmental action and/or new regulation of the financial markets and may implement additional regulations in the future. Securities
and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The Securities
and Exchange Commission, or the SEC, other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary
actions in the event of market emergencies, and may effect changes in law or interpretations of existing laws.
Economic slowdown in the Asia Pacific region,
particularly in China, may exacerbate the effect on us, as we anticipate a significant number of the port calls made by our vessels
and those of our competitors will continue to involve the loading or discharging of drybulk and liquid bulk commodities in ports
in the Asia Pacific region. Before the global financial crisis that began in 2008, China had one of the world’s fastest growing
economies in terms of GDP, which had a significant impact on shipping demand. The growth rate of China’s GDP is estimated
to have expanded by 2.3% for the year ended December 31, 2020, being the slowest pace of growth in more than four decades,
and it continues to remain below pre-2008 levels despite the overall level of demand for seaborne cargoes from China having increased
since 2008. It is possible that China and other countries in the Asia Pacific region will continue to experience slowed or even
negative economic growth in the future. Moreover, economic slowdown in the economies of the United States, Europe and other Asian
countries may further adversely affect economic growth in China and elsewhere. Our business, financial condition, cash flows and
results of operations, as well as our future prospects, will likely be materially and adversely affected by a further economic
downturn in any of these countries or geographic regions.
Global financial markets and economic conditions
have been and continue to be volatile. Credit markets and the debt and equity capital markets have been distressed and the uncertainty
surrounding the future of the global credit markets has resulted in reduced access to credit worldwide. These issues, along with
significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions,
have made, and will likely continue to make, it challenging to obtain additional financing. In addition, the current state of global
financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices which
will not be dilutive to our existing shareholders or preclude us from issuing equity at all.
Also, as a result of concerns about the stability
of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets
has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt
at all or on terms similar to current debt and reduced, and in some cases ceased to provide, funding to borrowers. Due to these
factors, we cannot be certain that financing will be available to the extent required to implement our business strategy, or that
we will be able to refinance our credit facilities in due course, on acceptable terms or at all. If financing or refinancing is
not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they become due
or we may be unable to enhance our existing business, acquire newbuildings and additional vessels or otherwise take advantage of
business opportunities as they arise.
We face risks attendant to changes in economic environments, changes
in interest rates, and instability in the banking and securities markets around the world, among other factors. Major market disruptions
and adverse changes in market conditions and regulatory climate in the United States and worldwide may adversely affect our business
or affect our ability to borrow amounts under credit facilities or any future financial arrangements. The recent and developing
economic and governmental factors, together with possible further declines in charter rates and vessel values, could have a material
adverse effect on our business, financial condition, cash flows and results of operations.
In the global economy, operating businesses
have recently faced tightening credit, weakening demand for goods and services, weak international liquidity conditions, and declining
markets. In particular, lower demand growth for tanker cargoes as well as diminished trade credit available for the delivery of
such cargoes have led to decreased demand for tankers, creating downward pressure on charter rates, the spot market and vessel
values. These global economic conditions have and may continue to have a number of adverse consequences for drybulk, tanker and
other shipping sectors, including, among other things:
|
•
|
low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
|
|
•
|
decreases in the market value of drybulk carriers and tankers and limited second-hand market for the sale of vessels;
|
|
•
|
limited financing for vessels;
|
|
•
|
widespread loan covenant defaults; and
|
|
•
|
declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.
|
The occurrence of one or more of these events
could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Outbreaks of epidemic and pandemic diseases,
and governmental responses thereto, could adversely affect our business. The COVID-19 pandemic, and measures to contain its spread,
have impacted the markets in which we operate and could have a material adverse effect on our business, financial condition, cash
flows and results of operations.
The COVID-19 pandemic, and measures to contain
its spread, have negatively impacted regional and global economies and trade patterns in markets in which we operate, the way we
operate our business, and the businesses of our customers and suppliers. Governments in affected countries are imposing travel
bans, quarantines and other emergency public health measures and a number of countries have implemented lockdown measures. Companies,
including us, are also taking precautions, such as requiring employees to work remotely, and imposing travel restrictions. These
restrictions have had an adverse impact on global economic conditions, resulted in turmoil in the shipping, credit and other markets
which affect us, and introduced new risks to our operations, some of which may not yet have become evident to us. As a result of
these measures, our vessels may not be able to call on ports, or may be restricted from departing from ports, and the duration
of voyages may increase in order to accommodate mandatory minimum periods between port calls which could increase our costs and
delay the due date for payment of freight to us. In addition we may experience severe operational disruptions and delays, unavailability
of normal port infrastructure and services including limited access to equipment, critical goods and personnel, closure of ports
and customs offices, inability to renew or maintain the required classifications of our vessels, difficulty in executing vessel
purchases or sales, potential decreases in the market values of vessels and related impairment charges, disruptions to crew change,
quarantine of ships and/or crew, counterparty credit strength, limitations on sources of cash and liquidity, noncompliance with
covenants in our credit facilities and financing lease obligations, as well as disruptions in the supply chain and industrial production
which may lead to reduced cargo supply and/or the demand for such cargo, including oil, and thus to a decline in the demand for
our services, among other potential consequences. Ongoing prevention and mitigation measures, and negative economic and trade impacts
of the COVID-19 outbreak could materially and adversely affect our future operations, our business, financial condition and cash
flows. The extent of the COVID-19 outbreak’s effect on our operational and financial performance will depend on future developments,
including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict considering the
rapidly evolving situation. As a result, the ultimate severity of the COVID-19 outbreak is uncertain at this time and therefore
we cannot predict the impact it may have on our future operations, which impact could be material and adverse.
Charter rates and spot markets for drybulk
carriers are volatile and may decrease in the future, which could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
The drybulk shipping industry is cyclical with
high volatility in charter rates and profitability. The degree of charter rate volatility among different types of drybulk carriers
has varied widely; however, a downturn in the drybulk charter market will severely affect the entire drybulk shipping industry
and charter rates for drybulk carriers will decline significantly. In the past, time charter and voyage charter rates for drybulk
carriers have declined below operating costs of vessels. The Baltic Dry Index, or the BDI, an index of daily average of charter
rates for key drybulk routes published by the Baltic Exchange Limited, which has long been viewed as the main benchmark to monitor
the movements of the drybulk vessel charter market and the performance of the entire drybulk shipping market, declined approximately
97.5% from its high of 11,793 in May 2008 to 290 on February 10, 2016 and has remained volatile since then. During the year
ended December 31, 2020, the BDI fluctuated in a range between 393 and 2,097. As of March 11, 2021, the BDI was 1,970.
Fluctuations in charter rates result from changes
in the supply of and demand for vessel capacity and changes in the supply of and demand for the major drybulk commodities carried
by water internationally. Because the factors affecting the supply of and demand for vessels are outside of our control and are
unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable. Since we currently
employ our vessels primarily in the spot market or spot market-oriented pools and do not have a significant amount of fixed revenue
cover, we are exposed to the cyclicality and volatility of the spot market. Spot rates may fluctuate significantly based upon the
supply of and demand for seaborne shipping capacity, and we may employ our vessels in these short-term markets at lower rates.
Alternatively, charter rates available in the spot market may be insufficient to enable our vessels to operate profitably. A significant
decrease in charter rates would adversely affect asset values and our profitability, cash flows and ability to pay dividends, if
any, in the future, on our ordinary shares, and capital and interest on our indebtedness. Furthermore, a significant decrease in
charter rates would cause asset values to decline and we may have to record an impairment charge in our financial statements which
could adversely affect our financial results.
Factors that influence demand for drybulk carrier
capacity include:
|
•
|
supply of and demand for energy resources, commodities, consumer and industrial products;
|
|
•
|
changes in the exploration or production of energy resources, commodities, consumer and industrial products;
|
|
•
|
the location of regional and global production and manufacturing facilities;
|
|
•
|
the location of consuming regions for energy resources, commodities, consumer and industrial products;
|
|
•
|
the globalization of production and manufacturing;
|
|
•
|
global and regional economic and political conditions, including armed conflicts and terrorist activities, embargoes, tariffs and strikes;
|
|
•
|
disruptions and developments in international trade including additional trade tariffs imposed;
|
|
•
|
economic slowdowns caused by public health events such as the recent COVID-19 outbreak;
|
|
•
|
the cost of steel and labor;
|
|
•
|
the cost and availability of financing;
|
|
•
|
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
|
|
•
|
environmental and other regulatory developments;
|
|
•
|
competition from alternative sources of energy;
|
|
•
|
international sanctions, embargoes, import and export restrictions, nationalizations and wars;
|
|
•
|
currency exchange rates; and
|
|
•
|
weather, natural disasters and other catastrophic events may disrupt drybulk trading patterns.
|
Factors that influence the supply of drybulk
carrier capacity include:
|
•
|
the number of newbuilding orders and deliveries, including slippage in deliveries;
|
|
•
|
the number of shipyards and ability of shipyards to deliver vessels;
|
|
•
|
port or canal congestion;
|
|
•
|
the scrapping rate of older vessels;
|
|
•
|
environmental concerns and regulations;
|
|
•
|
speed of vessel operation;
|
|
•
|
the number of vessels that are out of service, namely those that are laid-up, drydocked, awaiting repairs or otherwise not available for hire.
|
In addition to the prevailing and anticipated
charter rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel
values in relation to newbuilding and scrap prices, costs of bunkers and other operating costs, costs associated with classification
society surveys, normal maintenance and insurance coverage costs, the efficiency and age profile of the existing drybulk fleet
in the market and government and industry regulation of maritime transportation practices, particularly environmental protection
laws and regulations. These and other factors influencing the supply of and demand for shipping capacity are outside of our control,
and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
We anticipate that the future demand for our
drybulk carriers will be dependent upon economic growth in the world’s economies, mainly China and India, seasonal and regional
changes in demand, changes in the capacity of the global drybulk fleet and the sources and supply of drybulk cargo to be transported
by sea. Adverse economic, political, social or other developments could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
The fair market values of our drybulk
carriers and remaining tankers are volatile and may decline in the future, which could limit the amount of funds that we can borrow,
cause us to breach certain financial covenants in our credit facilities, or result in an impairment charge, and we may incur a
loss if we sell a vessel following a decline in its market value.
The fair market values of our drybulk carriers
and tankers have generally experienced high volatility and have declined significantly from time to time. The fair market value
of our vessels may continue to fluctuate depending on a number of factors, including:
|
•
|
prevailing levels of charter rates;
|
|
•
|
general economic and market conditions affecting the shipping industry;
|
|
•
|
competition from varying types and sizes of vessels;
|
|
•
|
the supply of and demand for vessels;
|
|
•
|
other modes of transportation;
|
|
•
|
the cost of newbuildings;
|
|
•
|
governmental and other regulations;
|
|
•
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the need to upgrade vessels as a result of charterer requirements, technological advances in vessel design or equipment or otherwise;
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competition from other shipping companies.
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If the fair market values of our vessels decline,
the amount of funds we may draw down under our credit facilities may be limited and we may not be in compliance with certain covenants
contained in our credit facilities, which may result in an event of default. In such circumstances, we may not be able to refinance
our debt or obtain additional financing. If we are not able to comply with the covenants in our credit facilities, and are unable
to remedy the relevant breach, our lenders could accelerate our debt and foreclose on the mortgaged vessels in our Fleet. In addition,
if we sell one or more of our vessels at a time when vessel prices have fallen, the sale may be less than the vessel’s carrying
value on our financial statements, resulting in a loss on sale and a reduction in earnings, which could be material. See “Item 5.
Operating and Financial Review and Prospects—Liquidity and Capital Resources”.
Conversely, if vessel values are elevated at
a time when we wish to acquire additional vessels, the cost of such acquisitions may increase and this could have a material adverse
effect on our business, financial condition, cash flows and results of operations.
An inability to effectively time investments
in and divestments of vessels could prevent the implementation of our business strategy and negatively impact our business, financial
condition, cash flows and results of operations.
In order to maintain a young fleet we are required
to replace older vessels with newer ones over time. In order to do so, we intend to grow our Fleet by entering into long-term chartering
and newbuildings contracts and making acquisitions and disposals in the resale and second-hand markets. Our business is greatly
influenced by long-term chartering contracts, the timing of investments and/or divestments, the exercise of our purchase options
to acquire vessels and contracting of newbuildings. As of the date of this annual report, we have purchase options to acquire five
vessels that we time charter. For a discussion of the terms of these purchase options, see “Item 5. Operating and Financial
Review and Prospects—Liquidity and Capital Resources—Overview”. If we are unable to identify the optimal timing
of such investments, of the exercise of our purchase options, of divestments or of contracting of newbuildings in relation to the
shipping value cycle or unable to execute at the optimal timing due to capital constraints or other reasons, this could have a
material adverse effect on our business, financial condition, cash flows and results of operations.
Drybulk carrier and tanker values have generally
experienced high volatility. Investors can expect the fair market value of our vessels to fluctuate, depending on general economic
and market conditions affecting the drybulk and tanker industries and competition from other shipping companies, types and sizes
of vessels and other modes of transportation. In addition, as vessels age, they generally decline in value. These factors will
affect the value of our vessels for purposes of covenant compliance under the credit facilities and at the time of any vessel sale.
If for any reason we sell a vessel at a time when vessel prices have fallen, the sale may be at less than such vessel’s carrying
amount on our financial statements, with the result that we could also incur a material loss on the sale and a reduction in earnings
and reserves. The carrying values of our vessels may not represent their fair market value at any point in time. At the end of
each reporting period and on a continuous basis, if indicators of impairment are present, the carrying amount of tangible and intangible
assets is assessed to determine whether there is any indication that those assets may have suffered an impairment loss. We also
assess the carrying value of an asset when we have contracted to divest of the asset for any reason, including the age of our vessels,
if a joint venture that owns vessels comes to an end in accordance with its terms or if the asset no longer fits into our strategic
planning. See “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies”.
An over-supply of drybulk carrier and
tanker capacity may prolong or lead to a reduction or depression in drybulk carrier or tanker charter rates, as has happened in
the past, and lead to a reduction in the value of our vessels, which may limit our ability to operate our drybulk carriers profitably
and, to a lesser extent, our tankers given our reduced number of vessels in this sector.
The market supply of drybulk carriers has increased
significantly since the beginning of 2005. As of March 2021, newbuilding orders, which extend to 2023 and beyond, had been placed
for approximately 5.7% of the existing global drybulk fleet capacity for drybulk vessels greater than 10,000 dwt.. The current
orderbook represents the smallest orderbook in over 20 years due to high levels of deliveries combined with a general absence of
new orders, though the orderbook may increase once again Drybulk carrier supply growth has been outpacing drybulk carrier demand
growth over the past few years, causing downward pressure on drybulk charter rates. If the capacity of new drybulk carriers delivered
exceeds the capacity of drybulk carriers being scrapped, drybulk capacity will increase. Until the new supply is fully absorbed
by the market, drybulk charter rates may continue to be under pressure in the near to medium term and this could have a material
adverse effect on our business, financial condition, cash flows and results of operations.
The market supply of tankers is affected by
a number of factors, such as supply of and demand for energy resources, including oil and petroleum products, supply of and demand
for seaborne transportation of such energy resources and other liquid bulk cargoes, and the current and expected purchase orders
for newbuildings. If the capacity of new tankers delivered exceeds the capacity of tankers being scrapped and converted to non-trading
tankers, global tanker capacity will increase. As of March 2021, the newbuilding oil tanker orderbook, which extends to 2023 and
beyond, equaled approximately 7.7% of the existing global oil tanker fleet and the order book may increase further in proportion
to the existing global oil tanker fleet. If the supply of tanker capacity increases and if the demand for tanker capacity does
not increase correspondingly or declines, charter rates could materially decline. A reduction in charter rates and the value of
our vessels could have a material adverse effect on our business, financial condition, cash flows and results of operations. In
addition, tankers may be “cleaned up” from “dirty/crude” trades and swapped back into the clean tanker
market which would increase the available clean tanker tonnage which may affect the supply and demand balance for clean tankers
and could have a material adverse effect on our business, financial condition, cash flows and results of operations.
We operate in the highly competitive
international shipping industry and we may not be able to compete for charters and contracts of affreightment, or COAs, with new
entrants or established companies with greater resources, and, as a result, we may be unable to employ our vessels profitably.
Our vessels are employed in a highly competitive
market that is capital intensive and highly fragmented. The competition in the market is based primarily on supply and demand and
we compete for charters and COAs on the basis of price, vessel location, size, age, the condition of the vessel, our and our third-party
commercial managers’ reputations, and, particularly in the tanker sector, the acceptability of the vessel and its technical
managers and operators to the charterers.
We compete primarily with other independent
and state-owned drybulk and tanker vessel-owners. Our competitors may have more resources than us and may operate vessels that
are newer, and therefore more attractive to charterers, than our vessels. Ownership and control of drybulk carriers and tankers
is highly fragmented and is divided among a large number of players including publicly listed and privately owned shipping companies,
major oil companies, mining companies, commodity trading houses, private equity and other investment funds and state-controlled
owners. In the tanker market a part of the trade is captive especially to major and national oil company fleets. Ownership and
control in the drybulk sector is rather more fragmented than in the case of the tanker sector. Due in part to the highly fragmented
markets in which we operate, competitors with greater resources could enter the drybulk or tanker shipping industries and operate
larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than
we are able to offer. If we are unable to successfully compete with other drybulk or tanker shipping companies, our competitors
may be able to offer better prices than us, which could result in our achieving lower revenue from our vessels and our business,
financial condition, cash flows and results of operations could be materially adversely affected.
Our drybulk and tanker shipping charter
rates and spot rates will be subject to seasonal and cyclical fluctuations, which could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
We operate our drybulk carriers and tankers
in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. This seasonality
may result in volatility in our operating results to the extent that we enter into new charter agreements or renew existing agreements
during a time when charter rates are weaker or we operate our vessels in the spot market or on index-based time charters or have
index-based COAs, which may result in quarter-to-quarter volatility in our operating results.
The drybulk sector is typically stronger in
the northern hemisphere fall and winter months in anticipation of increased consumption of coal and other raw materials in the
northern hemisphere. The celebration of Chinese New Year in the first quarter of each year, usually results in lower volumes of
seaborne trade into China during this period.
The tanker sector is typically stronger in
the northern hemisphere winter months as a result of increased oil consumption in the northern hemisphere but can be weaker in
the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted
in the summer months. The oil price volatility resulting from these factors has historically led to increased oil trading activities
in the winter months.
In addition, unpredictable weather patterns
tend to disrupt vessel routing and scheduling as well as the supply of certain commodities.
We are subject to complex laws and regulations,
including environmental and safety regulations, that can adversely affect the cost, manner or feasibility of doing business.
Our operations are subject to numerous international,
national, state and local laws, regulations, treaties and conventions in force in international waters and the jurisdictions in
which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These laws
and regulations include, but are not limited to, the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive Environmental Response,
Compensation and Liability Act, or CERCLA, the U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, the U.S. Clean Water Act, or the CWA, and the U.S. Maritime Transportation Security Act of 2002, or the MTSA,
and regulations of the UN International Maritime Organization, or IMO, including the International Convention for the Prevention
of Pollution from Ships of 1973 (as from time to time amended and generally referred to as MARPOL) including the designation of
Emission Control Areas, or ECAs, thereunder, the International Convention for the Safety of Life at Sea of 1974 (as from time to
time amended and generally referred to as SOLAS), the International Convention on Civil Liability for Bunker Oil Pollution Damage
of 2001 (as from time to time amended and generally referred to as BUNKER), the International Convention of Civil Liability for
Oil Pollution Damage of 1969 (as from time to time amended and generally referred to as CLC), the International Ship and Port Facility
Security Code, or the ISPS code, and the International Convention on Load Lines of 1966 (as from time to time amended), or the
LL Convention.
Compliance with such laws, regulations and
standards, where applicable, may require installation of costly equipment or implementation of operational changes, and the need
for such actions may affect the resale value or useful lives of our vessels. These costs could have a material adverse effect on
our business, financial condition, cash flows and results of operations, or our ability to offer competitive charter rates. A failure
to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension
or termination of our operations. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate
cost of complying with them or the impact thereof on the fair market values or useful lives of our vessels. Additional conventions,
laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and
which may materially adversely affect our operations. For example, the International Convention for the Control and Management
of Ships’ Ballast Water and Sediments, or the BWM Convention, adopted by the IMO in February 2004, calls for the phased introduction
of mandatory reducing living organism limits in ballast water over time (as discussed further below). In order to comply with these
living organism limits, vessel owners may have to install expensive ballast water treatment systems or make port facility disposal
arrangements and modify existing vessels to accommodate those systems. The BWM Convention entered into force on September 8,
2017 and while we believe that our vessels have been or will be fitted with systems that will comply with the standards, we cannot
be assured that these systems will be approved by the regulatory bodies of every jurisdiction in which we may wish to conduct our
business. If they are not approved it could have a materially adverse impact on our business, financial condition, cash flows and
results of operations depending on the available ballast water treatment systems and the extent to which existing vessels must
be modified to accommodate such systems, the direct costs thereof and the time our vessels may be off hire to effect such modifications.
Environmental laws often impose strict liability
for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether
we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly
liable for the discharge of oil within the 200-mile exclusive economic zone around the United States (unless the spill results
solely from, under certain limited circumstances, the act or omission of a third party, an act of God or an act of war). An oil
spill could result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource
damages under other international and U.S. federal, state and local laws, as well as third-party damages, including punitive damages,
and could harm our reputation with current or potential charterers of our drybulk carriers and tankers.
We are required by various governmental and
quasi-governmental agencies to obtain certain permits, licenses, and certificates with respect to our operations, and satisfy insurance
and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although
we have insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover
all such risks or that any claims will not have a material adverse effect on our business, financial condition, cash flows, or
results of operations. See “Item 4. Information on the Company—Business Overview—Environmental and Other
Regulations”.
Climate change and greenhouse gas restrictions
may adversely affect our operating results.
An increasing concern for, and focus on,
climate change has promoted extensive existing and proposed international, national and local regulations intended to reduce greenhouse
gas emissions. These regulatory measures may include, among others, adoption of cap and
trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Any
passage of climate control legislation or other regulatory initiatives by the IMO, the European Union, the United States
or other countries where we operate, or any treaty adopted at the international level, that restrict emissions of greenhouse gases
could require us to make significant financial expenditures that we cannot predict with certainty at this time. Compliance with
such regulations and our efforts to participate in reducing greenhouse gas emissions will likely increase our compliance costs,
require significant capital expenditures to reduce vessel emissions and require changes to our business. Even in the absence of climate control
legislation and regulations, our business and operations may be materially affected to the extent that climate change
results in sea level changes or more intense weather events. See “Item 4. Information on the Company—Business
Overview—Environmental and Other Regulations”.
Adverse effects upon the oil and gas industry
relating to climate change, including growing public concern about the environmental impact of climate change,
may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating
to climate change may reduce the demand for oil and coal in the future or create greater incentives for use of alternative
energy sources. Therefore, any long-term material adverse effect on the oil and gas industry could have a material adverse effect
on our future performance, results of operations, cash flows and financial position.
Our growth depends on continued growth
in demand for oil and coal and the continued demand for seaborne transportation of such cargoes. A shift in consumer demand from
oil and coal towards other energy sources or changes to trade patterns for refined oil products or coal could have a material adverse
effect on our business, financial condition, cash flows and results of operations.
A significant portion of our earnings are related,
directly or indirectly, to the global demand for oil and coal. A shift in the consumer demand from oil and coal towards other energy
resources such as liquefied natural gas, wind energy, solar energy, or water energy will potentially affect the demand for our
drybulk carriers and tankers. This could have a material adverse effect on our business, financial condition, cash flows and results
of operations.
In addition, our growth depends on continued
growth in world and regional demand for refined petroleum products and bulk liquid chemicals and the transportation of such cargoes
by sea, which could be negatively affected by a number of factors, including:
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technology developments and their effect on factors such as cost, alternative or substitute products, alternative methods of production and the location of production;
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the economic and financial developments globally, including actual and projected global economic growth;
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fluctuations in the actual or projected price of crude oil, refined petroleum products or other bulk liquids;
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refining capacity and its geographical location;
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increases in the production of oil or natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-oil pipelines to oil pipelines in those markets;
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decreases in the consumption of oil or natural gas due to increases in its price relative to other energy sources, and other factors making consumption of oil or natural gas less attractive or energy conservation measures;
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availability of new, alternative energy sources; and
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negative or deteriorating global or regional economic or political conditions, particularly in oil-consuming regions, which could reduce energy consumption or its growth.
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Seaborne trading and distribution patterns
are primarily influenced by the relative advantage of the various sources and locations of production, locations of consumption,
pricing differentials and seasonality. Changes to the trade patterns of refined oil products or coal may have a significant negative
or positive impact on our revenue. This could have a material adverse effect on our business, financial condition, cash flows and
results of operations.
The refining and chemical industries may respond
to any economic downturn and demand weakness by reducing operating rates, partially or completely closing refineries and plants
and by reducing or cancelling certain investment expansion plans, including plans for additional refining capacity, in the case
of the refining industry. Continued reduced demand for refined petroleum products and other bulk liquids and the shipping of such
cargoes or the increased availability of pipelines used to transport refined petroleum products and bulk liquid chemicals would
have a material adverse effect on our future growth and could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
If we cannot meet our customers’
quality and compliance requirements we may not be able to operate our vessels profitably which could have a material adverse effect
on our business, financial condition, cash flows and results of operations.
Customers, and in particular those in the oil
industry, have a high and increasing focus on quality and compliance standards with their suppliers across the entire value chain,
including the shipping and transportation segment. Our continuous compliance with these standards and quality requirements is vital
for our operations. Related risks could materialize in multiple ways, including a sudden and unexpected breach in quality and/or
compliance concerning one or more vessels, and a continuous decrease in the quality concerning one or more vessels occurring over
time. Moreover, continuously increasing requirements from oil industry constituents can further complicate our ability to meet
the standards. Any noncompliance by us, either suddenly or over a period of time, on one or more vessels, or an increase in requirements
by oil operators above and beyond what we deliver, could have a material adverse effect on our business, financial condition, cash
flows and results of operations.
World events could have a material adverse
effect on our business, financial condition, cash flows and results of operations.
Past terrorist attacks, as well as the threat
of future terrorist attacks around the world, continue to cause uncertainty in the world’s financial markets and may affect
our business, operating results and financial condition. Continuing conflicts and recent developments in Ukraine, Azerbaijan, North
Korea, Myanmar, the Middle East, including Iran, Iraq, Syria, the Persian Gulf, Yemen, North Africa and the Gulf of Guinea, and
the presence of the United States or other armed forces in the Middle East, may lead to additional acts of terrorism and armed
conflict around the world, which may contribute to further economic instability in the global financial markets. Recently, government
leaders have declared that their countries may turn to trade barriers to protect or revive their domestic industries in the face
of foreign imports. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable
to us or at all. War in a country in which a material supplier, including crew supply services, or customer of ours is located
could impact that supply to us or our ability to earn revenue from that customer. In the past, political conflicts have also resulted
in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf
region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea, the Gulf of Aden
off the coast of Somalia and West Africa. Restrictions on imports, including in the form of tariffs, as discussed further below,
have had and could have a major impact on global trade and demand for shipping. Please also refer to “—Outbreaks of
epidemic and pandemic diseases, and governmental responses thereto, could adversely affect our business. COVID-19, and measures
to contain its spread, have impacted the markets we operate in and could have a material adverse effect on our business, financial
condition, cash flows and results of operations.” above. Any of these occurrences could have a material adverse effect on
our business, financial condition, cash flows and results of operations.
An increase in trade protectionism and
the unraveling of multilateral trade agreements could have a material adverse impact on our charterers’ business and, in
turn, could cause a material adverse impact on our results of operations, financial condition and cash flows.
Our operations expose us to the risk that increased
trade protectionism will adversely affect our business. Government leaders may determine that their countries may turn to trade
barriers to protect or revive their domestic industries in the face of foreign imports, thereby depressing the demand for shipping.
The United Kingdom formally left the European Union on January 31, 2020, although a transition period remained in place until December
2020. The United Kingdom’s international trade arrangements with the European Union and other trade partners remain uncertain
and may change which could impact the stability of the global markets. In the United States, there remains uncertainty following
the inauguration of the new administration under President Biden about the future relationship between the United States and other
exporting countries, including with respect to trade policies, treaties, government regulations and tariffs.
Restrictions on imports, including in the form
of tariffs, has had and could continue to have a major impact on global trade and demand for shipping. Specifically, increasing
trade protectionism in the markets that our charterers serve may cause an increase in (i) the cost of goods exported from
exporting countries such as China and Mexico, (ii) the length of time required to deliver goods from exporting countries,
(iii) the costs of such delivery and (iv) the risks associated with exporting goods. These factors may result in a decrease
in the quantity of goods to be shipped. Protectionist developments, or the perception they may occur, may have a material adverse
effect on global economic conditions, and has and may continue to significantly reduce or otherwise impact global trade, including
trade between the United States and China. These developments would have an adverse impact on our charterers’ business, operating
results and financial condition. This could, in turn, affect our charterers’ ability to make timely charter hire payments
to us and impair our ability to renew charters and grow our business. This could have a material adverse effect on our business,
results of operations and financial condition, as well as our cash flows.
Acts of piracy on ocean-going vessels
may have a material adverse effect on our business, financial condition, cash flows and results of operations.
Acts of piracy have historically affected ocean-going
vessels trading in regions of the world such as the South China Sea, the Indian Ocean, in the Gulf of Aden off the coast of Somalia
and, in more recent times, the Gulf of Guinea. Sea piracy incidents continue to occur, particularly in the Gulf of Aden off the
coast of Somalia, in the Gulf of Guinea and the west coast of Africa, with drybulk carriers and tankers particularly vulnerable
to such attacks. Acts of piracy may result in death or injury to persons or damage to property. If these piracy attacks result
in regions in which our vessels are deployed being characterized as “war risk” zones by insurers or by the Joint War
Committee of Lloyds Insurance and IUA Company, or Joint War Committee, as “war and strikes” listed areas, premiums
payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition,
crew costs, including costs of employing on-board security guards, could increase in such circumstances. In some circumstances
where one of our vessels is chartered-out or on time charter, the time charterer may have limited liability for charter payments
in the event of an act of piracy and may also claim that a vessel seized by pirates is not “on-hire” for a certain
number of days and that they are therefore entitled to cancel the charter party, a claim that we would dispute. Voyage charterers
do not bear any of the liability relating to acts of piracy except for possible contributions in general average. We may not be
adequately insured to cover losses from these incidents, which could have a material adverse effect on our business, financial
condition, cash flows and results of operations. In addition, any hijacking as a result of an act of piracy against our vessels,
or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
We are subject to international safety
regulations and requirements imposed by our classification societies and the failure to comply with these regulations and requirements
may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or
detention in, certain ports.
The operation of our vessels is affected by
the requirements set forth in the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or
the ISM Code. The ISM Code requires vessel owners, vessel managers and bareboat charterers to develop and maintain an extensive
“Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth
instructions and procedures for safe operation of vessels and describing procedures for dealing with emergencies. In addition,
vessel classification societies impose significant safety and other requirements on our vessels. The failure of a vessel owner
or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease
available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
Each of our vessels is ISM Code-certified or will be ISM Code-certified when delivered to us. However, if we are subject to increased
liability for non-compliance, if our insurance coverage is adversely impacted as a result of non-compliance or if any of our vessels
are denied access to, or are detained in, certain ports as a result of non-compliance with the ISM Code, it could have a material
adverse effect on our business, financial condition, cash flows and results of operations.
In addition, the hull and machinery of every
commercial vessel must be classed by a classification society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry
of the vessel and SOLAS. The cost of maintaining our vessels’ classifications, or class, may be substantial. If any vessel
does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports
and will be unemployable and uninsurable, which could have a material adverse effect on our business, financial condition, cash
flows and results of operations.
Increased inspection procedures and tighter import and export
controls could increase costs and disrupt our business.
International shipping is subject to various
security and customs inspection and related procedures in countries of origin and destination and trans-shipment points. Inspection
procedures may result in the seizure of contents of our vessels, delays in the loading, offloading, trans-shipment or delivery
and the levying of customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures
could impose additional financial and legal obligations on us. Changes to inspection procedures could also impose additional costs
and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical.
Any such changes or developments could have a material adverse effect on our business, financial condition, cash flows and results
of operations.
Changes in fuel, or bunker, prices may
adversely affect our profits.
Fuel, or bunkers, is a significant portion
of our expenses when we are responsible for voyage expenses in operating our vessels and changes in the price of fuel may adversely
affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including
geopolitical developments, supply of and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries,
or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and
environmental concerns. Further, fuel may become much more expensive in the future, which could have a material adverse effect
on our business, financial condition, cash flows and results of operations.
In addition, the purchase of more costly fuels
for our vessels to comply with IMO 2020 regulations limiting sulfur content in fuels could negatively affect our business to the
extent we are unable to recover the higher costs from our customers.
Long-term technological innovations
could expose us to lower vessel utilization and/or decreased charter rates.
New vessel designs purport to offer material
operational flexibility, increased speed, fuel economy and the ability to load and discharge cargo quicker when compared to older
designs. Such savings could result in a substantial reduction of costs for charterers compared to vessels of ours. Competition
from these more technologically advanced vessels may reduce demand for certain of our older vessels, impair our ability to re-charter
such vessels at competitive rates, impair the resale value of such vessels and could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
We operate drybulk carriers and, to a
lesser extent, tankers worldwide and, as a result, our business has inherent operational risks, which may reduce our revenue or
increase our expenses, and we may not be adequately covered by insurance.
The international shipping industry is an inherently
risky business involving global operations of ocean-going vessels. Our vessels and their cargoes are at risk of being damaged or
lost because of events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism,
piracy and other circumstances or events. In addition, transporting cargoes across a wide variety of international jurisdictions
creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts,
the potential for changes in tax rates or policies, and the potential for government expropriation of our vessels. Any of these
events may result in loss of revenue, increased costs and decreased cash flows to our customers, which could impair their ability
to make payments to us under our charters.
Changing economic, regulatory and political
conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels,
mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss
of revenue or property, payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships,
market disruptions, and interference with shipping routes (such as delay or rerouting), which may reduce our revenue or increase
our expenses and also subject us to litigation.
If our vessels suffer damage, they may need
to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. We may have to
pay drydocking costs that our insurance does not cover in full. In addition, space at drydocking facilities is sometimes limited
and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or
we may be forced to travel to a drydocking facility that is distant from the relevant vessel’s position. The loss of earnings
while our vessels are being repaired and repositioned or from being forced to wait for space, as well as the actual cost of repairs,
could have a material adverse effect on our business, financial condition, cash flows and results of operations. Additionally,
in certain cases we bareboat charter our vessels. Such vessels could require significant repairs when the vessel is returned to
us.
The operation of any vessel is subject to the
inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from
owning and operating vessels in international trade.
In addition, the operation of tankers has unique
operational risks associated with the transportation of oil, including, among other things, oil spills, which we have experienced
in the past and may experience in the future. An oil spill may cause significant environmental damage, and the associated costs
could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of
damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high
volume of the oil transported in tankers.
Furthermore, the operation of certain vessel
types, such as drybulk carriers, also has certain unique risks. With a drybulk carrier, the cargo itself and its interaction with
the vessel can be an operational risk. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react badly
to water exposure. In addition, drybulk carriers are often subjected to battering treatment during unloading operations with grabs,
jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels
damaged due to treatment during unloading procedures may be more susceptible to breach at sea. Hull breaches in drybulk carriers
may lead to the flooding of the vessel’s holds. If a drybulk carrier suffers flooding in its forward holds, the bulk cargo
may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads, leading to the loss of a vessel.
If we are unable to adequately maintain our vessels, we may be unable to prevent these events. Other bulk cargoes will include
a certain amount of moisture and may “liquefy” under certain conditions which can cause the cargo to shift, render
the vessel unstable and cause it to sink or suffer damage. Any of these circumstances or events could have a material adverse effect
on our business, financial condition, cash flows and results of operations. In addition, the loss of any of our vessels could harm
our reputation as a safe and reliable vessel owner and operator.
In the event of a casualty to a vessel or
other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. We procure
insurance for the vessels in our Fleet against those risks that we believe the shipping industry commonly insures against. These
insurances include marine hull and machinery insurance, protection and indemnity insurance, war risk insurance and freight, demurrage
and defense insurance, or FD&D insurance. We insure our vessels for third-party liability claims subject to and in accordance
with the rules of the P&I Associations in which the vessels are entered. In this regard we are insured against some contractual
claims and tort claims, including environmental damage, pollution and crew personal injury and illness claims (currently the amount
of insurance coverage for pollution claims available to us on commercially reasonable terms through P&I Associations is limited
to $1 billion per vessel per incident). The objective of a P&I Association is to provide mutual insurance based on the
aggregate tonnage of a member’s vessels entered into the association. Claims are paid through the aggregate premiums of
all members of the association, although members remain subject to calls for additional funds if the aggregate premiums are insufficient
to cover claims payable by the association. Claims payable by the association may include those incurred by members of the association,
as well as claims payable by the association from other P&I Associations with which our P&I Association has entered into
inter-association agreements. We cannot assure you that the P&I Associations to which we belong will remain viable or that
we will not become subject to additional funding calls which could adversely affect us.
We do not currently maintain insurance against
loss of hire on our vessels resulting from business interruptions that result from the loss of use of a vessel other than limited
loss coverage relating to defined war risk events. The insurers may not pay particular claims as the payment of some claims may
be treated as discretionary by the board of directors of the P&I Association. Our insurance policies may contain deductibles
for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue or prevent recovery.
Moreover, insurers may default on claims they are required to pay.
We cannot assure you that we will be adequately
insured against all risks or that we will be able to obtain adequate insurance coverage at reasonable rates for our vessels in
the future, or that we will be able to obtain certain insurance coverage. For example, in the past more stringent environmental
regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks
of environmental damage or pollution. Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability
for which we are not insured could have a material adverse effect on our business, financial condition, cash flows and results
of operations.
Maritime claimants could arrest or attach
one or more of our vessels, which could interrupt our cash flows.
In certain jurisdictions, an extensive range
of claims may give rise to maritime liens, such as claims by suppliers of goods and services to a vessel and cargo claims, and
maritime liens against a vessel maybe granted for claims against the time charterer of that vessel. The holder of a maritime lien
is entitled to enforce the claim against the vessel notwithstanding that the claim may be against another party that has an interest
in the vessel. In addition, in some jurisdictions, such as South Africa under the “associated ship” procedures, a claimant
may arrest either the vessel that is subject to the claimant’s maritime claim or any “associated” vessel, which
is any other vessel owned by the same owner or is owned by a company that is controlled, directly or indirectly by any person or
persons through the owning company or the chartering company, whomever was liable, at the time the claim arose.
The arrest or attachment of one or more of
our vessels could require us to pay large sums of money to have the arrest or attachment lifted. The occurrence of any of the above
events could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Labor interruptions could disrupt our
business.
We could be subject to industrial action or
other labor unrest that could prevent or hinder our operations from being carried out normally. If not resolved in a timely and
cost-effective manner, such business interruptions could have a material adverse effect on our business, financial condition, cash
flows and results of operations. These effects would be exacerbated if such a disruption were to occur on one of our vessels that
are manned by masters, officers and crews that are employed by third parties that we do not control.
Our vessels may call on ports located
in countries that are subject to restrictions imposed by the United States, United Kingdom, United Nations or other governments,
which could adversely affect our reputation and the market for our ordinary shares.
Although we do not expect that our vessels
will call on ports located in countries subject to sanctions and embargoes imposed by the U.S. government and other authorities
or countries identified by the U.S. government or other authorities as state sponsors of terrorism, from time to time on charterers’
instructions, our vessels may call on ports located in such countries in the future. Our vessels have called on ports in Cuba and
Sudan on very limited occasions in compliance with applicable sanctions, including with respect to humanitarian shipments arranged
by the United States Agency for International Development, or USAID. Prior to each voyage on behalf of USAID, we confirmed that
the charterer possessed a license authorizing the transactions under U.S. sanctions laws. The U.S. sanctions and embargo laws and
regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and
such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the United States enacted the
Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which amended the Iran Sanctions Act. Among other things,
CISADA introduced limits on the ability of companies and persons to do business or trade with Iran when such activities relate
to the investment, supply or export of refined petroleum or petroleum products. In 2012, President Obama signed Executive Order
13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect
against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found
to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with
the United States, including conducting business in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat
Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing
sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services,
infrastructure or technology to Iran’s petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision
requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act,
as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls
or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling
beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns,
operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could
be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject
to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United
States, United Kingdom, Germany, France, Russia and China) entered into an interim agreement with Iran entitled the “Joint
Plan of Action”, or the JPOA. Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary measures to
ensure that its nuclear program is used only for peaceful purposes, the United States and E.U. would voluntarily suspend certain
sanctions for a period of six months. On January 20, 2014, the United States and E.U. indicated that they would begin implementing
the temporary relief measures provided for under the JPOA. These measures included, among other things, the suspension of certain
sanctions on the Iranian petrochemicals, precious metals, and automotive industries from January 20, 2014 until July 20,
2014. The JPOA was subsequently extended twice.
On July 14, 2015, the P5+1 and the E.U.
announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic
Republic of Iran’s Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran’s ability to develop
and produce nuclear weapons for 10 years while simultaneously easing sanctions directed toward non-U.S. persons for conduct
involving Iran, but taking place outside of U.S. jurisdiction and does not involve U.S. persons. On January 16, 2016, which
we refer to as Implementation Day, the United States joined the E.U. and the UN in lifting a significant number of their nuclear-related
sanctions on Iran following an announcement by the International Atomic Energy Agency, or the IAEA, that Iran had satisfied its
respective obligations under the JCPOA.
On August 2, 2017, the United States enacted
the Countering America’s Adversaries Through Sanctions Act, or CAATSA. CAATSA authorizes secondary sanctions on persons worldwide
who conduct certain business with Iran, Russia, and North Korea. These include secondary sanctions on persons (1) dealing
with most sectors of the North Korean economy, including the transportation sector, (2) engaging in any activity related to
Iran’s ballistic missile program, including transportation, and (3) dealing with certain activities in the Russian energy
sector, including support of Russian energy export pipelines and certain energy projects. On September 21, 2017, President
Trump issued an executive order imposing additional sanctions against North Korea, including a prohibition on vessels calling at
ports in the United States that have called at North Korean ports within the past 180 days or that have engaged in vessel-to-vessel
transfers with vessels that have called at North Korean ports within the past 180 days. On April 6, 2018, the United
States imposed sanctions on seven Russian oligarchs and certain companies they own or control, 17 senior Russian government officials,
a state-owned Russian weapons trading company, and a Russian bank. These sanctions were imposed in part under CAATSA, and some
were specifically for persons operating in the energy sector of the Russian Federation economy. CAATSA also requires the mandatory
imposition of secondary sanctions on any non-U.S. person that knowingly facilitates significant transactions for or on behalf of
these designated Russian persons or any entities in which they own, directly or indirectly, a 50% or greater interest.
On October 13, 2017, President Trump declined
to certify Iran’s compliance with the JCPOA. On January 12, 2018, President Trump announced that the United States did
not intend to renew its sanctions waivers under the JCPOA when the waivers next expire on May 12, 2018 unless significant
changes were made to the JCPOA. On May 8, 2018, President Trump announced that the United States would withdraw from the JCPOA
and begin the process of reimposing sanctions that were waived under the JCPOA. The United States determined that these sanctions
would be reimposed in two tranches. One set of sanctions was reimposed after a 90-day wind down period that ended August 6,
2018, and the remainder was reimposed after a 180-day wind down period that ended November 4, 2018. All sanctions that were
suspended or waived under the JCPOA, including those under CISADA and the Iran Threat Reduction Act, have been in force since November 5,
2018 at the latest. The secondary sanctions related to Iran’s petroleum and petrochemical sectors, energy sector, and port
operators, shipping, and shipbuilding sectors were reimposed after the 180-day wind down period that ended November 4, 2018.
Since such time, Iran has breached certain of its undertakings in the JCPOA, although the remaining parties to the JCPOA all continue
formally to be participants in the JCPOA. On February 21, 2020, Iran was placed on the blacklist of High-Risk Jurisdictions subject
to a Call for Action by the Financial Action Task Force (“FATF”).
Although we believe that we are in compliance
with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance
that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing
interpretations. Any such violation could result in an occurrence of an event of default under our credit facilities, fines or
other penalties and could severely impact our ability to access U.S. capital markets and conduct our business, and could result
in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional
investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts
with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest
in, or to divest from, our securities may adversely affect the price at which our securities trade. Moreover, our charterers may
violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and
those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities
may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities
in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging
in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or
entities controlled by their governments. Investor perception of the value of our securities may be adversely affected by the consequences
of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
We could be adversely affected by violations
of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other applicable worldwide anti-corruption laws.
We are subject to the U.S. Foreign Corrupt
Practices Act, or FCPA, and other applicable worldwide anti-corruption laws, which generally prohibit corrupt payments by us, our
employees, vendors, or agents. These laws include the U.K. Bribery Act, which became effective on July 1, 2011 and which is
broader in scope than the FCPA, as it prohibits bribes to any person and contains no facilitating payments exception. Under the
FCPA and other applicable anti-corruption laws, we may be held liable for some actions taken by strategic or local partners and
agents. We operate our vessels in some jurisdictions that international corruption monitoring groups have identified as having
high levels of corruption and may utilize vendors and agents to act on our behalf in those jurisdictions. Our activities create
the risk of unauthorized payments or offers of payments by one of our employees, vendors, or agents that could be in violation
of the FCPA or other applicable anti-corruption laws. While we devote substantial resources to our global compliance program and
have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments and to comply with the
FCPA and other applicable anti-corruption laws, our employees, vendors, and agents may violate our policies. We also may not be
able to adequately prevent or detect all possible violations of the FCPA and other applicable anti-corruption laws. If we are found
to be responsible for violations of the FCPA or other applicable anti-corruption laws (either due to our own acts or our inadvertence,
or due to the acts or inadvertence of others), our company and our employees could suffer from substantial civil and criminal penalties,
including fines, incarceration, prohibitions or limitations on the conduct of our business, the loss of our financing facilities
and significant reputational damage, including our relationships with our customers, all of which could have a material adverse
effect on our business, financial condition, cash flows and results of operations. Government or regulatory investigations into
potential violations of the FCPA or other applicable anti-corruption laws by Grindrod Shipping or its employees, vendors, or agents
could also have a material adverse effect on our business, financial condition, cash flows and results of operations. Furthermore,
detecting, investigating, and resolving actual or alleged violations of the FCPA and other applicable anti-corruption laws is expensive
and can consume significant time and attention of our senior management.
The smuggling of drugs or other contraband
onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports
where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent
our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge
of any of our crew, we may face reputational damage and governmental or other regulatory claims which could have a material adverse
effect on our business, financial condition, cash flows and results of operations.
Governments could requisition our vessels
during a period of war or emergency, which could have a material adverse effect on our business, financial condition, cash flows
and results of operations.
A government could requisition one or more
of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes its
owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes its charterer at dictated
charter rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition
vessels in other circumstances. Although we may be entitled to compensation in the event of a requisition of one or more of our
vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels could have a
material adverse effect on our business, financial condition, cash flows and results of operations.
Charter rates and spot markets for tankers
are volatile, and may decrease in the future which could have an adverse effect on our business, financial condition, cash flows
and results of operations.
The tanker industry is cyclical and volatile
in terms of charter rates and profitability. A worsening of current global economic conditions may cause tanker charter rates to
decline and thereby adversely affect our ability to employ our vessels or to sell them on the expiration or termination of their
employment, or any renewal or replacement employment that we enter into may not be sufficient to allow us to operate our vessels
profitably. Fluctuations in charter rates and vessel values result from changes in the supply of and demand for tanker capacity
and changes in the supply of and demand for oil and oil products and other liquid bulk cargoes. The factors affecting the supply
of and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
The BCTI, an index of daily average of charter rates for key clean tanker routes published by the Baltic Exchange Limited, which
has long been viewed as a main benchmark to monitor the movements of the clean tanker vessel charter market and the performance
of the entire clean tanker shipping market, experienced its most volatile year ever in 2020, declining approximately 85.9% from
its high of 2,190 in April 2020 to 309 in November 2020 and has remained at low levels since then. As of March 11, 2021, the BCTI
was 504.
Fluctuations in charter rates result from
changes in the supply of and demand for vessel capacity and changes in the supply of and demand for the major large bulk liquid
commodities carried by water internationally. Because the factors affecting the supply of and demand for vessels are outside of
our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.
Since we currently employ our vessels primarily in the spot market or spot market-oriented pools and do not have a significant
amount of fixed revenue cover, we are exposed to the cyclicality and volatility of the spot market. Spot rates may fluctuate significantly
based upon the supply of and demand for seaborne shipping capacity, and we may be unable to keep our vessels fully employed in
these short-term markets. Alternatively, charter rates available in the spot market may be insufficient to enable our vessels
to operate profitably. A significant decrease in charter rates would adversely affect asset values and our profitability, cash
flows and ability to pay dividends, if any, in the future, on our ordinary shares, and capital and interest on our indebtedness.
Furthermore, a significant decrease in charter rates would cause asset values to decline and we may have to record an impairment
charge in our financial statements which could adversely affect our financial results.
The factors that influence demand for clean
tanker capacity include:
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supply of and demand for energy resources, oil and petroleum products and other liquid bulk cargoes;
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regional availability of refining capacity and inventories;
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regional production of liquid bulks such as vegetable oils and chemicals;
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global and regional economic and political conditions, including armed conflicts, terrorist activities, and strikes and the effects of the COVID-19 pandemic and the duration of these effects;
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the location of consuming regions for energy resources, commodities, consumer and industrial products;
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the distance over which oil and oil products and other liquid bulk cargoes are to be moved by sea;
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the cost of steel and labor;
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the cost and availability of financing;
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changes in seaborne and other transportation patterns;
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environmental and other legal and regulatory developments;
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weather and natural disasters;
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competition from alternative sources of energy;
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currency exchange rates; and
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international sanctions, embargoes, import and export restrictions, nationalizations and wars.
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The factors that influence the supply of tanker
capacity include:
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supply of and demand for energy resources and oil and petroleum products and other liquid bulk cargoes;
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the number of newbuilding orders and deliveries, including slippage in deliveries;
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the number of shipyards and ability of shipyards to deliver vessels;
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the scrapping rate of older vessels;
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conversion of tankers to other uses;
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the number of tankers trading crude or “dirty” oil products (such as fuel oil);
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the number of vessels that are out of service, namely those that are laid up, drydocked, awaiting repairs, used for storage purposes or otherwise not available for hire;
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environmental concerns and regulations;
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geographical oil product and other liquid bulk cargo imbalances (affecting the level of trading activity);
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developments in international trade, including refinery additions and closures;
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port or canal congestion;
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speed of vessel operation.
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In addition to the prevailing and anticipated
charter rates, factors that affect the rate of newbuilding, scrapping and laying-up, include newbuilding prices, secondhand vessel
values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys,
normal maintenance costs, insurance coverage costs, the efficiency and age profile of the existing tanker fleet in the market,
and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations.
These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to
correctly assess the nature, timing and degree of changes in industry conditions.
We anticipate that the future demand for our
tankers will be dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes
in the capacity of the global tanker fleet and the sources and supply of oil and petroleum products and other liquid bulk cargoes
to be transported by sea. Given the number of new tankers currently on order with the shipyards, the capacity of the global tanker
fleet seems likely to increase and there can be no assurance as to the timing or extent of future economic growth. Adverse economic,
political, social or other developments could have a material adverse effect on our business, financial condition, cash flows and
results of operations.
Risks Related to Our Business
A substantial number of our drybulk vessels
are employed in the spot market or in drybulk pools, and a lesser number of our tankers are employed in tanker pools. Any decrease
in drybulk spot rates in the future could have a material adverse effect on our business, financial condition, cash flows and results
of operations.
A substantial number of our drybulk carriers
and tankers are currently employed in either the spot market or in spot market-oriented drybulk and tanker pools, some of which
are managed by third parties. This exposes us to fluctuations in spot rates. During the year ended December 31, 2020, we earned
a substantial portion of our revenue from spot market-oriented pools and spot market charters. The spot market may fluctuate significantly
based upon drybulk carrier, tanker, cargo, energy resources, commodities, industrial products and oil supply and demand. The successful
operation of our vessels in the competitive spot charter market, depends on, among other things, obtaining profitable spot contracts
and minimizing, to the extent possible, time spent waiting for employment and time spent traveling unemployed to a demand area.
The spot market is very volatile, and, in the past, there have been periods when spot market rates have declined below the operating
cost of vessels. If future spot market rates decline, then we may be unable to operate our vessels trading in the spot market profitably,
meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as spot charters may last
up to several weeks, during periods in which spot rates are rising we will generally experience delays in realizing the benefits
from such increases.
Our ability to renew expiring contracts or
obtain new contracts on favorable terms or at all will depend on the prevailing market conditions at the time. If we are not able
to extend contracts in direct continuation of current contracts or we are not able to obtain new contracts for existing or new
owned vessels or new chartered-in vessels upon their delivery to us, or if new charters are entered into with our customers at
charter rates substantially below the existing charter rates or on terms otherwise less favorable compared to current charter
terms, this could have a material adverse effect on our business, financial condition, cash flows and results of operations.
In addition, we cannot assure you that the
drybulk and tanker pools our vessels operate in or pools that we manage will be successful in finding employment for all such vessels
in the volatile spot market or whether any such employment will be at profitable rates. We cannot assure you that our vessels will
be profitably operated by such pool or by ourselves where we commercially manage our vessels outside of pools.
Furthermore, vessels operated by unaffiliated
third-parties may participate in such pools and may not be of a comparable design or quality to our vessels, negatively impacting
the profitability of such pools. If such unaffiliated third-parties withdraw from the pools which we manage or participate in,
such pools may no longer be able to operate profitability, or at all, due to the decreased number of vessels in the pool, which
could have a material adverse effect on our business, financial condition, cash flows and results of operations.
A reduction in charter rates, spot market
rates and other market deterioration or the aging of our Fleet may require us to record impairment charges related to our long-lived
assets (our vessels) and such charges may be large and have a material impact on our financial statements.
At December 31, 2020, we had vessels of
$475.3 million in total on our consolidated and combined statements of financial position, representing approximately 187%
of our total equity.
At the end of each reporting period, and on
a continuous basis, if indicators of impairment are present, the carrying amount of tangible and intangible assets is assessed
to determine whether there is any indication that those assets may have suffered an impairment loss. We also assess the carrying
value of an asset when we have contracted to divest of the asset for any reason, including the age of our vessels, if a joint venture
that owns vessels comes to an end in accordance with its terms or if the asset no longer fits into our strategic planning. During
2016, we recorded an impairment loss of approximately $12.6 million relating to the reduction of the carrying value of our
vessels based on value in use calculations. The impairments were largely due to the depressed charter rates and vessel values as
a result of an oversupply of vessel capacity. During the year ended December 31, 2017, we impaired the vessels to the extent
of $16.5 million because we determined certain vessels were likely to be sold as they no longer fit into our strategic planning,
and during 2018 one of our 50% held joint ventures impaired its vessels by $5.7 million when it determined to sell them. During
the year ended December 31, 2019, we impaired vessels to the extent of $15.4 million as we contracted to sell them, we impaired
a handysize vessel where the recoverable amount was below the carrying value to the extent of $1.6 million and we impaired right-of-use
assets to the extent of $2.3 million where the recoverable amount was below the carrying value. During the year ended December
31, 2020, we impaired vessels to the extent of $16.3 million as we contracted to sell them.
If there is a reduction in our estimated charter
rates, or if we intend to divest additional vessels, we may be required to record further impairment charges on our vessels, which
would require us to write down the carrying value of these assets to their fair value. Since vessels and from time to time vessels
under construction comprise a substantial portion of our consolidated and combined statements of financial position, such charges
could have a material impact on our financial statements. See “Item 5. Operating and Financial Review and Prospects—Critical
Accounting Policies”.
We depend on certain customers for our
revenue. Customers may default on their obligations to us and the terms of charters may be difficult to enforce.
For the years ended December 31, 2020, 2019,
2018 and 2017, no customers accounted for 10% or more of our drybulk business revenue, and for the year ended December 31, 2016,
one customer accounted for 10% or more of our drybulk business revenue in the amount of approximately $40.9 million. For the year
ended December 31, 2020, four customers accounted for 10% or more of our tankers business revenue in amounts of approximately $17.5
million, $14.9 million, $13.9 million and $9.1 million, respectively. For the year ended December 31, 2019, five customers
accounted for 10% or more of our tankers business revenue in amounts of approximately $21.2 million, $15.5 million, $8.5 million,
$7.9 million and $7.4 million, respectively. For the year ended December 31, 2018, three customers accounted for 10% or more
of our tankers business revenue in amounts of approximately $17.3 million, $14.3 million and $6.3 million, respectively. For each
of the years ended December 31, 2017, and 2016, four customers accounted for 10% or more of tankers business revenue, in the amounts
of approximately $17.8 million, $15.7 million, $10.9 million and $8.9 million, respectively, in 2017, and $33.2 million, $12.3
million, $9.9 million and $9.1 million, respectively, in 2016. Each of the foregoing with respect to the drybulk carrier business
and tankers business has been calculated excluding revenue attributable to the OACL and Unicorn Bunker businesses, respectively,
which were sold on January 1, 2018. The loss of any of our significant customers, a customer’s failure to make payments or
perform under any of the applicable contracts, a customer’s termination of any of the applicable contracts, or a decline
in payments under the contracts could have a material adverse effect on our business, financial condition, cash flows and results
of operations. Our contracts are governed by the law of a number of jurisdictions and provide for a variety of dispute resolution
mechanisms and arbitration proceedings. There can be no assurance that we would be able to enforce any judgments against these
charterers in jurisdictions where they are based or have their primary assets and operations. Even after a charter contract is
entered, charterers may terminate charters early under certain circumstances.
A charterer may also terminate a charter for
events that may or may not be within our control. The events or occurrences that will cause a charter to terminate or give the
charterer the option to terminate the charter generally include a total or constructive total loss of the related vessel, the requisition
for hire of the related vessel, the event of war in specified countries, the vessel becoming subject to seizure for more than a
specified number of days, our failure to deliver the related vessel within a fixed period of time or the failure of the related
vessel to meet specified performance criteria.
The ability of a customer to perform its obligations
under a contract will depend on a number of factors that are beyond our control. These factors may include general economic conditions,
conditions specific to the customer, the condition of the drybulk and tankers sectors of the shipping industry to which the customer
is exposed, and the charter rates received for specific types of vessels. The costs associated with the default by a customer may
be considerable and could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Our customers may go bankrupt or fail to perform
their obligations under the contracts, they may delay payments or suspend payments altogether, they may terminate the contracts
prior to the agreed-upon expiration date or they may attempt to renegotiate the terms of the contracts. The failure of a customer
to perform its obligations under a contract may mean we increase our exposure to the spot market, which is subject to greater rate
fluctuation than the time charter market. If we receive lower rates under replacement contracts or are unable to re-employ all
of our vessels, it could have a material adverse effect on our business, financial condition, cash flows and results of operations.
A drop in spot market rates may provide
an incentive for some charterers and other customers to default on their charters and contracts.
If spot market rates decline, charterers may
no longer need a vessel that is then under charter or may be able to obtain a comparable vessel at lower rates. Currently, and
in the future, we may employ certain of our vessels in fixed rate time charters. When we enter into a time charter, as well as
bareboat charter or COA, charter rates under that charter or contract may be fixed for the term of the charter or contract. If
the spot market or term charter rates available in the drybulk shipping market or tanker shipping market become significantly lower
than the rates that a customer is obliged to pay us under our existing charters or contracts, the customer may have incentive to
default under that charter or contract or attempt to renegotiate the charter or contract. If our charterers fail to meet their
obligations to us or attempt to renegotiate our charter agreements, it may be difficult to secure substitute employment for such
vessel, and any new employment we secure in the spot market or on time charters, or as bareboat charters or under COAs, may be
at lower rates. As a result, we could sustain significant losses which could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
We are subject to certain risks with
respect to our counterparties to contracts, and failure of such counterparties to meet their obligations could cause us to suffer
losses or could have a material adverse effect on our business, financial condition, cash flows and results of operations.
We have entered into, and may enter into, various
contracts, including pool arrangements, time charters, spot voyage charters, shipbuilding contracts, credit facilities and other
agreements. Such agreements subject us to counterparty risks. The ability and willingness of each of our counterparties to perform
its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among
other things, general economic conditions, the condition of the maritime industries and the overall financial condition of the
counterparty. Should a counterparty fail to honor its obligations under agreements with us, or seek to renegotiate the terms of
the contract, we could sustain significant losses that could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
Circumstances beyond our control could affect
our customers’ financial strength, and because many of our customers are privately held companies, information about the
financial strength of our customers may not always be available. As a result, we might have little advance warning of financial
or other problems affecting our customers and their non-performance, financial or other problems could have a material adverse
effect on our business, financial condition, cash flows and results of operations.
We may be unable to attract and retain
key management personnel and other employees in the shipping industry, which may negatively affect the effectiveness of our management
and our results of operations.
Our success depends to a significant extent
upon the abilities and efforts of our management team and our ability to hire and retain key members of our management team. We
do not maintain “key man” life insurance on any of our officers. The loss of any of these individuals and difficulty
in hiring and retaining personnel, including key personnel, could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
The aging of our vessels may result in
increased operating costs in the future, which could have an adverse effect on our business, financial condition, cash flows and
results of operations.
In general, the cost of maintaining a vessel
in good operating condition increases with the age of the vessel. As our vessels age typically they will become less fuel-efficient
and more costly to maintain than more recently constructed vessels due to improvements in engine and other technology. Cargo insurance
rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety
or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new
equipment to our vessels and may restrict the type of activities in which our vessels may engage. We cannot assure you that, as
our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder
of their useful lives. See “—A reduction in charter rates, spot market rates and other market deterioration or the
aging of our Fleet may require us to record impairment charges related to our long-lived assets (our vessels) and such charges
may be large and have a material impact on our financial statements.” above.
We may not have adequate insurance to
compensate us for losses that may result from our operations due to the inherent risks in the industry.
There are a number of risks associated with
the operation of ocean-going vessels, including mechanical failure, collision, human error, war, terrorism, piracy, loss of life,
property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities
and labor strikes. Any of these events may result in loss of revenue, increased costs and decreased cash flows. In addition, the
operation of any vessel is subject to the inherent possibility of marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating vessels in international trade.
We are insured against some contractual claims
and tort claims (including claims related to environmental damage and pollution) through memberships in protection and indemnity
associations or clubs, or P&I Associations. As a result of such membership, the P&I Associations provide us coverage for
such tort and contractual claims. We also carry hull and machinery insurance and war risk insurance for our vessels. We insure
our vessels for third-party liability claims subject to and in accordance with the rules of the P&I Associations in which the
vessels are entered. We do not maintain cover for loss of hire or earnings arising out of insured peril events other than limited
loss coverage relating to defined war risk events. We can give no assurance that we will be adequately insured against all risks.
We may not be able to obtain adequate insurance coverage for our vessels in the future. The insurers may not pay particular claims.
Our insurance policies contain deductibles for which we will be responsible and limitations and exclusions which may increase our
costs or lower our revenue or prevent recovery.
The objective of a P&I Association is
to provide mutual insurance based on the aggregate tonnage of a member’s vessels entered into the association. Claims are
paid through the aggregate premiums of all members of the association and the P&I Association’s retained earnings, although
members remain subject to calls for additional funds if the aggregate premiums are insufficient to cover claims payable by the
association. Claims payable by the association may include those incurred by members of the association, as well as claims payable
by the association from other P&I Associations with which our P&I Association has entered into interassociation agreements.
We cannot assure you that the P&I Associations to which we belong will remain viable or that we will not become subject to
additional funding calls which could adversely affect us.
We cannot assure you that we will be able
to renew our insurance policies on the same or commercially reasonable terms, or at all, in the future. For example, more stringent
environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability
of, protection and indemnity insurance against risks of environmental damage or pollution. Any uninsured or underinsured loss
could harm our business, financial condition, cash flows and results of operations. In addition, our insurance may be voidable
by the insurers as a result of certain of our actions, such as our vessels failing to maintain certification with applicable maritime
self-regulatory organizations. Further, we cannot assure you that our insurance policies will cover all losses that we incur,
or that disputes over insurance claims will not arise with our insurance carriers. Any claims covered by insurance would be subject
to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles
could be material. In addition, our insurance policies are subject to limitations and exclusions, which may increase our costs
or lower our revenue, and could have a material adverse effect on our business, financial condition, cash flows and results of
operations.
We may have difficulty managing our planned
growth properly.
Our Fleet consists of 23 owned drybulk carriers,
eight long-term chartered-in drybulk carriers, and four owned tankers. One of our principal strategies is to continue to grow by
expanding our operations while prioritizing risk management and balance sheet flexibility, and we may, in the future, increase
the size of our Fleet. Our future growth will primarily depend upon a number of factors, some of which may not be within our control.
These factors include our ability to:
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identify suitable drybulk carriers and tankers, including newbuilding slots at shipyards and/or shipping companies for acquisition at attractive prices;
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sell older vessels at an appropriate time in the market;
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obtain required financing for our existing and new vessels and operations;
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identify businesses engaged in managing, operating or owning drybulk carriers and tankers for acquisition or joint ventures;
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integrate any acquired drybulk carriers or tankers or businesses successfully with our existing operations, including obtaining any approvals and qualifications necessary to operate vessels that we acquire;
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hire, train and retain qualified personnel and crew to manage and operate our growing business and Fleet;
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identify additional new markets;
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enhance our customer base; and
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enhance our operating, financial and accounting systems and controls.
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Our failure to effectively identify, acquire,
develop and integrate any drybulk or tanker vessels or businesses, or our inability to effectively manage our Fleet, could materially
adversely affect our business, financial condition, cash flows and results of operations.
Furthermore, the number of employees that
perform services for us and our current operating and financial systems may not be adequate as we expand the size of our Fleet,
and we may not be able to effectively hire more employees or adequately improve those systems. In addition, if we further expand
our Fleet, we will need to recruit suitable additional seafarers and shoreside administrative and management personnel. We cannot
guarantee that we will be able to hire suitable employees as we expand our Fleet. If we or our crewing agent encounters business
or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to enhance our financial and operating
systems or to recruit suitable employees as we expand our Fleet, it could materially adversely affect our business, financial
condition, cash flows and results of operations. Growing any business by acquisition presents numerous risks such as undisclosed
liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers
and suppliers and integrating newly acquired operations into existing infrastructures. Acquisitions may require additional equity
issuances, which may dilute our ordinary shareholders, or debt issuances (with amortization payments). The effect of an acquisition
may be to lower our available cash. If any such events occur, it could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
We cannot give any assurance that we will
be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future
growth.
Grindrod Shipping is a holding company
and depends on the ability of its subsidiaries to distribute funds to it in order to satisfy its financial obligations and to make
dividend payments.
Grindrod Shipping is a holding company and
its subsidiaries conduct all of its operations and own all of its operating assets. Grindrod Shipping has no significant assets
other than the equity interests in and loans to its subsidiaries. As a result, its ability to satisfy its financial obligations
and to pay dividends to its shareholders depend on its subsidiaries and their ability to distribute funds to it. If Grindrod Shipping
is unable to obtain funds from its subsidiaries, its board of directors may exercise its discretion not to declare or pay dividends.
Our future capital needs are uncertain
and we may need to raise additional funds in the future. If we are unable to fund our future capital expenditure needs, we may
not be able to continue to operate some of our vessels or continue with some or all of our Fleet expansion plans, which would have
a material adverse effect on our business, financial condition, cash flows and results of operations.
We may face liquidity issues if poor market
conditions in the drybulk and/or tanker markets persist for a prolonged period. In addition, we may need to raise additional capital
to maintain, replace and expand the operating capacity of our Fleet and fund our operations. Our future funding requirements will
depend on many factors, including the cost and timing of vessel acquisitions, and the cost of retrofitting or modifying existing
vessels as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations
or standards, customer requirements or otherwise.
In order to fund our capital expenditures,
we may be required to incur borrowings or raise capital through the sale of debt or equity securities. Our ability to borrow money
and access the capital markets through future offerings may be limited by a number of factors, including:
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our financial performance;
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our credit ratings or absence of a credit rating as a stand-alone company;
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the liquidity of the overall capital markets;
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the state of the Singapore, South African, United States and global economies;
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general economic conditions and other contingencies and uncertainties that are beyond our control; and
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the state of the drybulk and tanker industries.
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We cannot assure you that we will be able
to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities,
our shareholders may experience dilution or reduced distributions. Any additional debt or equity financing that we raise may contain
terms that are not favorable to us or our shareholders, including, in the case of debt financing, making us subject to more restrictive
covenants than those applicable to our existing credit facilities.
Our failure to obtain the funds for necessary
future capital expenditures could limit our ability to continue to operate some or all of our vessels or could cause us to impair
the value of our vessels as well as limit our ability to continue with some or all of our fleet expansion plans. Any of these
factors could have a material adverse effect on our business, financial condition, cash flows and results of operations. Even
if we are successful in obtaining such funds through financings, the terms of such financings could further limit our ability
to pay dividends.
Servicing our current or future indebtedness
and meeting certain financing obligations limits funds available for other purposes and if we cannot service our debt and meet
our other financing obligations, we may lose our vessels.
Borrowing under our credit facilities requires
us to dedicate a part of our cash flow to paying interest and repaying capital on our indebtedness under such facilities.
These payments and certain financing obligations
limit funds available for working capital, capital expenditures and other purposes, including further equity investments in our
joint venture or debt financing in the future. Amounts borrowed under our credit facilities bear interest at variable rates. Increases
in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal
amount remains the same, and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year
to year due to the cyclical nature of the drybulk and tanker industries. If we do not generate or reserve enough cash flow from
operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:
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seeking to raise additional capital;
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refinancing or restructuring our debt;
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selling our vessels; or
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reducing or delaying capital investments.
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However, these alternative financing plans,
if necessary, may not be sufficient to allow us to meet our debt obligations. In addition, our 27 owned vessels are pledged as
collateral to secure our various debt obligations. If we are unable to meet our debt and other financing, lenders could elect to
declare that debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral
vessels securing that debt or other assets.
We are exposed to volatility in LIBOR
and may selectively enter into derivative contracts, which can result in higher than market interest rates and charges against
our income.
The loans under our credit facilities are generally
advanced at a floating rate based on LIBOR, which was volatile in prior years and may rise in the future. LIBOR can affect the
amount of interest payable on our debt, which, in turn, could have an adverse effect on our earnings and cash flow. Our financial
condition could be materially adversely affected as we have not entered into interest rate hedging arrangements to hedge our exposure
to the interest rates applicable to our credit facilities and may not enter into interest rate hedging arrangements for these or
any other financing arrangements we may enter into in the future, including those we may enter into to finance a portion of the
amounts payable with respect to newbuildings or acquisitions.
We may enter into derivative contracts to hedge
our overall exposure to interest rate risk. Entering into swaps and other derivatives transactions is inherently risky and presents
possibilities for incurring significant expenses. The derivatives strategies that we may employ may not be successful or effective,
and we could, as a result, incur substantial additional interest and breakage costs.
Uncertainty about the future of LIBOR
may adversely affect our business and financial results.
As noted above, the loans under our credit
facilities are generally advanced at a floating rate based on LIBOR. LIBOR has been the subject of recent national, international
and other regulatory guidance and proposals for reform. On March 5, 2021, these reforms and other pressures caused the ICE Benchmark
Administration (the “IBA”), the administrator of LIBOR, to announce the cessation of publication of certain types of
LIBOR after December 31, 2020 with the cessation of the publication of remaining types of LIBOR after June 30, 2023. The United
Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, separately announced that the IBA had notified
the FCA of its intent to cease providing all LIBOR settings. While the FCA stated that, subject to the establishment of the new
proposed powers, it would consult on the issue of requiring the IBA to produce certain LIBOR tenors on a synthetic basis, it confirmed
that all 35 LIBOR settings will either cease to be provided by any administrator or will no longer be representative as of the
dates published by the IBA. No successor administrator was identified in such announcements. Such announcements could cause LIBOR
to perform differently before its eventual sunset than in the past. The consequences of these developments cannot be entirely predicted,
but could include an increase in the cost of our variable rate indebtedness and obligations. Further, the viability of Secured
Overnight Financing Rate, or SOFR, as an alternative reference rate and the availability and acceptance of other alternative reference
rates are unclear and also may have adverse effects on market rates of interest and the value of securities and other financial
arrangements. These uncertainties, proposals and actions to resolve them, and their ultimate resolution also could negatively impact
our funding costs, loan and other asset values, asset-liability management strategies, and other aspects of our business and financial
results. As a result of LIBOR ceasing to exist, in the near future we may need to renegotiate any credit agreements or interest
rate derivative agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate or hedge rate,
which could adversely impact our cost of debt. No assurance can be provided that the uncertainties around LIBOR or their resolution
will not adversely affect the use, level, and volatility of our loans under our credit facilities generally advanced at a floating
rate based on LIBOR.
As of December 31, 2020, we had $252.9 million
of outstanding indebtedness and finance lease obligations with interest obligations based on LIBOR plus applicable margins.
We are leveraged, which could significantly
limit our ability to execute our business strategy and we may be unable to comply with our covenants in our credit facilities that
impose operating and financial restrictions on us, which could result in a default under the terms of these agreements.
As of December 31, 2020, we had $278.4 million
of outstanding indebtedness under our credit facilities and other borrowings.
Our credit facilities impose operating and
financial restrictions on us that limit our ability, or the ability of our subsidiaries party thereto, among other things,
to:
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incur additional indebtedness on the relevant vessels securing that facility;
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sell any collateral vessel (unless a corresponding amount under the relevant facility were prepaid in accordance with its terms);
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upon the happening of an event of default or potential event of default, make additional investments or acquisitions;
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upon the happening of an event of default or potential event of default, pay dividends; or
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effect a change of ownership or control of the relevant borrower group under each facility.
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Therefore, we may need to seek permission from
our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not
be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends on our ordinary shares
if we determine to do so in the future, pay interest on our indebtedness, finance our future operations or capital requirements,
make acquisitions or pursue business opportunities.
In addition, our credit facilities require
us to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value
of the vessels in our Fleet. Should our charter rates or vessel values materially decline in the future or for other reasons, we
may seek to obtain waivers or amendments from our lenders with respect to such financial ratios and covenants, or we may be required
to take action to reduce our debt or to act in a manner contrary to our business objectives to meet any such financial ratios and
satisfy any such financial covenants.
Events beyond our control, including changes in the economic and
business conditions in the shipping markets in which we operate, may affect our ability to comply with these covenants. We cannot
assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so or amend
these requirements. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our
credit facilities would prevent us from borrowing additional money under our credit facilities and could result in a default under
our credit facilities. If a default occurs under our credit facilities, the lenders could elect to declare the outstanding debt,
together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that
debt, which could constitute all or substantially all of our assets. Additionally, if not repaid the interest rate on the outstanding
debt can be increased. Moreover, in connection with any waivers or amendments to our credit facilities that we may obtain, our
lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities
including an increase in the interest rate. These restrictions may further restrict our ability to, among other things, pay dividends,
repurchase our ordinary shares, make capital expenditures, or incur additional indebtedness.
Furthermore, certain of our debt agreements
contain cross-default provisions that may be triggered if we default under the terms of other of our financing agreements. In the
event of default by us under one of our debt agreements, the lenders under our other debt agreements could determine that we are
in default under such other financing agreements. Such cross defaults could result in the acceleration of the maturity of such
debt under these agreements and the lenders thereunder may foreclose upon any collateral securing that debt, including our vessels,
even if we were to subsequently cure such default. In the event of such acceleration or foreclosure, we might not have sufficient
funds or other assets to satisfy all of our obligations, which would have a material adverse effect on our business, financial
condition, cash flows and results of operations. Please see “Item 5. Operating and Financial Review and Prospects—Liquidity
and Capital Resources”.
We may be subject to litigation that,
if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
We may be, from time to time, involved in various
litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims
or proceedings, toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises
in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty
the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the costs and time
to resolve them could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which could have a material adverse
effect on our business, financial condition, cash flows and results of operations. See “Item 4. Information on the Company—Business
Overview—Legal Proceedings”.
Some of the vessels in our Fleet are
operated by third-party technical managers. Any failure of these technical managers to perform their obligations to us could have
a material adverse effect on our business, financial condition, cash flows and results of operations.
We have contracted the technical management
for a portion of our Fleet, including crewing, maintenance and repair services, to third-party technical management companies.
The failure of these technical managers to perform their obligations could have a material adverse effect on our business, financial
condition, cash flows and results of operations. Although we may have rights against our third-party managers if they default on
their obligations to us, we will receive the benefit of that recourse only to the extent that we recover funds.
Some of the third-party managers for our vessels are privately
held companies and there is little or no publicly available information about them.
Some of our vessels are managed by third parties.
The ability of these third-party managers to render management services will depend in part on their own financial strength. Circumstances
beyond our control could affect our third-party managers’ financial strength. Because some of our third-party managers are
privately held companies, we might have little advance warning of financial or other problems affecting our commercial manager
or technical manager and if they are unable to provide the technical or commercial management services we have contracted for,
we may have delays in operating our vessels which could have a material adverse effect on our business, financial condition, cash
flows and results of operations.
Security breaches and disruptions to
our information technology infrastructure (cyber-security) could interfere with our operations and expose us to liability, which
could have a material adverse effect on our business, financial condition, cash flows and results of operations.
In the ordinary course of business, we rely
heavily on information technology networks and systems to process, transmit, and store information electronically, and to manage
or support a variety of business processes and activities. Additionally, we collect and store certain data, including proprietary
business information and customer and employee data, and may have access to other confidential information in the ordinary course
of our business. Despite our cybersecurity measures (including monitoring of networks and systems, and maintenance of backup and
protective systems) which are continuously reviewed and upgraded, our information technology networks and infrastructure may still
be vulnerable to damage, disruptions, or shutdowns due to attack by hackers or breaches, employee error or malfeasance, data leakage,
power outages, computer viruses and malware, telecommunication or utility failures, systems failures, natural disasters, or other
catastrophic events. Any such events could result in legal claims or proceedings, liability or penalties under privacy or other
laws, disruption in operations, and damage to our reputation, which could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
In addition, some of our technology networks
and systems are managed by third-party service providers (including cloud-service providers) for a variety of reasons, and such
providers also may have access to proprietary business information and customer and employee data, and may have access to confidential
information on the conduct of our business. Like us, these third-party providers are subject to risks imposed by data breaches
and disruptions to their technology infrastructure. A cyber-attack could defeat one or more of our third-party service providers’
security measures, allowing an attacker access to proprietary information from our company including our employees’, customers’
and suppliers’ data. Any such security breach or disruption to our third-party service providers could result in a disruption
in operations and damage to our reputation and liability claims, which could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
Because international shipping companies
often generate most or all of their revenue in U.S. dollars, but incur a portion of their expenses in other currencies, exchange
rate fluctuations could cause us to suffer exchange rate losses, thereby increasing expenses and reducing income.
We engage in worldwide commerce with a variety
of entities. Although our operations may expose us to certain levels of foreign currency risk, our transactions are predominantly
U.S. dollar-denominated. The U.S. dollar is our functional currency and the functional currency of nearly all our subsidiaries
and joint ventures. Transactions in currencies other than the functional currency are translated at the exchange rate on the transaction
date and the relevant payment is translated on the payment date, with the difference being reported in the income statement as
an exchange gain or loss. Expenses incurred in foreign currencies against which the U.S. dollar falls in value can increase, decreasing
our earnings. A greater percentage of our transactions and expenses in the future may be denominated in currencies other than the
U.S. dollar. Assets and liabilities denominated in currencies different from the functional currency are translated into the functional
currency for the preparation of the statements of financial position at the exchange rate prevailing on the statements of financial
position date. Differences in exchange rates between statements of financial position dates may lead to gains or losses being reported
in the income statement. Extraordinary transactions, and the translation of the financial statements of our subsidiaries whose
functional currencies are not the U.S. dollar for purposes of preparing our consolidated accounts, may follow different translation
procedures. The determination of the functional currency of a company is based on various factors and a company’s functional
currency may change depending on its circumstances. As part of our overall risk management policy, we may attempt to hedge these
risks in exchange rate fluctuations from time to time. We may not always be successful in such hedging activities and, as a result,
our operating results could suffer as a result of losses incurred as a result of un-hedged exchange rate fluctuations. We may enter
into derivative contracts to hedge our overall exposure to exchange rate risk. Entering into swaps and other derivatives transactions
is inherently risky and presents various possibilities for incurring significant expenses. The derivatives strategies that we may
employ may not be successful or effective, and we could, as a result, incur substantial additional exchange rate costs.
If we are unable to operate our financial
and operations systems effectively or to recruit suitable employees as we expand our Fleet, our performance may be adversely affected.
Our current financial and operating systems
may not be adequate as we implement our plan to expand the size of our Fleet, and our attempts to improve those systems may be
ineffective. If our current financial and operating systems infrastructure is unable to manage the additional volume of our operations
as our business grows, our operating efficiency could decline. If we fail to hire and retain qualified personnel to implement,
protect and maintain our financial and operating systems or if we fail to upgrade our systems to meet our customers’ demands
we may experience a disruption in operations and damage to our reputation, which could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
In addition, as we expand our Fleet, we or
our third-party technical managers may have to recruit suitable additional seafarers or shore-based administrative and management
personnel. We cannot assure you that we or our third-party technical managers will be able to continue to hire suitable employees
as we expand our Fleet.
We need to maintain our relationships
with local shipping agents.
Our drybulk carrier and tankers businesses
are dependent upon our relationships with local shipping agents operating in the ports where our customers ship and unload their
products. We believe our local shipping agent relationships will remain critical to our success in the future and the loss of one
or more of which could materially and negatively impact our ability to retain and service our customers. We cannot be certain that
we will be able to maintain and expand our existing local shipping agent relationships or enter into new local shipping agent relationships,
or that new or renewed local shipping agent relationships will be available on commercially reasonable terms. If we are unable
to maintain and expand our existing local shipping agent relationships, renew existing local shipping agent relationships, or enter
into new local shipping agent relationships, we may lose customers or cause delays in the ports in which we operate, which could
have a material adverse effect on our business, financial condition, cash flows and results of operations.
Prolonged disruption or slowdown in the
loading and unloading of our vessels could affect our ability to operate our vessels in a timely manner and may result in a loss
of revenue.
We rely on third parties for the loading and
unloading process of our vessels at ports. A disruption in loading and unloading logistics could disrupt our ability to operate
our vessels in a timely manner. Significant disruptions or slowdowns could result in a loss of revenue which could have a material
adverse effect on our business, financial condition, cash flows and results of operations.
If we acquire and/or operate secondhand
vessels, we could be exposed to increased operating costs which could adversely affect our earnings and, as our Fleet ages, the
risks associated with older vessels could adversely affect our ability to obtain profitable charters.
Although none of the vessels in our Fleet are
secondhand vessels, we may acquire and/or operate secondhand vessels in the future. While we expect that we would typically inspect
secondhand vessels prior to acquisition, this does not provide us with the same knowledge about their condition that we would have
had if these vessels had been built for and operated exclusively by us and therefore we cannot assure you that the quality of any
secondhand vessels that we buy will be acceptable. Generally, purchasers of secondhand vessels do not receive the benefit of warranties
from the builders for the secondhand vessels that they acquire. We cannot assure you that, if we acquire and operate second hand
vessels in the future, as our secondhand vessels age, market conditions will justify expenditures or enable us to operate our secondhand
vessels profitably during the remainder of their useful lives.
Technological innovation could reduce
our charter hire income and the value of our vessels.
The charter hire rates and the value and operational
life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical
life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability
to carry a variety of cargoes, enter harbors, utilize related docking facilities and pass through canals and straits. The length
of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress
of operations. If new drybulk carriers or tankers are built that are more efficient or more flexible or have longer physical lives
than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire
payments we receive for our vessels once their initial charters expire and the resale value of our vessels could significantly
decrease. As a result, our business, financial condition, cash flows and results of operations could be materially adversely affected.
Newbuilding projects are subject to risks
that could cause delays, cost overruns or cancellation of our newbuilding contracts.
We have and may in the future enter into or
acquire newbuilding contracts for drybulk carriers or tankers. Construction projects are subject to risks of delay or cost overruns
inherent in any large construction project from numerous factors, including shortages of equipment, materials or skilled labor,
unscheduled delays in the delivery of ordered materials and equipment or shipyard construction, failure of equipment to meet quality
and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated
actual or purported change orders, inability to obtain required permits or approvals, unanticipated cost increases between order
and delivery, design or engineering changes and work stoppages and other labor disputes, adverse weather conditions or any other
events of force majeure. Significant cost overruns or delays could have a material adverse effect on our business, financial condition,
cash flows and results of operations. Additionally, failure to complete a project on time may result in the delay of revenue from
that vessel.
We have contracted, and may in the future contract,
with a trading house or a shipyard for the construction of a newbuilding. In the event the seller or the shipyard does not perform
under its contract and we are unable to enforce the refund guarantee with a third-party bank for any reason, or we have not obtained
such a guarantee, we may lose all or part of our investment, which could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
Our failure to comply with data privacy
laws could damage our customer relationships and expose us to litigation risks.
Data privacy is subject to frequently changing
rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services. It
is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data privacy practices. Complying
with these various laws is difficult and could cause us to incur substantial costs or require it to change its business practices
in a manner adverse to its business.
For example, in Singapore, the Personal Data
Protection Act 2012, No. 26 of 2012 of Singapore (“PDPA”) generally requires organizations to give notice and obtain
consents prior to collection, use or disclosure of personal data (data, whether true or not, about an individual who can be identified
from that data or other accessible information).Recent amendments to the PDPA, effective as of February 1, 2021, introduced a mandatory
breach notification obligation. South Africa’s comprehensive privacy law known as the Protection of Personal Information
Act, 4 of 2013 (the “POPIA”) became effective on July 1, 2020. All processing of personal information must conform
with the POPIA’s provisions within one year after its commencement - organizations have a 12-month period to be POPIA-compliant
by June 30, 2021. Failure to comply with POPIA may lead to penalties and fines up to R10 million.
In Europe, the E.U. adopted the General Data
Privacy Regulation (“GDPR”), a comprehensive legal framework to govern data collection, use and sharing and related
consumer privacy rights which took effect in May 2018. The GDPR includes significant penalties for non-compliance, including fines
up to the higher of 20 million Euros and or 4% of global annual revenue. European regulators have issued numerous fines pursuant
to the GDPR. In the United Kingdom, Brexit has created uncertainty with regard to the regulation of data protection. In particular,
while the Data Protection Act of 2018, which implements and complements the GDPR, is now effective in the United Kingdom, it is
still unclear whether transfer of personal data from the EEA to the United Kingdom will remain lawful under the GDPR after Brexit.
In December 2020, the Brexit Trade and Cooperation Agreement (“TCA”) established a four- to six-month grace period
during which transfers of personal data from the E.U. to the U.K. can continue without additional safeguards, provided that the
U.K. maintains its pre-TCA data protection laws. On February 19, 2021, the European Commission released a draft adequacy decision
for review by the European Data Protection Board. If adopted, that decision would permit the continued flow of personal data between
the U.K. and the E.U. However, it is unclear how data transfers to and from the United Kingdom will be regulated after the grace
period expires and whether or not the United Kingdom will receive a final adequacy decision from the European Commission permitting
cross-border data transfer from the E.U. to the United Kingdom. In addition, we cannot fully predict how the Data Protection Act
and other United Kingdom data protection laws or regulations may develop in the medium to longer term, which may further affect
any adequacy decision. In addition to government activity, privacy advocacy and other industry groups have established and may
continue to establish new self-regulatory standards that may place additional burdens on us.
Our failure to adhere to or successfully implement
processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation
in the marketplace, which could have a material adverse effect on our business, financial condition and results of operations.
We currently bank with a limited number
of financial institutions, which subjects us to credit risk.
We currently bank with a limited number of
financial institutions. An event of default by any of these financial institutions could have a material adverse effect on our
business, financial condition, cash flows and results of operations. In addition, our financial institutions are subject to internal
and regulatory compliance protocols, which may delay access to our accounts. Such a delay could impact our ability to consummate
transactions and operate our business, which could have a material adverse effect on our business, financial condition, cash flows
and results of operations.
The employment of our remaining tankers
could be adversely affected by an inability to clear the oil majors’ risk assessment process, and we could be in breach of
our charter agreements.
The shipping industry, and especially the shipment
of crude oil, refined petroleum products (clean and dirty) and bulk liquid chemicals, has been, and will remain, heavily regulated.
The oil majors, together with a number of commodities traders, represent a significant percentage of the production, trading and
shipping logistics (terminals) of crude oil and refined products worldwide. Concerns for the environment have led the oil majors
to develop and implement a strict ongoing due diligence process when selecting their commercial partners. This vetting process
has evolved into a sophisticated and comprehensive risk assessment of both the vessel operator and the vessel, including physical
vessel inspections, completion of vessel inspection questionnaires performed by accredited inspectors and the production of comprehensive
risk assessment reports. In the case of term charter relationships, additional factors are considered when awarding such contracts,
including:
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office assessments and audits of the vessel operator;
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the operator’s environmental, health and safety record;
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compliance with the standards of the IMO;
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compliance with oil majors’ codes of conduct, policies and guidelines, including transparency, anti-bribery and ethical conduct requirements and relationships with third parties;
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compliance with heightened industry standards that have been set by several oil companies;
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shipping industry relationships, reputation for customer service, technical and operating expertise;
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shipping experience and quality of vessel operations, including cost-effectiveness;
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quality, experience, length of service and technical capability of crews;
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the ability to finance vessels at competitive rates and overall financial stability;
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relationships with shipyards and the ability to obtain suitable berths;
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in the case of a charter of a newbuilding, construction management experience, including the ability to procure on-time delivery of new vessels according to customer specifications;
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willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
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competitiveness of the bid in terms of overall price.
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Under the terms of our charter agreements,
our charterers require that these vessels and their technical managers are vetted and approved to transport oil products by multiple
oil majors. Our failure to maintain any of our tankers to the standards required by the oil majors could put us in breach of the
applicable charter agreement and lead to termination of such agreement, and could give rise to impairment in the value of our tankers.
If we are not able to successfully clear the
oil majors’ risk assessment processes on an ongoing basis, the future employment of our tankers, as well as our ability
to obtain charters or freight contracts, whether spot, medium- or long-term, could be adversely affected. Such a situation may
lead to the oil majors terminating existing charters and contracts and refusing to use our tankers in the future, which could
have a material adverse effect on our business, financial condition, cash flows and results of operations.
Risks Relating to Our Ordinary Shares
There may not be a liquid market for
the Grindrod Shipping ordinary shares.
Grindrod Shipping’s ordinary shares are
listed on the NASDAQ in the United States and quoted on the main board of the JSE in South Africa. There can be no assurance as
to the liquidity of those markets for the Grindrod Shipping ordinary shares or the price at which the Grindrod Shipping ordinary
shares may trade. The liquidity and the market for the Grindrod Shipping ordinary shares may be affected by a number of factors
including variations in exchange and interest rates, the deterioration and volatility of the markets for similar securities, and/or
any changes in Grindrod Shipping’s liquidity, financial condition, creditworthiness, results and profitability and future
prospects. In addition, our shareholder base consists primarily of South African residents who, subject to certain allowances in
terms of the Exchange Control Regulations in South Africa, will generally be required to hold their ordinary shares on the JSE,
and therefore the liquidity of the ordinary shares on the NASDAQ may be adversely impacted. Furthermore, ordinary shares owned
by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, will be subject to certain
restrictions on transfer under the U.S. securities laws. Affiliates will only be permitted to sell their shares pursuant to a valid
exemption from the registration requirements of the Securities Act or pursuant to an effective registration statement, which may
impact the liquidity of the ordinary shares.
The Grindrod Shipping ordinary shares
are traded on more than one stock exchange and this may result in price variations between the markets.
The Grindrod Shipping ordinary shares are listed
on each of NASDAQ and the JSE. Trading in the Grindrod Shipping ordinary shares therefore takes place in different currencies (U.S.
dollars on the NASDAQ and South African Rand on the JSE), and at different times (resulting from different time zones, different
trading days and different public holidays in the United States and South Africa). The trading prices of the Grindrod Shipping
ordinary shares on these two markets may differ as a result of these, or other, factors. Any decrease in the price of Grindrod
Shipping’s ordinary shares on either of these markets could cause a decrease in the trading prices of Grindrod Shipping’s
ordinary shares on the other market.
If securities or industry analysts do
not publish research or reports about Grindrod Shipping’s business, or publish negative reports about its business, Grindrod
Shipping’s ordinary share price and trading volume could decline.
The trading market for Grindrod Shipping ordinary
shares depends, in part, upon the research and reports that securities or industry analysts publish about Grindrod Shipping or
its businesses. If securities or industry analysts do not cover Grindrod Shipping, it could lose visibility in the financial markets,
which could cause its share price or trading volume to decline.
Grindrod Shipping may not have sufficient
distributable profits to pay dividends or otherwise distribute cash or assets to shareholders.
Under Singapore law and Grindrod Shipping’s
constitution, dividends, whether in cash or in specie, must be paid out of Grindrod Shipping’s profits available for distribution.
See “Item 8. Financial Information—Dividend Policy and Dividend Distributions”. As a holding company, Grindrod
Shipping may earn distributable profits when it receives dividends or other income, including management fees or interest, if any.
Grindrod Shipping currently does not have distributable profits from which dividends may be declared. The availability of distributable
profits is assessed on the basis of Grindrod Shipping’s standalone unconsolidated accounts, which are based upon IFRS. There
is no assurance that Grindrod Shipping will not incur losses, that it will become profitable, or that it will have sufficient distributable
income that might be distributed to its shareholders as a dividend or other distribution in the foreseeable future. Therefore,
Grindrod Shipping will be unable to pay dividends to its shareholders unless and until it has generated sufficient distributable
reserves. Accordingly, it may not be legally permissible for Grindrod Shipping to pay dividends to its shareholders.
Notwithstanding that sufficient profits may
be available for distribution, there are other conditions which may limit Grindrod Shipping’s ability to pay dividends. Grindrod
Shipping’s board of directors may, without the approval of the shareholders under Singapore law, declare interim dividends
during a fiscal year and any final dividends declared by Grindrod Shipping’s board of directors after the close of a fiscal
year must be approved by shareholders at a general meeting. As such, any determination to pay dividends will be at the discretion
of Grindrod Shipping’s board of directors, which may exercise its discretion to retain Grindrod Shipping’s future earnings
for use in the development of Grindrod Shipping’s business, in reducing Grindrod Shipping’s indebtedness and for general
corporate purposes. As a result, it is possible that only an appreciation of the price of our ordinary shares, if any, will provide
a return to investors in our ordinary shares for the foreseeable future. Such potential appreciation is uncertain and unpredictable.
In addition, under Singapore law, it is possible
to effect a capital reduction exercise to return cash and/or assets to shareholders by way of shareholder approval if Grindrod
Shipping meets the relevant solvency requirements, which will be attested to by Grindrod Shipping’s board of directors. The
completion of the capital reduction exercise will depend on whether Grindrod Shipping’s directors can execute a solvency
statement, as well as whether there are any creditor objections raised. A reduction of capital is also possible by way of a shareholder
approval if approved by an order of the court.
Any dividend payments on the Grindrod
Shipping ordinary shares would be declared in U.S. dollars, and any shareholder whose principal currency is not the U.S. dollar
would be subject to risks of exchange rate fluctuations.
The Grindrod Shipping ordinary shares are,
and any cash dividends or other distributions to be declared in respect of them, if any, will be denominated in U.S. dollars. Shareholders
whose principal currency is not the U.S. dollar will be exposed to foreign currency exchange rate risk. Any depreciation of the
U.S. dollar in relation to such foreign currency will reduce the value of such shareholders’ ordinary shares and any appreciation
of the U.S. dollar will increase the value in foreign currency terms. In addition, Grindrod Shipping will not offer its shareholders
the option to elect to receive dividends, if any, in any other currency. Consequently, shareholders may be required to arrange
their own foreign currency exchange, either through a brokerage house or otherwise, which could incur additional commissions or
expenses.
Grindrod Shipping is a Singapore company,
and because the rights of shareholders under Singapore law differ from those under U.S. law, you may have difficulty in protecting
your shareholder rights or enforcing any judgment obtained in the United States against Grindrod Shipping or its affiliates.
Grindrod Shipping’s corporate affairs
are governed by its constitution and by the applicable laws governing corporations incorporated in Singapore. The rights of Grindrod
Shipping shareholders and the responsibilities of members of its board of directors under Singapore law are different from those
applicable to a corporation incorporated in the United States and, therefore, Grindrod Shipping shareholders may have more difficulty
protecting their interests in connection with actions by the management or members of the board of directors than they would as
shareholders of a corporation incorporated in the United States.
All of Grindrod Shipping’s directors
and senior management reside outside the United States. As a result, it may be difficult for investors to effect service of process
within the United States upon Grindrod Shipping or any of these persons or to enforce in the United States any judgment obtained
in the U.S. courts against Grindrod Shipping or any of these persons, including judgments based upon the civil liability provisions
of the U.S. federal securities laws or the laws of any state or territory of the United States.
There is no treaty between the United States
and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters and a final
judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether
or not predicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. It
is not clear whether a Singapore court may impose civil liability on Grindrod Shipping or Grindrod Shipping’s directors
and officers in a suit brought in the Singapore courts against Grindrod Shipping or such persons with respect to a violation solely
of the federal securities laws of the United States.
In addition, only registered shareholders reflected
in the register of members are recognized under Singapore law as shareholders of a company. As a result, only registered shareholders
have legal standing to institute shareholder actions or otherwise seek to enforce their rights as shareholders. Holders of dematerialised
interests in Grindrod Shipping’s shares will be required to be registered shareholders as reflected in Grindrod Shipping’s
register of members in order to institute or enforce any legal proceedings or claims as shareholders against Grindrod Shipping,
its directors or its officers in the Singapore courts. Holders of dematerialised interests in the ordinary shares may become registered
shareholders by exchanging their dematerialised interests in our ordinary shares for certificated shares and being registered in
our register of members. The administrative process of becoming a registered holder could result in delays prejudicial to any legal
proceedings or enforcement action. Consequently, it may be difficult for investors to enforce against Grindrod Shipping, its directors
or its officers in Singapore judgments obtained in the United States which are predicated upon the civil liability provisions of
the federal securities laws of the United States.
Grindrod Shipping is subject to the laws
of Singapore, which differ in certain material respects from the laws of the United States.
As a company incorporated under the laws of
Singapore, Grindrod Shipping is required to comply with the laws of Singapore, certain of which are capable of extraterritorial
application, as well as Grindrod Shipping’s constitution. In particular, Grindrod Shipping is required to comply with certain
provisions of the Securities and Futures Act, Chapter 289 of Singapore, or the Singapore Securities and Futures Act, which
prohibit certain forms of market conduct and information disclosures, and impose criminal and civil penalties on corporations,
directors and officers in respect of any breach of such provisions. Grindrod Shipping is also required to comply with the Singapore
Code on Take-Overs and Mergers, or the Singapore Code, which specifies, among other things, certain circumstances in which a general
offer is to be made upon a change in effective control, and further specifies the manner and price at which voluntary and mandatory
general offers are to be made.
The laws of Singapore and of the United States
differ in certain significant respects. The rights of Grindrod Shipping’s shareholders and the obligations of its directors
and officers under Singapore law are different from those applicable to a company incorporated in the United States in material
respects, and Grindrod Shipping’s shareholders may have more difficulty and less clarity in protecting their interests in
connection with actions taken by Grindrod Shipping’s management, directors or controlling shareholders than would otherwise
apply to a company incorporated in the United States. See “Item 10. Additional Information—Comparison of Shareholder
Rights” for a discussion of differences between Singapore and U.S. corporation law.
In addition, the application of Singapore law,
in particular, the Companies Act, Chapter 50 of Singapore, or the Singapore Companies Act, may in certain circumstances impose
more restrictions on Grindrod Shipping and its shareholders, directors and officers than would otherwise be applicable to a company
incorporated in the United States. For example, the Singapore Companies Act requires directors to act with a reasonable degree
of diligence and, in certain circumstances, imposes criminal liability for specified contraventions of particular statutory requirements
or prohibitions. In addition, pursuant to the provisions of the Singapore Companies Act, shareholders holding 10% or more of the
total number of paid-up shares carrying the right of voting in general meetings may require the convening of an extraordinary general
meeting of shareholders by the directors. If the directors fail to comply with such request within 21 days of the receipt
thereof, shareholders holding more than 50% of the voting rights represented by the original requisitioning shareholders may proceed
to convene such meeting, and Grindrod Shipping will be liable for the reasonable expenses incurred by such requisitioning shareholders.
Grindrod Shipping is also required by the Singapore Companies Act to deduct corresponding amounts from fees or other remuneration
payable by Grindrod Shipping to such non-complying directors.
Anti-takeover provisions under the Singapore
Securities and Futures Act and the Singapore Code on Take-overs and Mergers may delay, deter or prevent a future takeover or change
of control of Grindrod Shipping, which could adversely affect the price of our ordinary shares.
The Singapore Code, issued pursuant to Section 321
of the Singapore Securities and Futures Act, regulates the acquisition of ordinary shares of, inter alia, listed public
companies and contains certain provisions that may delay, deter or prevent a future takeover or change of control of Grindrod Shipping.
Any person acquiring an interest, either on his own or together with parties acting in concert with him or her, in 30% or more
of the voting shares in Grindrod Shipping must, except with the prior consent of the Singapore Securities Industry Council, or
the SIC, extend a takeover offer for the remaining voting shares in Grindrod Shipping in accordance with the provisions of the
Singapore Code. Likewise, any person holding between 30% and 50% of the voting shares in Grindrod Shipping, either on his own or
together with parties acting in concert with him or her, must, except with the prior consent of the SIC, make a takeover offer
in accordance with the provisions of the Singapore Code if that person together with parties acting in concert with him or her
acquires additional voting shares in excess of one percent of the total number of voting shares in any six-month period. Therefore,
any investor seeking to acquire a significant stake in Grindrod Shipping may be deterred from doing so if, as a result, such investor
would be required to conduct a takeover offer for all of Grindrod Shipping’s voting shares.
Under the Singapore Code, an offeror must
treat all shareholders of the same class in an offeree company equally. A fundamental requirement is that shareholders in the
company subject to the takeover offer must be given sufficient information, advice and time to consider and decide on the offer.
These provisions contained in the Singapore
Code may discourage or prevent transactions that involve an actual or threatened change of control of Grindrod Shipping, and may
impede or delay a takeover of Grindrod Shipping by a third party. This may adversely affect the market price of Grindrod Shipping
ordinary shares and impede the ability of Grindrod Shipping’s shareholders to realize any benefits from a potential change
of effective control of Grindrod Shipping.
Under Singapore law, shareholder approval
is required to allow us to issue new shares which could impact our ability to raise capital or consummate acquisitions. Any issuance
of new shares would dilute the percentage ownership of existing shareholders and could adversely impact the market price of the
ordinary shares.
Under Singapore law, Grindrod Shipping may
only issue new shares with the prior approval of its shareholders.
At our last annual general meeting on July
14, 2020, Grindrod Shipping’s shareholders provided authority for our directors to issue ordinary shares pursuant to the
vesting of awards under our 2018 Forfeitable Share Plan, or 2018 FSP, which is subject to the condition that the aggregate number
of ordinary shares at any one time which may be granted in an award under the 2018 FSP, together with all existing awards that
have not yet vested under the 2018 FSP, shall not exceed 5% of the number of ordinary shares in issue (excluding treasury shares),
as determined in reference to the day preceding the award. Such authority shall continue in force until the earliest of (i) the
conclusion of our next annual general meeting, (ii) the expiration of the period within which our next annual general meeting is
required by law to be held, or (iii) the point at which the maximum number of awards permitted to be made in terms of the 2018
FSP as per the abovementioned limit has been reached. Notwithstanding that the abovementioned authority may have ceased to be in
force, ordinary shares may be issued after the expiry of the approval in pursuance of awards made under the 2018 FSP whilst the
authority was in force (subject always to the abovementioned limit on the maximum number of shares). At our annual general meeting,
expected to be held on May 20, 2021, we plan to seek the approval of our shareholders for issuances of ordinary shares for the
purposes of our forfeitable share plan at the same maximum 5%, based on the number of ordinary shares in issue (excluding treasury
shares) as determined in reference to the date proceeding the award.
At the forthcoming annual general meeting,
we also plan to seek the approval of our shareholders for the allotment and issuance of ordinary shares whether by way of rights,
bonus or otherwise and to allow us to make or grant offers, agreements or options that might or would require shares to be allotted
and issued up to a number not exceeding 20% of the number of ordinary shares (excluding treasury shares) outstanding as at the
date of the resolution allowing the same. Such authority shall continue in force until the earliest of (i) the conclusion of the
next annual general meeting of the Company, (ii) the date by which the next annual general meeting is required by law to be held,
or (iii) the point at which the maximum number of shares permitted as per the abovementioned limit has been reached.
Any issuance of additional shares for any other
purpose or in future years (other than shares to be issued under an existing prior approval that remains in effect) will require
the approval of shareholders. Because new issuances of ordinary shares are subject to shareholder approval, or in some circumstances,
other regulatory approvals, if no or an insufficient number of shares have been approved for issuance in advance, we may be delayed
in raising capital through equity offerings or delayed or prevented from consummating an acquisition using our ordinary shares.
We may seek to raise capital in the future, including to fund acquisitions, future investments and other growth opportunities.
We may, for these and other purposes, such as in connection with share incentive and share option plans (such as our forfeitable
share plan), issue additional ordinary shares or securities convertible into ordinary shares. Any additional issuances of new shares
could dilute the percentage ownership of our existing shareholders and could also adversely impact the market price of Grindrod
Shipping’s ordinary shares. In addition, under the provisions of the Singapore Companies Act and Grindrod Shipping’s
constitution, the board of directors may, with the applicable shareholder approval, issue new shares on terms and conditions and
with the rights (including preferential voting rights) and restrictions as they may determine and may contain terms adverse to
the ordinary shares.
The Jumpstart Our Business Startups Act
of 2012, or JOBS Act, allows Grindrod Shipping to postpone the date by which it must comply with some of the laws and regulations
intended to protect investors and to reduce the amount of information provided in Grindrod Shipping’s reports filed with
the SEC, which could undermine investor confidence in Grindrod Shipping and adversely affect the market price of Grindrod Shipping’s
ordinary shares.
For so long as Grindrod Shipping remains an
“emerging growth company” as defined in the JOBS Act, it intends to take advantage of certain exemptions from various
requirements that are applicable to public companies that are not emerging growth companies including:
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the provisions of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act, requiring that Grindrod Shipping’s independent registered public accounting firm provide an attestation report on the effectiveness of Grindrod Shipping’s internal control over financial reporting;
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Section 107 of the JOBS Act, which provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Grindrod Shipping currently prepares its financial statements in accordance with IFRS as issued by the IASB, which do not have separate provisions for publicly traded and private companies. However, in the event Grindrod Shipping converts to U.S. GAAP in the future while it is still an emerging growth company, Grindrod Shipping may be able to take advantage of the benefits of this extended transition period and, as a result, during the time that Grindrod Shipping delays such adoption of new or revised accounting standards Grindrod Shipping’s financial statements may not be comparable to companies that comply with all public company accounting standards; and
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any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.
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Grindrod Shipping intends to continue to take
advantage of these exemptions until it is no longer an “emerging growth company”. Grindrod Shipping will remain an
emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary
of the date of its first sale of equity securities pursuant to an effective registration statement under the Securities Act, (b) in
which it has total annual gross revenue of at least $1.07 billion, or (c) in which it is deemed to be a large accelerated
filer, which means the market value of Grindrod Shipping ordinary shares that is held by non-affiliates exceeds $700 million
as of the prior June 30, and (2) the date on which it issued more than $1.0 billion in non-convertible debt during
the prior three-year period.
We cannot predict if investors will find our
ordinary shares less attractive because Grindrod Shipping does and may continue to rely on these exemptions. If some investors
find Grindrod Shipping ordinary shares less attractive as a result, there may be a less active trading market for the Grindrod
Shipping ordinary shares, and the market price may be more volatile and may decline.
As a “foreign private issuer”
Grindrod Shipping is permitted, and intends to continue, to follow certain home country corporate governance practices instead
of otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules
applicable to domestic U.S. issuers.
Grindrod Shipping’s status as a foreign
private issuer also exempts it from compliance with certain SEC laws and regulations and certain regulations of the NASDAQ, including
the proxy rules, the short-swing profits recapture rules of Section 16 of the Exchange Act of 1934, as amended, or the Exchange
Act, certain rules relating to disclosure regarding executive compensation, and certain governance requirements such as independent
director oversight of the nomination of directors and executive compensation. In addition, we are not required under the Exchange
Act to file current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies
whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC.
As a foreign private issuer, Grindrod Shipping is required to file (i) its annual financial statements on Form 20-F within
four months of the end of each fiscal year so long as it is subject to the reporting requirements of Section 13(a) or Section 15(d)
of the Exchange Act and (ii) furnish on Form 6-K an interim statement of financial position and income statement as of
the end of its second fiscal quarter within six months of the end of the second quarter so long as it is listed on NASDAQ. We may
also consider furnishing quarterly financial information on Form 6-K to the SEC, although there can be no assurance as to
the timing or adoption of the reporting of such quarterly financial information. Further, the information Grindrod Shipping files
or furnishes will not be the same as the information that is required in annual and quarterly reports on Form 10-K or Form 10-Q
for U.S. domestic issuers. Furthermore, as a foreign private issuer, Grindrod Shipping is also not subject to the requirements
of Regulation Fair Disclosure, or Regulation FD, promulgated under the Exchange Act, which restricts the selective disclosure
of material information.
These exemptions and leniencies reduce the
frequency and scope of information and protections to which you are otherwise entitled as an investor.
Grindrod Shipping may lose its foreign
private issuer status, which would then require it to comply with the Exchange Act’s domestic reporting regime and cause
Grindrod Shipping to incur additional legal, accounting and other expenses.
Grindrod Shipping is required to determine
its status as a foreign private issuer on an annual basis at the end of its second fiscal quarter. In order to maintain its current
status as a foreign private issuer, either (1) a majority of Grindrod Shipping ordinary shares must be either directly or
indirectly owned of record by non-residents of the United States or (2) (a) a majority of Grindrod Shipping’s executive
officers or directors must not be U.S. citizens or residents, (b) more than 50 percent of Grindrod Shipping’s assets
cannot be located in the United States and (c) Grindrod Shipping’s business must be administered principally outside
the United States. If Grindrod Shipping loses this status, it would be required to comply with the Exchange Act reporting and other
requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private
issuers. Grindrod Shipping may also be required to make changes in its corporate governance practices in accordance with various
SEC rules and the NASDAQ listing standards. Further, Grindrod Shipping would be required to comply with U.S. GAAP, as opposed
to IFRS, in the preparation and issuance of its financial statements for historical and current periods. The regulatory and compliance
costs to Grindrod Shipping under U.S. securities laws if it is required to comply with the reporting requirements applicable to
a U.S. domestic issuer may be higher than the cost it would incur as a foreign private issuer. As a result, Grindrod Shipping expects
that a loss of foreign private issuer status would increase its legal and financial compliance costs.
If Grindrod Shipping fails to establish
and maintain proper internal controls, its ability to produce accurate financial statements or comply with applicable regulations
could be impaired.
Section 404(a) of the Sarbanes-Oxley Act
requires that, beginning with Grindrod Shipping’s annual report for the fiscal year ending December 31, 2019, Grindrod
Shipping’s management assess and report annually on the effectiveness of its internal controls over financial reporting and
identify any material weaknesses in its internal controls over financial reporting. Although Section 404(b) of the Sarbanes-Oxley
Act requires Grindrod Shipping’s independent registered public accounting firm to issue an annual report that addresses the
effectiveness of our internal controls over financial reporting, Grindrod Shipping has opted to rely on the exemptions provided
to it by virtue of being an “emerging growth company”, and consequently we will not be required to comply with SEC
rules that implement Section 404(b) of the Sarbanes-Oxley Act until we are no longer an “emerging growth company”.
If either Grindrod Shipping is unable to conclude
that it has effective internal controls over financial reporting or, if required, Grindrod Shipping’s independent auditors
are unwilling or unable to provide it with an unqualified report on the effectiveness of its internal controls over financial reporting
as required by Section 404(b) of the Sarbanes-Oxley Act, investors may lose confidence in Grindrod Shipping’s operating
results, the price of the Grindrod Shipping ordinary shares could decline and Grindrod Shipping may be subject to litigation or
regulatory enforcement actions.
Grindrod Shipping has incurred and will
continue to incur significant increased costs as a result of operating as a company whose ordinary shares are publicly traded in
the United States, and its management is required to devote substantial time to compliance initiatives.
As a company whose ordinary shares are publicly
traded in the United States, Grindrod Shipping incurs significant legal, accounting, insurance and other expenses that it had not
incurred prior to the Spin-Off. In addition, the Sarbanes-Oxley Act, Dodd-Frank Wall Street Reform and Consumer Protection Act
and related rules implemented by the SEC, have imposed various requirements on public companies including requiring establishment
and maintenance of effective disclosure and internal controls. Grindrod Shipping’s management and other personnel devote
a substantial amount of time to these compliance initiatives, and Grindrod Shipping may need to add additional personnel to continue
to enhance its internal compliance infrastructure. Moreover, these rules and regulations have increased Grindrod Shipping’s
legal and financial compliance costs and make some activities more time-consuming and costly. These laws and regulations could
also make it more difficult and expensive for Grindrod Shipping to attract and retain qualified persons to serve on the board of
directors, board committees or as senior management. Furthermore, if Grindrod Shipping is unable to satisfy its obligations as
a public company in the United States, it could be subject to delisting of the ordinary shares, fines, sanctions and other regulatory
action and potentially civil litigation.
Increased scrutiny and changing expectations from investors,
lenders and other market participants with respect to our Environmental, Social and Governance (“ESG”) policies may
impose additional costs on us or expose us to additional risks.
Companies across all industries are facing
increased scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds,
lenders and other market participants are increasingly focused on ESG practices and have placed increased importance on the implications
and social cost of their investments. The increased focus may hinder access to capital, as investors and lenders may decide to
reallocate capital as a result of their assessment of a company’s ESG practices. For example, lenders representing almost
50% of global shipping finance have signed up to the Poseidon Principles, a framework established in 2019 for responsible maritime
shipping finance pursuant to which signatories agree to assess and disclose the climate alignment of their shipping portfolios
and to work to bring the portfolios in line with the IMO’s climate targets. Reduced access to capital could hinder our growth.
Companies that do not adapt to or comply with investor and lender expectations and standards, which are evolving, may suffer from
reputational damage and their business, financial condition and stock price may be adversely affected.
We may face increasing pressure from stakeholders
to priorities sustainable energy practices, reduce our carbon footprint and promote sustainability. It is likely that we will incur
additional costs and require additional resources to monitor, report and comply with ESG requirements which could have a material
adverse impact on our business, financial condition and results of operations.
Risks Related to the Spin-Off From Former Parent
Former Parent’s historical performance
may not be representative of Grindrod Shipping’s performance as a separate company.
Grindrod Shipping’s audited consolidated
and combined financial statements presented in this annual report represent the combined financial statements of GSPL and GSSA
prior to June 18, 2018 and the consolidated financial statements of the company as a separate publicly traded company on and subsequent
to June 18, 2018 following the Spin-Off. In addition, for periods prior to January 1, 2018 the financial statements include components
of Former Parent’s shipping business which were not transferred to us in the Spin-Off and therefore those businesses are
not part of our results of operations for periods following the disposal on January 1, 2018, however, the proceeds from these sales
remained with us. Accordingly, the Grindrod Shipping audited consolidated and combined financial statements do not necessarily
reflect what Grindrod Shipping’s financial condition, results of operations and cash flows would have been had it been a
separate, stand-alone entity during the financial periods prior to the Spin-Off. Former Parent did not account for Grindrod Shipping,
and Grindrod Shipping was not operated, as a single, stand-alone entity for the financial periods prior to the Spin-Off. Please
refer to “Item 5. Operating and Financial Review and Prospects” and “Item 18. Financial Statements—Audited
Consolidated and Combined Financial Statements” and the notes to those statements included elsewhere in this annual report.
While we have some ability to seek a
claim against Former Parent for certain liabilities relating to the Spin-Off or otherwise attributable to Former Parent’s
businesses, available remedies may be limited.
Although Grindrod Shipping may be able to seek
a claim against Former Parent in connection with the Spin-Off or Former Parent’s operation of GSPL and GSSA prior to the
Spin-Off, Former Parent is not obligated to indemnify Grindrod Shipping for any claims made against us that are properly attributable
to Former Parent and is entitled to assert certain defenses to such a claim by agreement and applicable law. As such, there can
be no assurance that such a claim would succeed. Any liabilities relating to such claims may be significant and could negatively
impact Grindrod Shipping’s business. Even if Grindrod Shipping ultimately succeeds in recovering from Former Parent any amounts
for which Grindrod Shipping is held liable, it may be temporarily required to bear these losses itself. Each of these risks could
negatively affect Grindrod Shipping’s business, financial condition, cash flows and results of operations. See “Item 10.
Additional Information—Material Contracts—Contracts Relating to the Spin-Off”.
After the Spin-Off, certain of Grindrod
Shipping’s executive officers and directors may have actual or potential conflicts of interest because of their current or
former positions in Former Parent or their ownership of Former Parent equity.
Certain of Grindrod Shipping’s executive
officers and directors are also former directors, officers or employees of Former Parent and thus have professional relationships
with Former Parent’s executive officers and directors. In addition, two members of our board of directors and our alternate
director are members of Former Parent’s board of directors. In addition, certain of our executive officers and directors
have a financial interest in Former Parent as a result of their beneficial ownership of Former Parent’s equity. These relationships
and financial interests may create, or may create the appearance of, conflicts of interest when these directors and executive
officers face decisions that could have different implications for Former Parent than for Grindrod Shipping.
As Grindrod Shipping builds its stand-alone
information technology infrastructure and transitions its data to its own systems, it could incur substantial additional costs
and experience business interruptions.
Grindrod Shipping continues to install and
implement its stand-alone information technology infrastructure to support its critical business functions, including accounting
and reporting, inventory control and distribution. Grindrod Shipping may incur interruptions in business operations if it cannot
transition effectively from Former Parent’s existing transactional and operational systems and data centers. Grindrod Shipping
may not be successful in implementing new systems and transitioning data, and it may incur substantially higher costs for implementation
than anticipated. Operational interruptions that result from the implementation of these new systems and replacement of Former
Parent’s information technology services, or our failure to implement the new systems and replace Former Parent’s services
successfully or on the timetable contemplated for such transition, could significantly increase the costs associated with the transition,
disrupt Grindrod Shipping’s business and could have a material adverse effect on its business, financial condition, cash
flows and results of operations. In addition, if Grindrod Shipping is unable to replicate or transition certain systems, its ability
to comply with regulatory requirements could be impaired.
Tax Risks
We may have to pay tax on U.S. source
income, which would reduce our earnings.
Under the Internal Revenue Code of 1986, as
amended, or the Code, 50% of the gross income derived by a non-U.S. corporation from, or in connection with, the use (or hiring
or leasing for use) of a vessel, or the performance of services directly related to the use of a vessel that is attributable to
transportation that either begins or ends, but that does not both begin and end, in the United States is characterized as U.S.
source international transportation income. U.S. source international transportation income generally is subject to a 4% U.S. federal
income tax without allowance for deduction or, if such U.S. source international transportation income is effectively connected
with the conduct of a trade or business in the United States, or Effectively Connected Income, U.S. federal corporate income tax
(imposed at a 21% rate) as well as a branch profits tax (presently imposed at a 30% rate on effectively connected earnings), unless
the non-U.S. corporation qualifies for the statutory exemption from tax under Section 883 of the Code, or the Section 883
Exemption. The Section 883 Exemption applies separately to us and each of our subsidiaries that is treated as a corporation
for U.S. federal income tax purposes and earns U.S. source international transportation income (which we refer to below as our
“applicable subsidiaries”).
It is uncertain whether we will qualify for
the Section 883 Exemption for any taxable year. If we qualify for the Section 883 Exemption for a taxable year, then
we expect that each of our applicable subsidiaries that is more than 50%-owned (by value) by us for at least half of the number
of days in such taxable year would also qualify for the Section 883 Exemption for such taxable year. We believe that we will
qualify for the Section 883 Exemption if (i) our ordinary shares satisfy certain listing and trading volume requirements
and (ii) less than 50% of our ordinary shares are owned, actually or constructively under specified share attribution rules,
on more than half the number of days in the relevant taxable year, by persons who each own 5% or more of our ordinary shares, or
5% shareholders. However, we expect that one or more 5% shareholders may own 50% or more of our ordinary shares for more than half
of the number of days during our current taxable year and/or future taxable years. In this case, we would not be eligible for the
Section 883 Exemption unless we can establish that a sufficient proportion of such 5% shareholders are “qualified shareholders”
for purposes of the Section 883 Exemption so as to preclude other persons who are 5% shareholders from owning 50% or more
of our ordinary shares for more than half the days during the relevant taxable year. We would be required to satisfy certain substantiation
requirements regarding the identity of any 5% shareholders that are “qualified shareholders”, and these substantiation
requirements are onerous and there is no assurance that we would be able to satisfy them. In particular, we would be required to
obtain certifications of “qualified shareholder” status from any 5% shareholders that we rely upon for this purpose,
which our 5% shareholders may not be willing or able to provide. Given the factual nature of the issues involved and the practical
uncertainties, we can give no assurances as to our or our applicable subsidiaries’ qualification for the exemption from tax
under Section 883 of the Code for any taxable year. Furthermore, our board of directors could determine that it is in our
best interests to take an action that would result in our and our applicable subsidiaries not being able to qualify for the exemption
from tax under Section 883 of the Code in the future. Even if we qualify for the Section 883 Exemption for a taxable
year, our applicable subsidiaries that are not more than 50%-owned (by value) by us for at least half of the number of days in
such taxable year may not qualify for the Section 883 Exemption. There can be no assurance that we or any of our applicable
subsidiaries will qualify for the Section 883 Exemption for any taxable year.
If we or our subsidiaries were not entitled
to the Section 883 Exemption for any taxable year, we and our subsidiaries generally would be subject to a 4% U.S. federal
income tax with respect to our and our subsidiaries’ gross U.S. source international transportation income or, if such U.S.
source international transportation income were Effectively Connected Income, U.S. federal corporate income tax as well as a branch
profits tax for any such taxable year or years. Our and our subsidiaries’ failure to qualify for the Section 883 Exemption
could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.
Please see the discussion under “Item 10. Additional Information—Taxation—Material U.S. Federal Income Tax
Considerations—Taxation of Operating Income”.
U.S. tax authorities could treat us as
a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
In general, a non-U.S. entity treated as a
corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company,” or a PFIC,
for U.S. federal income tax purposes, for any taxable year, if, taking into account certain look-through rules, at least 75% of
its gross income for such taxable year consists of certain types of “passive income,” or at least 50% of the average
value of the entity’s assets during such taxable year produce or are held for the production of those types of “passive
income”. For purposes of these tests, “passive income” generally includes dividends, interest, capital gains
and rents derived other than in the active conduct of rental business. For purposes of these tests, income earned from the performance
of services would not constitute “passive income”. By contrast, rental income generally would constitute “passive
income” unless it were treated as derived in the active conduct of a trade or business under applicable rules.
U.S. shareholders of a PFIC are subject to
a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive
from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC, as well as additional
U.S. federal income tax filing obligations.
Based on our current and projected income,
assets and methods of operation, we believe that we should not be treated as a PFIC with respect to our current taxable year and
we expect that we should not become a PFIC for the foreseeable future. In this regard, we expect that substantially all of the
vessels in our Fleet will be engaged in time or voyage chartering activities and we intend to treat our income from those activities
as non-passive income, and the vessels engaged in those activities as non-passive assets, for PFIC purposes.
There is a significant amount of legal authority
consisting of the Code, legislative history, and U.S. Internal Revenue Service, or IRS, pronouncements and administrative rulings
supporting our position that the income derived from time charters and voyage charters constitutes services income (rather than
rental income) for other tax purposes. There is, however, no direct legal authority under the PFIC rules addressing whether income
from time chartering activities is services income or rental income. Moreover, it should be noted that there is also authority
which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance
can be given that the IRS or a court of law will accept our position and there is a risk that the IRS or a court of law could determine
that we are a PFIC. In addition, no assurance can be given as to our current and future PFIC status, because such status requires
an annual factual determination based upon the composition of our income and assets for the entire taxable year. In particular,
because the total value of our assets for purposes of the asset test described above will generally be calculated using the market
price of our ordinary shares, our PFIC status may depend in large part on the market price of our ordinary shares. Accordingly,
fluctuations in the market price of the ordinary shares may cause us to become a PFIC. In addition, the composition of our income
and assets will be affected by how, and how quickly, we use the cash generated by our business operations and any net proceeds
that we receive from any future financing or capital transactions. The PFIC determination also depends on the application of complex
U.S. federal income tax rules concerning the classification of our assets and income for this purpose, and these rules are uncertain
in some respects. Further, the PFIC determination is made annually and our circumstances or the nature of our operations may change.
Accordingly, there can be no assurance that we will not be classified as a PFIC for the current taxable year or any future taxable
year, and no ruling from the IRS or opinion of counsel has been issued or has been or will be sought with respect to our potential
status as a PFIC.
If the IRS were to determine that we are a
PFIC for any taxable year in which a U.S. shareholder owned our ordinary shares, the U.S. shareholder generally would be subject
to special tax rules resulting in increased tax liability with respect to any “excess distribution” the U.S. shareholder
receives on, and any gain the U.S. shareholder realizes from a sale or other disposition (including a pledge) of, our ordinary
shares, unless a “mark-to-market” election is available and a U.S. shareholder makes such election with respect to
the ordinary shares. In addition, if we were treated as a PFIC for any taxable year in which a U.S. shareholder owned our ordinary
shares, the U.S. shareholder would be required to file IRS Form 8621 with the U.S. shareholder’s U.S. federal income
tax return for each year to report the U.S. shareholder’s ownership of such ordinary shares. Please see the discussion under
“Item 10. Additional Information—Taxation—Material U.S. Federal Income Tax Considerations—U.S. Federal
Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences”.
We may be subject to taxes, which may
reduce our cash available for distribution to our shareholders.
We, our subsidiaries and our joint ventures
may be subject to tax in the jurisdictions in which we are organized or operate, reducing the amount of cash available for distribution.
In computing our tax obligation in these jurisdictions, we are required to take various tax accounting and reporting positions
on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. We
cannot assure you that upon review of these positions the applicable authorities will agree with our positions. A successful challenge
by a tax authority could result in additional tax imposed on us or our subsidiaries, further reducing the cash available for distribution.
In addition, changes in our operations or ownership could result in additional tax being imposed on us or our subsidiaries in jurisdictions
in which operations are conducted.
Our wholly owned subsidiary, GSPL, is incorporated
under the laws of Singapore and has been accepted under the Singapore Approved International Shipping Enterprise Scheme, or the
Singapore AIS Scheme, pursuant to which it has the benefit of various tax exemptions in Singapore. In particular, qualifying income,
including income from the operation of foreign-flagged vessels plying in international waters, would be tax exempt in Singapore.
Other benefits under the Singapore AIS Scheme include the automatic withholding tax exemption on qualifying payments made in respect
of qualifying loans entered into on or before December 31, 2026 to finance the purchase or construction of Singapore-flagged
and foreign-flagged vessels, subject to conditions. The Singapore AIS Scheme is awarded for an initial period of 10 years,
subject to an interim review of compliance after five years, and may be extended at the end of the term. GSPL’s initial Singapore
AIS Scheme expired in 2014 and has been renewed through 2024 subject to compliance with specified conditions. There is no assurance
that for any subsequent renewal we will be able to meet the qualifying conditions for the Singapore AIS Scheme at the time of renewal,
that the Maritime and Port Authority of Singapore will grant us such approval, or that the Singapore AIS Scheme will continue to
be available under Singapore laws. In the event that our award of the Singapore AIS Scheme is not renewed, we will no longer enjoy
the tax exemptions described above, and unless we are able to utilize other similar tax exemption initiatives in the future, whether
in Singapore or otherwise, our income may be subject to Singapore corporate income tax. As such, our business, financial condition,
results of operations and prospects may be materially and adversely affected if our acceptance under the Singapore AIS Scheme is
revoked, suspended, not renewed or otherwise terminated.
Grindrod
Shipping shareholders may be subject to Singapore taxes.
Singapore tax law may differ from the tax laws
of other jurisdictions, including the United States. Gains from the sale of Grindrod Shipping ordinary shares by a person not tax
resident in Singapore may be taxable in Singapore if such gains are considered as being part of the profits of any business carried
on in Singapore. For additional information, see “Item 10. Additional Information—Taxation—Singapore Tax
Considerations” in this annual report. You should consult your tax advisors concerning the overall tax consequences of acquiring,
owning or selling the Grindrod Shipping ordinary shares.
ITEM 4.
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INFORMATION ON THE COMPANY
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A.
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History and Development of the Company
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Grindrod Shipping is the holding company which
acquired the international drybulk and tanker shipping group of Former Parent, whose origins date back to the formation of a shipping
and related business in 1910 by Captain John Edward Grindrod. Grindrod Shipping was incorporated as a private company, Grindrod
Shipping Holdings Pte. Ltd., in Singapore on November 2, 2017 under the Singapore Companies Act. With effect from April 25,
2018, Grindrod Shipping Holdings Pte. Ltd. was converted from a private company to a public company incorporated in accordance
with the laws of Singapore and it changed its name to Grindrod Shipping Holdings Ltd.
Former Parent was involved in various sectors
of the shipping and transport industry for more than 100 years. The drybulk business in its current form under the IVS brand
dates back to 1976 and was acquired by Former Parent in 1999. The modern day tankers business under the Unicorn brand dates back
to 1973 when Former Parent acquired a tanker of approximately 20,000 dwt.
In connection with the Spin-Off, Former Parent
made a pro rata distribution to all of Former Parent’s ordinary shareholders who received Grindrod Shipping ordinary
shares, with shareholders of Grindrod Shipping holding Grindrod Shipping ordinary shares in the same proportion as they held their
Former Parent ordinary shares immediately prior to the consummation of the Spin-Off.
Our principal executive offices are located
at #03-01 Southpoint, 200 Cantonment Road, Singapore, 089763, our telephone number at that location is +65 6323 0048 and our
website is http://www.grinshipping.com. The SEC maintains a website, http://www.sec.gov, that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC, including Grindrod Shipping. The information
contained on our website is not incorporated by reference in this annual report.
From time to time, we have sold vessels in
the ordinary course. For a discussion of our principal capital expenditures, see “Item 5. Operating and Financial Review
and Prospects—Liquidity and Capital Resources”.
We are an international shipping company that
owns, charters-in and operates a fleet of drybulk carriers and tankers. We own some of our vessels directly and some of our vessels
in a consolidated joint venture arrangement.
We operate two businesses primarily in: the
drybulk carriers business, which is further divided into handysize, supramax/ultramax, and other operating segments; and the tankers
business, which is further divided into medium range tankers, small tankers, and other operating segments. Activities that do not
relate to these business segments are accumulated in an “unallocated” segment. Our business also included a container
business held through OACL and a bunker business held through Unicorn Bunker, both of which were sold in the first quarter of 2018.
See “Item 5. Operating and Financial Review and Prospects—The Spin-Off”.
In the drybulk business we are primarily focused
on the handysize and supramax/ultramax segments. We have 15 handysize drybulk carriers and 16 supramax/ultramax drybulk carriers
in our Fleet with sizes ranging from 28,240 dwt to 62,660 dwt. Our drybulk carriers transport a broad range of major and minor
bulk and breakbulk commodities, including ores, coal, grains, forestry products, steel products and fertilizers, along worldwide
shipping routes, and are currently employed in pools of similarly sized vessels or in the spot market.
In the tankers business we are focused on the
medium range tanker segment and also operate in the small tanker segment. We have three medium range tankers and one small tanker
in our Fleet with sizes ranging from 16,900 dwt to 50,140 dwt. Our tankers carry petroleum products, which include both clean products,
such as petrol, diesel, jet fuel and naptha, and dirty products, such as heavy fuel oil. Our tankers do not carry crude oil. Our
tankers are also classed to carry low hazard chemical products, which include liquid bulk vegetable oils. Our tankers are currently
commercially managed by Vitol, one of our former joint venture partners, and under various other arrangements, including charter-out,
bareboat charter, under COA or in the spot market.
As of the date of this annual report, we operate
our Fleet of 35 vessels consisting of 23 owned drybulk carriers, eight long-term chartered-in drybulk carriers and four owned tankers
(see the below Fleet table for details). We regard vessels owned by the joint ventures in which we participate as owned vessels
in our Fleet. As of the date of this annual report, our Fleet on the water has a total drybulk carrying capacity of approximately
1.4 million dwt and a total liquid bulk carrying capacity of approximately 167,000 dwt.
We regard chartered-in vessels as part of our
Fleet if the period of the charter that we initially commit to is 12 months or more. Once we have included such chartered-in
vessels in our Fleet, we will continue to regard them as part of our Fleet until the end of their chartered-in period, including
any period that the charter has been extended under an option, even if at a given time the remaining period of their charter may
be less than 12 months. Additionally, certain of our chartered-in vessels have purchase options.
In addition to our Fleet, we will from time
to time charter-in additional vessels for initial committed periods of less than 12 months. We may do this entirely for our
own profit or loss, or we may do this in respect of pools that we commercially manage in which event the profit or loss associated
with the vessel will be for the account of the pool. From time to time we have, on average, chartered between 10 to 25 vessels
on a short-term basis to take advantage of opportunities in the market and to help service our cargo contracts alongside our Fleet.
In previous years we partnered with global
partners to operate a portion of our drybulk carriers through joint ventures. For more information on the vessels previously held
through joint ventures and a description of the key terms of certain of these joint ventures, see the Fleet table and “—Our
Joint Ventures” below.
We have previously and expect in future from
time to time to contract for the construction of newbuilding vessels or the acquisition of newbuilding contracts. We have previously
contracted, and currently expect in the future to contract, to charter in, on delivery, newbuilding vessels under construction.
We may also acquire secondhand vessels.
From time to time, we may buy and sell vessels
when we consider market conditions make it appropriate to do so and if our tonnage requirements permit. We consider that our trading
of vessels involves both the acquisition of vessels at times when we perceive prices to be weak and the sale of vessels when values
rise. In determining when to acquire vessels we take into account our liquidity position, our expectation of fundamental developments
in the drybulk and tanker shipping sectors, the level of liquidity in the secondhand and charter markets, the cash flow earned
by the vessel in relation to its value, the vessel’s condition and technical specifications with particular regard to fuel
consumption, expected remaining useful life, the credit quality of the charterer and duration and terms of charter contracts for
vessels acquired with charters attached, as well as the overall diversification of our Fleet and customers.
We operate two drybulk commercial pools for
which we earn pool management fees from third-party vessel owners and the drybulk carrier joint ventures. We do not operate any
tanker commercial pools. We also provide commercial management for the drybulk carrier joint venture. We also technically manage
the majority of the vessels that we own directly or through joint ventures.
In addition, we operate a service in the drybulk
sector where we ship bulk cargo in parcel sizes that may be significantly less than the full carrying capacity of a vessel, or
even less than the carrying capacity of an individual hold on a vessel. Where we load more than one parcel of bulk cargo in a hold
we will separate the parcels using steel plates and other dunnage materials. Wherever it makes commercial sense to do so, we use
vessels from our Fleet to carry this type of cargo. We also will source vessels off the spot market to carry the cargo. We have
operated this service for more than 40 years, with a consistent customer base for most or all of this time.
Our Competitive Strengths
We believe that we possess a number of competitive
strengths, including:
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•
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Established shipping track record in key geographic markets. The Grindrod Shipping business has been involved in various sectors of the shipping industry for more than 100 years. With a core presence and primary offices in Africa and Asia, we maintain a strong focus and local business relationships with critical end-users in geographic regions that have been key to drybulk and tanker demand growth.
|
|
•
|
Experienced management team. Our management team is led by Martyn Wade, our Chief Executive Officer, who has 43 years of international shipping experience and has worked for vessel owners, operators and brokers in London, Johannesburg, New York and Singapore. Mr. Wade is a member of the Baltic Exchange Limited. Our management team collectively has over 200 years of combined shipping experience, and has developed industry relationships with charterers, lenders, shipbuilders, insurers and other industry participants.
|
|
•
|
Significant drybulk in-house commercial and technical management expertise. We commercially
and technically manage the vast majority of our drybulk fleet in-house which has generally enabled us to consistently enjoy
greater than 97% fleet utilization. We also operate two drybulk commercial management pools in the handysize and supramax/ultramax
sectors that have historically demonstrated strong performance, on average, relative to industry benchmarks.
|
|
•
|
Vessel employment supported by cargo contracts and strong relationships with key counterparties. We operate a significant base of cargo contracts and we believe that our focus on cargo contracts supports the employment and regional positioning of our vessels to better enable us to mitigate spot market volatility while still allowing us to capture upside potential in stronger charter markets. We have also established strong long-term global relationships with shipping companies, charterers, shipyards, trading houses, brokers and commercial shipping lenders.
|
|
•
|
Quality fleet built to high specifications. We operate a quality fleet of drybulk carrier and tanker vessels with an average age of approximately seven years. Our drybulk carriers have predominantly been built in Japan and our tankers have been predominantly built in South Korea. We believe that owning and maintaining a quality fleet of Japanese and South Korean vessels reduces off-hire time and operating costs, improves safety and environmental performance and provides us with a competitive advantage in securing employment for our vessels. Additionally, we believe that quality vessels built in Japan and South Korea are able to retain value over market cycles. Our quality fleet will also better allow us to cost effectively comply with increasing environmental regulations that may be applicable to our vessels.
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|
•
|
Long-standing risk management model and liquidity model. We operate a risk management model and a liquidity model that have been in place for many years and quantify the extent to which our financial position may be at risk to freight market movements and assess our liquidity position under various scenarios. We utilize these models to evaluate and attempt to mitigate market risk during any portion of a shipping cycle with a primary focus on maintaining acceptable levels of equity and liquidity in any potential market downturn.
|
Business strategies
Our primary objectives are to profitably grow
our business, while prioritizing risk management and balance sheet flexibility, and to maintain and enhance our position as a successful
owner and operator of drybulk carrier and tanker vessels. The key elements of our strategy are:
|
•
|
Primarily focus on handysize and supramax/ultramax drybulk market. We intend to continue focusing our operations in the key drybulk market segments in which we have historically excelled. Accordingly, we have materially reduced our exposure to the tanker sector and do not anticipate further growth in the sector at this time. We may adjust our exposure in each sector depending on market conditions and changes in our overall strategy.
|
|
•
|
Maintain balance sheet flexibility. We intend to take a prudent approach in managing our Fleet to ensure balance sheet flexibility, consistent with our risk management model and our liquidity model, remains a priority at all times. We currently intend to retain the majority of cash flow to allow us to strengthen our liquidity and reduce debt, and to adopt a cautious approach to fleet expansion.
|
|
•
|
Utilize a dynamic approach to fleet expansion. We believe that our approach to fleet management, which utilizes a combination of owned vessels, long-term charter-in vessels and short-term charter-in vessels, allows us significant flexibility to adjust our market exposure depending on market conditions. Our existing long-term contracts typically contain charter extension options and/or fixed price purchase options that can provide imbedded potential upside in stronger market conditions, while our short-term vessels often contain charter extension options as well. We intend to opportunistically exercise these options when market conditions make this attractive.
|
|
•
|
Leverage our in-house commercial management expertise. We intend to continue to optimize the employment of our drybulk carriers through participation in our in-house pools and management, which historically has provided us with the opportunity to maximize charter revenues while mitigating risk through a combination of charters, FFA’s and COA’s, which provide a stable base of cargoes around which we operate our Fleet.
|
|
•
|
Continue to grow our relationships with key industry players. We intend to continue to grow our relationships with key industry players in Japan which has historically provided us with access to attractive financing terms and high quality vessels for charters and acquisitions.
|
Our Fleet
The following tables set forth certain summary
information regarding our Fleet as of the date of this annual report:
Drybulk Carriers — Owned Fleet (23 Vessels)
Vessel Name
|
|
Built
|
|
Country of
Build
|
|
DWT
|
|
|
Ownership
Percentage
|
|
|
Type of Employment
|
Handysize – Eco
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IVS Tembe(2)
|
|
2016
|
|
Japan
|
|
|
37,740
|
|
|
|
68.86
|
%
|
|
IVS Commercial(6)
|
IVS Sunbird(2)
|
|
2015
|
|
Japan
|
|
|
33,400
|
|
|
|
68.86
|
%
|
|
IVS Handysize Pool
|
IVS Thanda(2)
|
|
2015
|
|
Japan
|
|
|
37,720
|
|
|
|
68.86
|
%
|
|
IVS Commercial(6)
|
IVS Kestrel(2)
|
|
2014
|
|
Japan
|
|
|
32,770
|
|
|
|
68.86
|
%
|
|
IVS Handysize Pool
|
IVS Phinda(2)
|
|
2014
|
|
Japan
|
|
|
37,720
|
|
|
|
68.86
|
%
|
|
IVS Commercial(6)
|
IVS Sparrowhawk(2)
|
|
2014
|
|
Japan
|
|
|
33,420
|
|
|
|
68.86
|
%
|
|
IVS Handysize Pool
|
Handysize
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IVS Merlion
|
|
2013
|
|
China
|
|
|
32,070
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Raffles
|
|
2013
|
|
China
|
|
|
32,050
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Ibis
|
|
2012
|
|
Japan
|
|
|
28,240
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Kinglet(7)
|
|
2011
|
|
Japan
|
|
|
33,130
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Magpie(7)
|
|
2011
|
|
Japan
|
|
|
28,240
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Orchard
|
|
2011
|
|
China
|
|
|
32,530
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Knot(7)
|
|
2010
|
|
Japan
|
|
|
33,140
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Sentosa
|
|
2010
|
|
China
|
|
|
32,700
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
IVS Kingbird
|
|
2007
|
|
Japan
|
|
|
32,560
|
|
|
|
100
|
%
|
|
IVS Handysize Pool
|
Supramax/Ultramax – Eco
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IVS Prestwick
|
|
2019
|
|
Japan
|
|
|
61,300
|
|
|
|
100
|
%
|
|
IVS Supramax Pool
|
IVS Okudogo
|
|
2019
|
|
Japan
|
|
|
61,330
|
|
|
|
100
|
%
|
|
IVS Supramax Pool
|
IVS Swinley Forest(2)
|
|
2017
|
|
Japan
|
|
|
60,490
|
|
|
|
68.86
|
%
|
|
IVS Supramax Pool
|
IVS Gleneagles(2)
|
|
2016
|
|
Japan
|
|
|
58,070
|
|
|
|
68.86
|
%
|
|
IVS Supramax Pool
|
IVS North Berwick(2)
|
|
2016
|
|
Japan
|
|
|
60,480
|
|
|
|
68.86
|
%
|
|
IVS Supramax Pool
|
IVS Bosch Hoek(2)
|
|
2015
|
|
Japan
|
|
|
60,270
|
|
|
|
68.86
|
%
|
|
IVS Supramax Pool
|
IVS Hirono(2)
|
|
2015
|
|
Japan
|
|
|
60,280
|
|
|
|
68.86
|
%
|
|
IVS Supramax Pool
|
IVS Wentworth(2)
|
|
2015
|
|
Japan
|
|
|
58,090
|
|
|
|
68.86
|
%
|
|
IVS Supramax Pool
|
Drybulk Carriers — Long-Term Charter-In Fleet (8
Vessels)
Vessel Name
|
|
Built
|
|
Country of
Build
|
|
DWT
|
|
|
Charter-In
Period
|
|
|
Type of Employment
|
Supramax/Ultramax – Eco
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IVS Atsugi(5)
|
|
2020
|
|
Japan
|
|
|
62,660
|
|
|
|
2022-24
|
(1)
|
|
IVS Supramax Pool
|
IVS Pebble Beach(5)
|
|
2020
|
|
Japan
|
|
|
62,660
|
|
|
|
2022-24
|
(1)
|
|
IVS Supramax Pool
|
IVS Phoenix
|
|
2019
|
|
Japan
|
|
|
61,470
|
|
|
|
2022-24
|
(1)
|
|
IVS Supramax Pool
|
IVS Hayakita(5)
|
|
2016
|
|
Japan
|
|
|
60,400
|
|
|
|
2023-26
|
(1)
|
|
IVS Supramax Pool
|
IVS Windsor
|
|
2016
|
|
Japan
|
|
|
60,280
|
|
|
|
2023-26
|
(1)
|
|
IVS Supramax Pool
|
IVS Pinehurst(5)
|
|
2015
|
|
Philippines(3)
|
|
|
57,810
|
|
|
|
2021-22
|
(1)
|
|
IVS Supramax Pool
|
IVS Crimson Creek
|
|
2014
|
|
Japan
|
|
|
57,950
|
|
|
|
2022
|
|
|
IVS Supramax Pool
|
IVS Naruo(5)
|
|
2014
|
|
Japan
|
|
|
60,030
|
|
|
|
2021-24
|
(1)
|
|
IVS Supramax Pool
|
Tankers – Owned Fleet (4 Vessels)
Vessel Name
|
|
Built
|
|
Country of
Build
|
|
DWT
|
|
|
IMO
Designation
|
|
Ownership
Percentage
|
|
|
Type of Employment
|
Medium Range Tankers – Eco
|
Matuku(7)
|
|
2016
|
|
South Korea
|
|
|
50,140
|
|
|
II,III
|
|
|
100
|
%
|
|
Bareboat Charter (Expires 2022)
|
Leopard Moon
|
|
2013
|
|
South Korea
|
|
|
50,000
|
|
|
III
|
|
|
100
|
%
|
|
Vitol Commercial(4)
|
Leopard Sun
|
|
2013
|
|
South Korea
|
|
|
50,000
|
|
|
III
|
|
|
100
|
%
|
|
Vitol Commercial(4)
|
Small Product Tankers
|
Breede
|
|
2009
|
|
China
|
|
|
16,900
|
|
|
II, III
|
|
|
100
|
%
|
|
Spot Market and COA
|
(1)
|
Expiration date range represents the earliest and latest redelivery periods due to extension options.
|
(2)
|
Owned through IVS Bulk Pte. Ltd., a subsidiary in which we have a 68.86% interest.
|
(3)
|
Constructed at Tsuneishi Cebu Shipyard, a subsidiary of Tsuneishi Shipbuilding of Japan.
|
(4)
|
Our eco product tankers, other than Matuku, are commercially managed by Mansel Pte. Ltd. Mansel, an affiliate of Vitol, procures shipping for various oil cargoes traded by Vitol.
|
(5)
|
Includes purchase options for Grindrod Shipping.
|
(6)
|
Commercially managed by Grindrod Shipping alongside the IVS Handysize Pool.
|
(7)
|
Each of IVS Knot, IVS Kinglet, IVS Magpie and Matuku has undergone
separate financing arrangements in which we sold the vessel but retained the right to control the use of the vessel for a
period up to 2030, 2031, 2031, and 2035 respectively, and we have an option to acquire the vessel commencing in 2021 for the
drybulk vessels and in 2022 for the tanker. We regard the vessels as owned since we have retained the right to control the
use of the vessel.
|
Employment of Our Fleet
We aim to manage our business in a manner
that achieves a balance between maximizing revenue opportunities and protecting against declines in revenue. We operate our vessels
in commercial pools, in the spot market, on long- and short-term time charters and on occasion on bareboat charters. In addition
to employing our vessels in these ways, we use FFAs and enter into COAs to manage our revenue risk and employment risk. Where
we carry cargo under COAs, we may utilize our Fleet to do so or we may utilize vessels that we short-term charter-in that are
not part of our Fleet. We currently employ our vessels primarily in the spot market or spot market-oriented pools and we do not
have a significant amount of fixed revenue cover.
Commercial Pools
To increase vessel utilization and thereby
revenue, we participate in commercial pools with similar modern well-maintained vessels. By operating a large number of vessels
as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while
achieving scheduling efficiencies. Pools employ experienced commercial managers and operators who have close working relationships
with customers and brokers, while technical management is performed by each vessel owner or procured from third parties. The managers
of the pools negotiate voyage charters and COAs and time charters of various lengths, usually less than 12 months, with customers.
The size and scope of these pools enable them to enhance vessel utilization rates for pool vessels by securing backhaul voyages
and COAs, thus generating higher effective TCE revenue than otherwise might be obtainable for vessels operating independently in
the spot market, while providing a higher level of service offerings to customers.
A pool aggregates the revenue and agreed expenses,
which are usually voyage related expenses, of all of the vessels in the pool and distributes the net earnings calculated on (i) the
number of pool points for the vessel, and (ii) the number of days the vessel was available to earn revenue for the pool in
a distribution period. Usually a single pool manager is responsible for both the administrative and commercial management of the
participating vessels, including marketing the pool, negotiating charters, including voyage charters, short duration time charters
and longer term COAs, conducting pool operations, including the distribution of pool cash earnings, and managing bunker purchases,
port charges and administrative services for the vessels. For these services the pool manager charges a fee, which may be a flat
rate per day per vessel in the pool, or a fixed percentage rate applied typically to the gross revenue earned by the pool, or a
combination of both. The pool participants remain responsible for all other costs including the financing, insurance, manning and
technical management of their owned vessels or payment of charter hire to the owners of chartered-in vessels they have entered
into the pool. For information regarding our accounting policies with respect to pool arrangements, see Note 2.18 to the audited
consolidated and combined financial statements.
In 2013, we established two drybulk commercial
management pools in the handysize and supramax/ultramax sectors that have each demonstrated an ability to outperform, on average,
relative to their industry benchmarks since their inception.
Our IVS Handysize Pool includes all of the
handysize vessels in our Fleet, including previously held through joint ventures, except for the three approximately 37,700 dwt
handysize vessels which are commercially managed as a group by the same in-house team that manages the IVS Handysize Pool. For
more information on the vessels previously held through joint ventures, see the Fleet table and “—Our Joint Ventures”
below. In addition, there are numerous other vessels that we have short-term chartered-in and currently three other vessels owned
by other vessel owners in the IVS Handysize Pool. This pool includes vessels of between approximately 28,000 dwt and 34,000 dwt,
and one vessel of approximately 38,000 dwt owned by another vessel owner (redelivered to the owner during 2020), and currently
trades primarily in the spot market. As pool managers we have the ability to contract pool vessels out on time charters for up
to 12 months. The net earnings allocated to vessels in the IVS Handysize Pool are distributed on the basis of (i) the
number of pool points for the vessel, which are based on vessel attributes such as cargo carrying capacity, fuel consumption and
construction characteristics, and (ii) the number of days the vessel was available to earn revenue for the pool in a distribution
period. While all of the vessels in the IVS Handysize Pool are generally similar in terms of pool point allocations, the number
of days a vessel is available to earn revenue varies on the basis of when a vessel enters or exits the pool or upon the occurrence
of other events such as drydocking or repairs. In light of the foregoing, this results in all vessels in the IVS Handysize Pool
receiving net earnings distributions that generally reflect actual availability for use in the pool.
Our IVS Supramax Pool includes all of the supramax/ultramax
vessels in our Fleet, including previously held through joint ventures. For more information on the vessels previously held through
joint ventures, see the Fleet table and “—Our Joint Ventures” below. There are no vessels owned by independent
third parties in this pool. This pool includes vessels of between approximately 57,800 dwt and 62,660 dwt and currently trades
in a combination of COAs and the spot market. As pool managers, we have the ability to contract pool vessels out on time charters
for up to 12 months. The net earnings allocated to the vessels in the IVS Supramax Pool are distributed on the basis of (i) the
number of pool points for the vessel, which are based on vessel attributes such as cargo carrying capacity, fuel consumption, and
construction characteristics, and (ii) the number of days the vessel was available to earn revenue for the pool in a distribution
period. While all of the vessels in the IVS Supramax Pool are generally similar in terms of pool point allocations, the number
of days a vessel is available to earn revenue for the pool varies on the basis of when a vessel enters or exits the pool or upon
the occurrence of other events such as drydocking or repairs. In light of the foregoing, this results in all vessels in the IVS
Supramax Pool receiving net earnings distributions that generally reflect actual availability for use in the pool.
During 2020, two owned medium range tankers
of approximately 40,000 dwt were entered into the Handy Tanker Pool operated by Maersk until they were sold. There are currently
57 other vessels in this pool owned by other vessel owners. This pool includes vessels of between approximately 29,000 dwt
and 40,250 dwt and currently operates primarily in the spot market. The net earnings allocated to vessels in the Handy Tanker
Pool are distributed on the basis of (i) the number of pool points for the vessel, which are based on vessel attributes such
as cargo carrying capacity, IMO class, age engine load settings and operational flexibility factors, such as the ability to enter
various harbors and ports or pass through canals and straits, and (ii) the number of days the vessel was available to earn
revenue for the pool in a distribution period. While all of the vessels in the Handy Tanker Pool are generally similar in terms
of pool point allocations, the number of days a vessel is available to earn revenue for the pool varies on the basis of when a
vessel enters or exits the pool, or upon the occurrence of other events such as drydocking or repairs or the vessel no longer meeting
the qualifying criteria to participate in the pool. In light of the foregoing, this results in all vessels in the Handy Tanker
Pool receiving net earnings distributions that generally reflect actual availability for use in the pool.
During 2020, one of our small product tankers
was entered into the Brostrom Tanker Pool operated by Maersk until it was sold. This pool includes vessels of between approximately
12,700 dwt and 18,800 dwt and operated primarily in the spot market during 2020. The net earnings allocated to vessels
in the Brostrom Tanker Pool are distributed on the basis of (i) the number of pool points for the vessel, which are based
on vessel attributes such as cargo carrying capacity, age and operational flexibility factors, such as the ability to enter various
harbors and ports or pass through canals and straits, and (ii) the number of days the vessel is available to earn revenue
for the pool in a distribution period. While all of the vessels in the Brostrom Tanker Pool are generally similar in terms of pool
point allocations, the number of days a vessel is available to earn revenue for the pool varies on the basis of when such vessels
enter or exit the pool or upon the occurrence of other events such as drydocking or repairs or the vessel no longer meeting the
qualifying criteria to participate in the pool. In light of the foregoing, this results in all vessels in the Brostrom Tanker Pool
receiving net earnings distributions that generally reflect actual availability for use in the pool. As of the date of this annual
report, we do not have any small tankers operating in this pool.
Spot Market
When we refer to a vessel operating in the
spot market, we mean that we do not have long-term contracted employment for that vessel. The vessel’s commercial manager
or the pool manager, as applicable, seeks employment for these vessels on a day-to-day basis. The spot market includes voyage charters.
A voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per
ton of cargo or a specified total amount. Under voyage charters, we pay specific voyage expenses such as port, canal and bunker
costs. The spot market also includes time charters of a short duration. Shipping rates are volatile and also fluctuate on a seasonal
and year-to-year basis, and operating in the spot market exposes us to this volatility more than if we had long-term fixed contracted
revenue.
In addition, we may enter long-term charters
or COAs where the rate we charge varies according to fluctuations in the shipping market. Although these types of contracts run
over a longer period, the charter rates may be reset at the start of each voyage or on a monthly or quarterly or other interval.
A number of industry participants produce daily assessments of the spot market rates and indices are produced to reflect the changes
in the spot market over time based on these assessments. Accordingly, these contracts are generally referred to as “index-linked”
contracts. Like spot market contracts, index-linked contracts are also exposed to the volatility in the shipping markets. The Baltic
Exchange is the primary producer of these indices.
Market fluctuations derive from imbalances
in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels
operating in the spot market generate revenue that is less predictable than those under longer term time charters or those serving
fixed rate COAs, but operating in the spot market may enable us to capture increased profit margins during periods of improvements
in charter rates. As the costs of our Fleet are typically of a long-term, fixed nature, downturns in the spot markets and in the
drybulk or tanker industries generally would result in a reduction in profit margins.
Our three approximately 37,700 dwt handysize
vessels are currently primarily employed in the spot market and the vessels in the IVS Handysize Pool, are currently also employed
in the spot market. The vessels in the IVS Supramax Pool currently trade in a combination of COAs and the spot market.
Commercial Management
We own three medium range tankers of approximately
50,000 dwt, two of which were previously owned through a joint venture with Vitol. These two medium range tankers are commercially
managed by Mansel (an affiliate of Vitol that procures shipping for oil cargoes traded by Vitol) and are currently operated in
the spot market and on Vitol traded cargoes.
We commercially manage one approximately 16,900 dwt
tanker, which primarily trades around the southern African coast, fulfilling obligations we have under COAs, as well as the spot
cargo market.
As noted above, our three approximately 37,700 dwt
handysize vessels are commercially managed as a group by the same in-house team that manages the IVS Handysize Pool and currently
operate primarily in the spot market.
Time Charters
Time charters provide a fixed and stable cash
flow for a known period of time. Time charters also mitigate in part the volatility and seasonality of the spot market business.
We may employ vessels under longer term time charter contracts as part of our overall management of our revenue and risks. We may
also enter into time charter contracts with profit sharing agreements, which enable us to benefit when the spot market rates increase.
Bareboat Charter
One of our medium range tanker vessels is bareboat
chartered out until 2022.
Our Joint Ventures
The following descriptions are only a summary
of the material provisions of our material joint ventures and are qualified in their entirety by reference to the copies of the
joint venture agreements and amendments thereto, which are included as exhibits to this annual report.
IVS Bulk Pte. Ltd.
Prior to February 14, 2020, we, through our
wholly owned subsidiary GSPL, owned an approximately 33.5% interest in IVS Bulk Pte. Ltd., or IVS Bulk, a joint venture with
Sankaty European Investments III S.à.r.l, or Sankaty, and Regiment Capital Ltd, or Regiment. Effective February 14,
2020, we increased our ownership to 66.75% as discussed below. Effective February 14, 2020, the financials of IVS Bulk are consolidated
into our financial statements following the acquisition of the additional 33.25% rather than being accounted for under the equity
accounting method, as had previously been the case. IVS Bulk owns 12 drybulk carriers, consisting of six handysize vessels and
six supramax/ultramax vessels. We serve as the commercial and technical manager for these vessels and have employed the three smaller
handysize vessels in our IVS Handysize Pool and commercially manage the three approximately 37,700 dwt handysize vessels alongside
that pool and have employed the supramax/ultramax vessels in our IVS Supramax Pool, for which we are paid fees by IVS Bulk. Under
the IVS Bulk shareholder’s agreement, profits are paid to the shareholders pro-rata, subject to certain priority provisions
set forth in the shareholder’s agreement.
In addition to our equity interest in IVS Bulk,
as of December 31, 2018, an amount of $9.2 million was outstanding under a loan GSPL made to IVS Bulk, which bears interest at
15.0% per year. During 2019, GSPL sold a portion of this loan at face value to Sankaty, and, as of December 31, 2019, an amount
of $2.7 million was outstanding under this loan. This loan was repaid on February 13, 2020.
The IVS Bulk joint venture was initially
scheduled to expire on December 31, 2018. However, the termination date was extended into 2020 and in the first quarter of 2020
we further restructured the joint venture. On February 13, 2020, IVS Bulk refinanced the two credit facilities of its subsidiaries
with two new senior secured loans, one in the amount of approximately $114.1 million and another in the amount of approximately
$13.1 million, totaling approximately $127.2 million, repayable in February 2025. On the same day, our wholly owned subsidiary
GSPL drew down the full amount available under a new $35.8 million financing facility to partly fund the acquisition of Regiment’s
interests, and IVS Bulk redeemed, pro rata, $7.7 million of its preferred equity and repaid an $8.3 million loan from Sankaty
and the $2.7 million loan from GSPL. Grindrod Shipping is included as a joint and several borrower together with IVS Bulk under
the $114.1 million facility, as an alternative to Grindrod Shipping providing a guarantee to the lenders under that facility.
Grindrod Shipping has provided an undertaking to Sankaty that it will not directly borrow under this facility, and to the extent
it has not borrowed under this facility but is nevertheless required, as a joint and several borrower, to make payments to the
lenders, Sankaty has provided Grindrod Shipping with an indemnity for its share of such payment, so that as between Grindrod Shipping
and Sankaty the net payment is borne in proportion to each of our shareholding in IVS Bulk. See “Item 5. Operating
and Financial Review and Prospects—Liquidity and Capital Resources—Loan Agreements”.
Effective February 14, 2020, we acquired all
of Regiment’s 33.25% ordinary and preferred equity in IVS Bulk for a combined amount of $44.1 million, increasing our interest
to 66.75%, and we entered into a new shareholders’ agreement with Sankaty, the remaining partner, that grants us control
of key aspects of the corporate governance of IVS Bulk and, as a result, as noted above, the financials of IVS Bulk are consolidated
into our financial statements following the acquisition of the additional 33.25% rather than being accounted for under the equity
accounting method, as has previously been the case.
The new shareholders’ agreement does
not contain a firm expiration date. On February 14, 2021 the shareholders acquired certain rights relating to the sale of the shares
or assets of the company. In this regard, on and from such date, Sankaty is entitled to sell all of its shares in IVS Bulk to GSPL,
based on an agreed pricing mechanism. Should GSPL elect not to purchase those shares, GSPL is entitled to initiate a termination
of the joint venture through the sale of the vessels. Upon termination, GSPL has a right of first refusal to purchase the vessels
owned by IVS Bulk at an independently determined market value. If GSPL does not purchase the vessels, Sankaty will have the right
to purchase the vessels at the same price offered to GSPL. If the vessels are not sold to GSPL or Sankaty, the vessels will be
sold in the open market. The proceeds from any vessel sales will be applied to any outstanding third party liabilities, then to
repay any excess contributions by the shareholders, and thereafter as dividends, subject to certain restrictions.
On December 1, 2020, a loan of $4.0 million
provided by GSPL to IVS Bulk was converted into equity in the form of “A Class” shares in line with the new shareholders
agreement. The loan was initially provided on September 30, 2020, with interest calculated at LIBOR plus 3.1%. The transaction
increased GSPL’s shareholding by 2.11% in IVS Bulk from 66.75% to 68.86%.
Leopard Tankers Pte. Ltd.
As of December 31, 2020, we owned a 50% interest
in Leopard Tankers Pte. Ltd., or Leopard Tankers, a former joint venture with Vitol, or our joint venture partner. Leopard
Tankers owned four 50,000 dwt tankers, which were commercially managed by Mansel, an affiliate of Vitol, which received a
management fee. This joint venture terminated and we acquired two medium range “eco” tankers from the joint venture,
namely Leopard Sun and Leopard Moon, in January and February 2019, respectively, and our joint venture partner acquired
the remaining two vessels from Leopard Tankers in February and March 2019. The financial results of Leopard Sun and Leopard
Moon are consolidated into our financial statements following delivery of these vessels to us. Leopard Tankers Pte. Ltd. and
its subsidiaries are in the process of being wound up.
Management of Our Business
General management
Overall responsibility for the oversight of
the management of our company rests with our board of directors. We do all of the financial and administrative management of our
business ourselves, contracting in human resource, financial, legal, tax and other specialist advice from reputable, arm’s
length service providers when required. We and our wholly owned subsidiary GSSA each entered into a transitional services agreement
with Former Parent in connection with the Spin-Off, under which Former Parent provides to us and our subsidiaries, among other
things, corporate secretarial services, internal audit and information technology services. The corporate secretarial and internal
audit services were terminated during 2020 and the information technology services were terminated in January 2021. We and our
wholly owned subsidiary GSSA each entered a related licensing agreement in respect of the use of certain intellectual property
of Former Parent through June 2021 and GSSA remains party to a property lease agreement subject to termination on short-term notice.
Commercial management
Decisions about how to commercially employ
our Fleet, and general commercial and strategic decisions relating to the conduct of our business, including participation in joint
ventures, are made by our own management and employees, under guidance and authority from our board of directors in accordance
with our governance framework.
Technical Management
We technically manage in-house the majority
of our vessels that we own directly or through joint ventures. We currently employ a team of 14 experienced and qualified managers
plus 21 support staff in Singapore, Durban and Manila. This team includes four master mariners and eight Class 1 marine engineers
who perform superintendent and technical management functions for the in-house managed vessels. Our technical management team is
responsible for the technical operation and upkeep of these vessels, including procurement, crewing, maintenance, repairs and dry
dockings, maintaining required vetting approvals and relevant inspections, and ensuring that our vessels under in-house management
comply with the requirements of classification societies, as well as relevant government, flag state, environmental and other regulations.
A majority of the crews we employ are sourced
from third-party crewing providers with whom we contract directly for the supply of crews to the vessels we manage in-house. Our
technical team also operates the Grindrod Shipping Training Academy located in Durban from where we source some of our crewing
requirements.
In addition, our in-house technical team also
oversees the third-party technical managers who we have contracted to carry out technical management functions for the balance
of our Fleet. Currently, we use one outside technical management provider, LSC Ship Management, or LSC. LSC technically manages
the two vessels we acquired from our former joint venture with Vitol.
Under the current technical management agreement
with LSC, the third-party technical managers are responsible for the technical operation and upkeep of our vessels, including crewing,
if specified, maintenance, repairs and dry dockings, maintaining required vetting approvals and relevant inspections, and to ensure
our vessels under their management comply with the requirements of classification societies, as well as relevant government, flag
state, environmental and other regulations and each vessel subsidiary pays the actual cost associated with the technical management
and an annual management fee for the relevant vessel.
The management agreement with the third-party
technical manager is cancelable by us or the third-party technical manager for any reason at any time upon 60 days’
prior written notice to the other. Upon termination we are generally required to cover actual crew support costs and severance
costs and pay a management fee for an additional three months. We may be required to obtain the consent of any applicable charterer
and from some of our lenders before we appoint a new manager, however, such consent may not be unreasonably withheld.
Separately, we have one tanker chartered out
on bareboat charter, under the terms of which the charterers are obligated to conduct the technical management of the vessel which
they do through ASP Ship Management Singapore Pte. Ltd., the third-party managers.
Our Customers
We believe that developing strong relationships
with the end users of our services allows us to better satisfy their needs with appropriate vessels and solutions. A prospective
customer’s financial condition, creditworthiness, and reliability track record are important factors in negotiating our vessels’
employment. Our customers with whom we contract as commercial managers of our own, our joint venture partners’ and third
parties’ drybulk carriers and tankers include other shipping companies, international commodity trading houses, mining companies,
industrial manufacturing companies, major oil companies, and traders of grains, steel and forestry products.
For the years ended December 31, 2020, 2019,
2018 and 2017, no customers accounted for 10% or more of our drybulk business revenue and for the year ended December 31, 2016,
one customer accounted for 10% or more of our drybulk business revenue in the amount of approximately $40.9 million. For the year
ended December 31, 2020, four customers accounted for 10% or more of our tankers business revenue in amounts of approximately $17.5
million, $14.9 million, $13.9 million and $9.1 million, respectively. For the year ended December 31, 2019, five customers accounted
for 10% or more of our tankers business revenue in amounts of approximately $21.2 million, $15.5 million, $8.5 million, $7.9 million
and $7.4 million, respectively. For the year ended December 31, 2018, three customers accounted for 10% or more of our tankers
business revenue in amounts of approximately $17.3 million, $14.3 million and $6.3 million, respectively. For each of the years
ended December 31, 2017 and 2016, four customers accounted for 10% or more of tankers business revenue, in the amounts of approximately
$17.8 million, $15.7 million, $10.9 million and $8.9 million, respectively, in 2017 and $33.2 million, $12.3 million, $9.9 million
and $9.1 million, respectively, in 2016. Each of the foregoing with respect to the drybulk carrier business and tankers business
has been calculated excluding revenue attributable to the OACL and Unicorn Bunker businesses, respectively, which were sold in
the first quarter of 2018.
Seasonality
We operate our drybulk carriers and tankers
in markets that have historically exhibited seasonal variations in demand and, as a result, in charter hire rates. This seasonality
may result in volatility in our operating results to the extent that we enter into new charter agreements or renew existing agreements
during a time when charter rates are weaker or we operate our vessels on the spot market or under time charters, which may result
in quarter-to-quarter volatility in our operating results.
The drybulk sector is typically stronger in
the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere.
The celebration of Chinese New Year in the first quarter of each year, also results in lower volumes of seaborne trade into China
during this period.
The tanker sector is typically stronger in
the winter months as a result of increased oil consumption in the northern hemisphere but can be weaker in the summer months as
a result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted in the summer
months. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter
months.
In addition, unpredictable weather patterns
tend to disrupt vessel routing and scheduling as well as the supplies of certain commodities.
Competition
Our vessels are employed in a highly competitive
market that is capital intensive and highly fragmented. The competition in the market is based primarily on supply and demand and
we compete for charters and COAs on the basis of price, vessel location, vessel specifications including fuel consumption, size,
age, condition and country of build, our and our third-party commercial managers’ reputations, and, particularly in the tanker
sector, additional requirements of the charterers.
We compete primarily with other independent
and state-owned drybulk and tanker vessel-owners. Our competitors may have more resources than us and may operate vessels that
are able to consume cheaper fuels, in particular, any competitors who have installed or may install scrubbers in compliance with
IMO 2020 regulations, and are newer, and therefore more attractive to charterers, than our vessels. Ownership and control of drybulk
carriers and tankers is highly fragmented and is divided among a large number of players including publicly listed and privately
owned shipping companies, major oil companies, mining companies, commodity trading houses, private equity and other investment
funds and state-controlled owners. In the tanker market a part of the trade is captive especially to major and national oil company
fleets. Ownership and control in the drybulk sector is rather more fragmented than in the case of the tanker sector. Due in part
to the highly fragmented markets in which we operate, competitors with greater resources than us could enter the drybulk or tanker
shipping industries and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates
and higher quality vessels than we are able to offer. See, “Item 3. Risk Factors—Risks Related to Our Industry—We
operate in the highly competitive international shipping industry and we may not be able to compete for charters and COAs with
new entrants or established companies with greater resources, and, as a result, we may be unable to employ our vessels profitably”.
Environmental and Other Regulations
Government regulation significantly affects
the ownership and operation of our vessels. We are subject to international conventions and treaties and national, state and local
laws and regulations relating to safety and health and environmental protection in force in the countries in which our vessels
may operate or are registered. These regulations include requirements relating to the storage, handling, emission, transportation
and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural
resources. Compliance with such laws, regulations and other requirements may entail significant expense, including vessel modifications
and implementation of specific operating procedures. While all of our vessels are subject to environmental and other regulations
and all of our vessels carry bunker fuel, we believe there is generally a greater risk of environmental concerns in the tanker
sector, which makes up a smaller portion of our Fleet.
A variety of governmental, quasi-governmental
and private organizations subject our vessels to both scheduled and unscheduled inspections. These entities include the local port
authorities (applicable national authorities such as the United States Coast Guard, or USCG, harbor master or equivalent), classification
societies, flag state administrations, charterers, and terminal operators. Certain of these entities require us to obtain permits,
licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals
could require us to incur substantial costs or result in the operation of one or more of our vessels being temporarily suspended
or lead to the invalidation or reduction of our insurance coverage.
We believe that the heightened level of environmental
and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements
on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have
created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards
for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and
compliance with U.S. and international regulations. We believe that our vessels are operated in substantial compliance with applicable
environmental laws and regulations and have all material permits, licenses, certificates or other authorizations necessary for
the conduct of our operations. However, because such laws and regulations are frequently changed and may impose increasingly stricter
requirements, we cannot predict the future cost of complying with these requirements, or the impact of these requirements on the
resale value or useful lives of our vessels. In addition, a future serious marine incident that results in significant oil pollution,
release of hazardous substances, loss of life, or otherwise causes significant adverse environmental impact, such as the 2010 BP plc
Deepwater Horizon oil spill in the Gulf of Mexico, could result in additional legislation or regulations that could negatively
affect our profitability.
International Maritime Organization
The International Maritime Organization, the
United Nations agency for maritime safety and the prevention of pollution by vessels, or the IMO, has adopted MARPOL. MARPOL entered
into force on October 2, 1983. It has been adopted by over 150 nations, including many of the jurisdictions in which our vessels
will operate.
MARPOL is broken into six Annexes, each of
which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annex II relates to noxious
liquid substances carried in bulk; Annex III relates to harmful substances carried in packaged form; Annexes IV and V
relate to sewage and garbage management, respectively; and Annex VI relates to air emissions.
In 2012, the IMO’s Marine Environment
Protection Committee, or MEPC, adopted by resolution amendments to the international code for the construction and equipment of
vessels carrying dangerous chemicals in bulk, or the IBC Code. The provisions of the IBC Code are mandatory under MARPOL and SOLAS.
These amendments, which entered into force in June 2014, pertain to revised international certificates of fitness for the carriage
of dangerous chemicals in bulk and identifying new products that fall under the IBC Code. As of January 1, 2016, amendments
to Annex I, the IBC Code, require that all chemical tankers must be fitted with approved stability instruments capable of
verifying compliance with both intact and damage stability.
The MARPOL Annex I Condition Assessment
Scheme, or CAS, sets out a framework of inspection and verification of the structural condition of certain oil tankers. In 2013,
the MEPC adopted by resolution amendments to the CAS. These amendments, which became effective on October 1, 2014, complement
inspections of bulk carriers and tankers set forth in the 2011 International Code on the Enhanced Programme of Inspections during
Surveys of Bulk Carriers and Oil Tankers, or ESP Code, and enhance the programs of inspections for certain tankers.
Air Emissions
In September of 1997, the IMO adopted Annex VI
to MARPOL to address air pollution. Effective May 2005, Annex VI set limits on nitrogen oxide emissions from vessels whose
diesel engines were constructed (or underwent major conversions) on or after January 1, 2000. It also prohibits “deliberate
emissions” of “ozone depleting substances,” defined to include certain halons and chlorofluorocarbons. “Deliberate
emissions” are not limited to times when the vessel is at sea; they can, for example, include discharges occurring in the
course of the vessel’s repair and maintenance. Emissions of “volatile organic compounds” from certain vessels,
and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated
biphenyls, PCBs), are also prohibited. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for
special areas to be established with more stringent controls of sulfur emissions known as ECAs.
MEPC adopted amendments to Annex VI on
October 10, 2008, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution
by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board vessels.
As of January 1, 2012, the amended Annex VI required that fuel oil contain no more than 3.50% sulfur (from the previous
cap of 4.50%). On October 27, 2016, at its 70th session, MEPC 70, MEPC announced its decision concerning the implementation
of regulations mandating a reduction in sulfur emissions from the current 3.5% to 0.5% as of the beginning of 2020, rather than
pushing the deadline back to 2025. In MEPC 72, MEPC further agreed to prohibit the carriage of non-compliant fuel after 2020, unless
a vessel is fitted with an equivalent arrangement such as a scrubber. As of January 2020, vessels now have to either reduce sulfur
from emissions through the installation and use of emission scrubbers or buy fuel with lower sulfur content that is more expensive
than standard marine fuel. Consequently, complying with MEPC 70 could result in a significant capital expenditure or a significant
increase in the cost of bunkers. We use compliant bunker fuel in our vessels and have not yet ordered and do not currently plan
to order any emissions treating systems for fitting on our existing vessels or our newbuildings currently under construction, although
we may do so in the future for our current and / or future vessels. While we believe that burning compliant fuel, rather than treating
non-compliant fuel, is an appropriate commercial strategy, the net earnings of our vessels may be negatively impacted by a differentiated
bunker fuel market in the future and our vessels may not be as attractive to charterers as vessels fitted with exhaust treatment
systems.
Sulfur content standards are even stricter
within certain ECAs. As of January 1, 2015, vessels operating within an ECA may not use fuel with sulfur content in excess
of 0.10%. Amended Annex VI established procedures for designating new ECAs. The Baltic and North Seas, certain coastal areas
of North America and the United States Caribbean Sea are all within designated ECAs. In addition, certain ports in China and South
Korea are or will become subject to domestic ECAs in those countries. Ocean-going vessels in these areas are subject to stringent
emission controls, which may cause us to incur additional costs. If other ECAs are approved by the IMO or other new or more stringent
requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental
Protection Agency, or the EPA, or the states or other national jurisdictions where we operate, compliance with these regulations
could entail significant capital expenditures, operational changes, or otherwise increase the costs of our operations. For example,
the amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending
on their date of installation. The EPA promulgated equivalent (and in some senses stricter) emissions standards in late 2009. At
MEPC 70 and MEPC 71, MEPC approved and adopted the North Sea and Baltic Sea as ECAs for nitrogen oxides, effective January 1,
2021.
As of January 1, 2013, MARPOL made mandatory
certain measures relating to energy efficiency for vessels. Under these measures, by 2025, all new vessels built must be 30% more
energy efficient than those built in 2014. This included the requirement that all new vessels utilize the Energy Efficiency Design
Index, or EEDI, and all vessels develop and implement Ship Energy Efficiency Management Plans, or SEEMPs. We are in the process
of implementing energy savings measures for our vessels, which will require financial expenditures, but ultimately result in lower
fuel costs.
We believe that all our vessels are compliant
in all material respects with these regulations that are currently in force. Additional or new conventions, laws and regulations
may be adopted that could require the installation of expensive emission control systems and could adversely affect our business,
financial condition, cash flows and results of operations.
Ballast Water Management
The IMO adopted the BWM Convention, in February
2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements,
to be replaced in time with mandatory concentration limits. All vessels will also have to carry a ballast water record book and
an International Ballast Water Management Certificate. The BWM Convention entered into force 12 months after it was adopted
by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant
shipping. On September 8, 2016, this threshold was met (with 52 contracting parties making up 35.14%). Thus, the BWM Convention
entered into force on September 8, 2017. However, at MEPC 71, MEPC decided that, while new vessels constructed after September 8,
2017 must comply on delivery with the BWM Convention, implementation of the BWM Convention would be delayed for existing vessels
(constructed prior to September 8, 2017) for a further two years. For such existing vessels, installation of ballast water
management systems, or BWMS, must take place at the first renewal survey following September 8, 2017 (the date the BWM Convention
entered into force). Although requirements with respect to D-2 performance standards relating to mandatory concentration limits
will be phased in based on renewal survey dates, all vessels must meet the standards by September 8, 2024. At MEPC 70, MEPC adopted
updated “guidelines for approval of ballast water managements systems (G8)”. G8 updates previous guidelines concerning
procedures to approve BWMS. The G8 guidelines became mandatory through the BWMS Code, which was adopted in MEPC 72 and entered
into force in October 2019. MEPC 72 also agreed to develop guidelines for mandatory ballast water sampling to confirm that a vessel’s
BWMS complies with standards set out in the BWM Convention prior to the vessel receiving its International Ballast Water Management
Certificate. Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could
increase for ocean carriers and the costs of ballast water treatments may be material. However, many countries already regulate
the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species
via such discharges. The United States for example, requires vessels entering its waters from another country to conduct mid-ocean
ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. We believe the costs
of such compliance may be material over time, however, it is difficult to predict the overall impact of such a requirement on our
operations.
Safety Management System Requirements
The IMO has also adopted SOLAS and the LL Convention,
which impose a variety of standards that regulate the design and operational features of vessels. The IMO periodically revises
the SOLAS and LL Convention standards. Amendments to SOLAS relating to safe manning of vessels that were adopted in May 2012 entered
in force on January 1, 2014. The Convention on Limitation of Liability for Maritime Claims, or LLMC, was recently amended
and the amendments went into effect on June 8, 2015. The amendments alter the limits of liability for loss of life or personal
injury claims and property claims against vessel owners. We believe that all our vessels are in substantial compliance with SOLAS
and LL Convention standards.
Our operations are also subject to environmental
standards and requirements under Chapter IX of SOLAS set forth in the ISM Code. The ISM Code requires the owner of a vessel,
or any person who has taken responsibility for operation of a vessel, to develop an extensive safety management system that includes,
among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for
operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system
that we or our technical managers have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer
to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected
vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators
obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s
management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate
under the ISM Code unless its manager has been awarded a document of compliance, issued by classification societies under the authority
of each flag state. We and/or our third-party technical manager have documents of compliance and safety management certificates
for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificate
are renewed every five years, but the document of compliance is subject to audit verification annually and the safety management
certificate at least every 2.5 years.
The flag state, as defined by the United Nations
Convention on Law of the Sea, has overall responsibility for implementing and enforcing a broad range of international maritime
regulations with respect to all vessels granted the right to fly its flag. The “Shipping Industry Flag State Performance
Table” published annually by the International Chamber of Shipping evaluates and reports on flag states based on factors
such as ratification, implementation, and enforcement of principal international maritime treaties and regulations, supervision
of statutory vessel surveys, and participation at IMO and International Labour Organization, or ILO, meetings. All of our owned
vessels are currently flagged in Singapore except three handysize bulk carriers that are subject to financing arrangements, IVS
Knot, IVS Kinglet and IVS Magpie, which are flagged in the Marshall Islands, and one medium range tanker under
a bareboat charter out that is flagged in New Zealand. Singapore flagged vessels have historically received a good assessment in
the shipping industry. We recognize the importance of a credible flag state and do not intend to use flags of convenience or flag
states with poor performance indicators. Noncompliance with the ISM Code or other IMO regulations may subject the vessel owner
or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may
result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels
not in compliance with the ISM Code by the applicable deadlines will be prohibited from trading in U.S. and European Union ports,
respectively. Each of our vessels are ISM Code certified. However, there can be no assurance that such certificate will be maintained.
Noncompliance with the ISM Code and other IMO
regulations may subject the vessel owner or bareboat charterer to increased liability, may lead to decreases in, or invalidation
of, available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions
that impose liability for oil pollution in international waters and the territorial waters of the signatory to such conventions.
Many countries have ratified and follow the liability plan adopted by the IMO and set out in the CLC. Under this convention, and
depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered
owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent
oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability, expressed using the International Monetary
Fund currency unit of Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on
liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the vessel owner’s
actual fault and under the 1992 Protocol where the spill is caused by the vessel owner’s intentional or reckless act or omission
where the vessel owner knew pollution damage would probably result. The CLC requires vessels covered by it to maintain insurance
covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We believe that our
protection and indemnity insurance will cover the liability under the plan adopted by the IMO.
The IMO adopted the International Convention
on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, to impose strict liability on vessel owners for pollution
damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered
owners of vessels over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability
under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the
Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to non-ratifying states, liability
for spills or releases of oil carried as fuel in a vessel’s bunkers typically is determined by the national or other domestic
laws in the jurisdiction where the events or damages occur.
IMO regulations also require owners and operators
of vessels to adopt shipboard oil pollution emergency plans and/or shipboard marine pollution emergency plans for noxious liquid
substances in accordance with the guidelines developed by the IMO.
The IMO continues to review and introduce new
regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any,
such regulations may have on our operations.
The U.S. Oil Pollution Act of 1990 and Comprehensive
Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990, or OPA,
established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA
affects all “owners and operators” whose vessels trade in the United States, its territories and possessions or whose
vessels operate in United States waters, which includes the United States’ territorial sea and its 200 nautical mile exclusive
economic zone. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or
CERCLA, which applies to the discharge of hazardous substances other than oil except in limited circumstances, whether on land
or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating
or chartering by demise, the vessel. OPA applies to oil tankers, as well as non-tanker vessels that carry fuel oil, or bunkers,
to power such vessels. CERCLA also applies to our operations.
Under OPA, vessel owners and operators are
“responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act
or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising
from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:
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injury to, destruction or loss of, or loss of use of, natural resources and the costs of assessment thereof;
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injury to, or economic losses resulting from, the destruction of real and personal property;
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net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
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loss of subsistence use of natural resources that are injured, destroyed or lost;
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lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
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net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards.
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OPA contains statutory caps on liability and
damages; such caps do not apply to direct cleanup costs. Effective November 12, 2019, the USCG adjusted the limits of OPA
liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,200 per gross
ton or $997,100 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately
caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its
agent, employee or a person acting pursuant to a contractual relationship), or a responsible party’s gross negligence or
willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report
the incident where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist
as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under
the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime
whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or
destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments
or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission
of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million
for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These
limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat
of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation
of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the
responsible person fails or refuses to provide all reasonable cooperation and assistance as requested in connection with response
activities where the vessel is subject to OPA.
OPA and CERCLA both require owners and operators
of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of
liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility
obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply in all
material respects with the USCG’s financial responsibility regulations by providing a certificate of responsibility evidencing
sufficient self-insurance.
We currently maintain pollution liability coverage
insurance in the amount of $1.0 billion per incident for each of our vessels. If the damages from a catastrophic spill were
to exceed our insurance coverage it could have an adverse effect on our business and results of operations.
OPA specifically permits individual states
to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept,
at a minimum, the levels of liability established under OPA. Some states have enacted legislation providing for unlimited liability
for oil spills. In some cases, states, which have enacted such legislation have not yet issued implementing regulations defining
vessel owners’ responsibilities under these laws. We comply in all material respects with all existing applicable state regulations
in the ports where our vessels call.
Significant oil spills, such as the 2010 Deepwater
Horizon oil spill in the Gulf of Mexico, may also result in additional legislative or regulatory initiatives, including the
raising of liability caps under OPA or more stringent operational requirements. We cannot predict what additional requirements,
if any, may be enacted and what effect, if any, such requirements may have on our operations.
Other Environmental Initiatives
The CWA prohibits the discharge of oil or other
substances in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the
form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation
and damages and complements the remedies available under OPA and CERCLA. In addition, many U.S. states that border a navigable
waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting
from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
The EPA regulates the discharge of ballast
water and other substances in U.S. waters under the CWA. EPA regulations require vessels 79 feet in length or longer (other than
commercial fishing and recreational vessels) to comply with a Vessel General Permit, or VGP, that authorizes ballast water discharges
and other discharges incidental to the operation of vessels. For a new vessel delivered to an owner or operator after September 19,
2009 to be covered by the VGP, the owner must submit a Notice of Intent, or NOI, at least 30 days before the vessel operates
in U.S. waters. The VGP imposes technology and water-quality based effluent limits for certain types of discharges and establishes
specific inspection, monitoring, record keeping and reporting requirements to ensure the effluent limits are met. The EPA renewed
and revised the VGP, effective December 19, 2013. The VGP now contains numeric ballast water discharge limits for most vessels
to reduce the risk of invasive species in U.S. waters and more stringent requirements for exhaust gas scrubbers and requires the
use of environmentally acceptable lubricants.
The USCG regulations adopted under the U.S.
National Invasive Species Act, or NISA, also impose mandatory ballast water management practices for all vessels equipped with
ballast water tanks entering or operating in U.S. waters. As of June 21, 2012, the USCG adopted revised ballast water management
regulations that established standards for allowable concentrations of living organisms in ballast water discharged from vessels
in U.S. waters. The USCG must approve any technology before it is placed on a vessel.
Notwithstanding the foregoing, as of January 1,
2014, vessels are technically subject to the phasing-in of these standards. As a result, the USCG in the past provided waivers
to vessels which could not install the then unapproved ballast water treatment technology, but has begun to deny requests for waivers
in light of its recent approval of a handful of technologies. In March 2018 the USCG published guidance on the limited circumstances
in which it would authorize extension of a vessel’s compliance date and further indicated that extensions will generally
not be granted for more than twelve months. The EPA, on the other hand, has taken a different approach to enforcing ballast discharge
standards under the VGP. On December 27, 2013, the EPA issued an enforcement response policy in connection with the new VGP
in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed,
but will not grant any waivers.
It should also be noted that in October 2015,
the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address
ballast water. However, the Second Circuit stated that 2013 VGP, which is scheduled to expire in December 2018, will remain in
effect until the EPA issues a new VGP.
On December 4, 2018, the Vessel Incidental
Discharge Act, or VIDA, was enacted. VIDA establishes a new framework for the regulation of vessel incidental discharges (including
ballast water) under the CWA. VIDA requires the EPA to develop performance standards for those discharges within two years of enactment
and requires the USCG to develop implementation, compliance, and enforcement regulations within two years of the EPA’s promulgation
of standards. The new regulations cannot be less stringent than the 2013 VGP or the USCG NISA regulations. Under VIDA, all provisions
of the 2013 VGP remain in force and effect until the USCG regulations are finalized. In addition, VIDA requires the USCG to finalize
a policy letter within one year that describes ballast water treatment systems approval testing methods and protocols. Once the
USCG regulations are in effect, subject to certain exceptions in the Pacific Coast and Great Lakes, states and regions cannot develop
or enforce more stringent standards unless they petition the EPA and can establish that the revised best management standard would
reduce adverse impacts from discharges and is both economically achievable and operationally practical.
Compliance with the EPA and the USCG regulations
could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation
of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels
from entering U.S. waters. While we believe that our vessels have been or will be fitted with systems that will comply with the
standards, those systems may not be approved. If they are not approved it could have an adverse material impact on our business,
financial condition, and results of operations depending on the available ballast water treatment systems and the extent to which
existing vessels must be modified to accommodate such systems. In addition, certain states have enacted more stringent discharge
standards as conditions to their required certification of the VGP, and can continue to enforce those standards until the USCG
VIDA regulations are finalized. Although VIDA clarifies some of the confusion regarding the differing United States regulatory
schemes applicable to ballast water, it continues to remain unclear how the ballast water requirements set forth by the EPA, the
USCG, and IMO BWM Convention, some of which are in effect and some which are pending, will co-exist.
The U.S. Clean Air Act of 1970, as amended
by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions
of volatile organic compounds and other air contaminants. Our vessels will be subject to vapor control and recovery requirements
for certain cargoes when loading, unloading, taking on or discharging ballast, cleaning and conducting other operations in regulated
port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy
these requirements. The CAA also requires states to adopt State Implementation Plans, or SIPs, designed to attain national health-based
air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel
loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating
in covered port areas are equipped with vapor recovery systems that satisfy these existing requirements.
European Union Regulations
In October 2009, the European Union amended
a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges,
if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration
of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member
states were required to enact laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution
may result in substantial penalties or fines and increased civil liability claims. The directive applies to all types of vessels,
irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the vessel is in danger.
The European Union has adopted several regulations
and directives requiring, among other things, more frequent inspections of high-risk vessels, as determined by type, age, flag,
and the number of times the vessel has been detained. The European Union also adopted and then extended a ban on substandard vessels
and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with
greater authority and control over classification societies, by imposing more requirements on classification societies and providing
for fines or penalty payments for organizations that failed to comply.
The EU Ship Recycling Regulation, or EU SRR,
entered into force on December 31, 2013. The EU SRR brings forward the implementation of the provisions contained in the IMO’s
Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009, or the Hong Kong Convention,
which has not yet entered into force. The EU SRR aims to prevent, reduce and, to the extent practicable, eliminate accidents, injuries
and other adverse effects on human health and the environment caused by ship recycling. The EU SRR aims to ensure that hazardous
waste from ship recycling is subject to environmentally sound management and also includes rules to ensure the proper management
of hazardous materials on ships.
As of December 31, 2018 all ships not less
than 500 gross tonnes and flagged under an EU member state may be recycled only in an EU-approved ship recycling facility. Beginning
December 31, 2020, EU-flagged and non-EU-flagged ships calling at EU ports are also required to have onboard a verified inventory
of hazardous materials with a statement of compliance issued by a representative organization.
Greenhouse Gas Regulations
Currently, the emissions of greenhouse gases
from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change,
which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to
reduce greenhouse gas emissions. The 2015 United Nations Convention on Climate Change Conference in Paris resulted in the Paris
Agreement, which entered into force on November 4, 2016 and aims to limit global temperature rise below 2 degrees celsius
above pre-industrial levels and to pursue efforts to limit temperature increase even further to 1.5 degrees celsius. The Paris
Agreement does not directly limit greenhouse gas emissions from vessels. The IMO has taken a number of measures to address greenhouse
gas emissions associated with international shipping. As of January 1, 2013, vessels were required to comply with new MEPC
mandatory requirements relating to energy efficiency to address greenhouse gas emissions from vessels. In addition, MEPC 70 approved
a “roadmap” for developing an IMO strategy by 2018 on reduction of greenhouse gas emissions from vessels. In April
2018, MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from shipping by at least 50% by 2050 compared to
2008 levels, while pursuing efforts towards phasing them out entirely as “a pathway of CO2 emissions reduction
consistent with the Paris Agreement temperature goals.” The initial strategy is due to be revised and adopted by 2023.
Although international shipping is not covered
by the European Union’s current greenhouse gas emissions reduction targets, the European Union has threatened to include
shipping in its emissions trading system by 2023 if the IMO does not have a satisfactory greenhouse gas emissions strategy in place
by 2021. In 2013 the European Commission set out a strategy for progressively integrating maritime emissions into the European
Union’s policy for reducing its greenhouse gas emissions, with the first step being monitoring, reporting and verification
of greenhouse gas emissions from large ships calling at European Union ports. Towards this end, in April 2015, a regulation was
adopted requiring that large vessels (over 5,000 gross tons) calling at European Union ports from January 2018 collect and
publish data on carbon dioxide emissions and other information.
In the United States, the EPA has issued a
finding that greenhouse gases endanger the public health and safety, has adopted regulations to limit greenhouse gas emissions
from certain mobile sources and has proposed regulations to limit greenhouse gas emissions from large stationary sources. Although
the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, the EPA has received petitions from
the California Attorney General and environmental groups to regulate greenhouse gas emissions from ocean-going vessels, which petitions
have been denied to date. Furthermore, in the United States individual states can also enact environmental regulations. For example,
California has introduced a cap-and-trade program for greenhouse gas emissions.
Any passage of climate control legislation
or other regulatory initiatives by the IMO, European Union, the U.S. or other countries where we operate, or any treaty adopted
at the international level to succeed the Kyoto Protocol or Paris Agreement, that restrict emissions of greenhouse gases could
require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence
of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level
changes or more intense weather events such as those which may present a risk of damage or loss to vessels.
CO2 Emissions Reporting(1)
In April 2018, the IMO’s MEPC adopted an initial strategy
for the reduction of greenhouse gas ("GHG") emissions from ships, setting out a vision to reduce GHG emissions from international
shipping and phase them out as soon as possible.
Grindrod Shipping strives to be a responsible
operator in our industry and accordingly we are including certain CO2 reporting in this annual report. Annual Efficiency
Ratio ("AER") is a measure of carbon efficiency using the parameters of fuel consumption, distance travelled, and the
design deadweight tonnage of a vessel. Energy Efficiency Operational Indicator ("EEOI") is a tool for measuring the CO2
gas emissions in a given time period per unit of transport work performed. AER does not account for the tonnage of cargo actually
carried, whereas EEOI does. AER and EEOI metrics are impacted by external factors such as charter speed, vessel operator’s
instructions and weather, in conjunction with overall market factors such as cargo load sizes and fleet utilization rate. As such,
variance in performance can be found in the reported emissions between two periods for the same vessel and between vessels of a
similar size and type. Furthermore, there may be variations in methodology used by other companies and consequently it is not always
practical to directly compare emissions from different companies. For example, some shipping companies report CO2 in
tons per kilometer rather than tons per nautical mile.
Our reporting methodology substantially is
in line with the framework set out within the IMO's Data Collection System initiated in January 2019 and the January 2018 framework
for voluntary reporting under the Singapore flag. It is expected that the shipping industry will continue to refine the performance
measures for emissions and efficiency over time. The figures reported below represent Grindrod Shipping’s initial findings,
and in future results may vary as the methodology and performance measures applied by the industry and by us evolve.
The information set forth below was recorded
and calculated using Bluetracker One Fleet Performance software. This information is in respect of our wholly owned vessels and
vessels in our joint ventures during the relevant period, except Leopard Moon, Leopard Sun and Matuku, for
the twelve month periods ended December 31.
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2020
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2019
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General
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Fleet average age mid-period (years)
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7.4
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6.8
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CO2 Emissions generated during the period (metric tonnes)
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335,634
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375,753
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Annual Efficiency Ratio for the period (grams CO2 / deadweight ton-mile)(2)
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All vessels
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5.74
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6.23
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Tankers
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9.54
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9.82
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Handysize drybulk carriers
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6.57
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6.69
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Supramax / ultramax drybulk carriers
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4.56
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4.74
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Energy Efficiency Operational Indicator for the period (grams CO2 / cargo ton-mile)(3)
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All vessels
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10.30
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10.46
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Tankers
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20.53
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18.97
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Handysize drybulk carriers
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12.13
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10.99
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Supramax / ultramax drybulk carriers
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7.88
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7.95
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(1)
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Our emissions data is based on the reporting tools and information reasonably available to Grindrod Shipping and its applicable third-party technical managers. Grindrod Shipping assesses such data from time to time and may adjust and restate data to reflect latest information.
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AER is reported in unit grams of CO2 per deadweight ton-mile and is calculated by dividing (i) mass of fuel consumed by type, converted to equivalent mass CO2 by (ii) the design deadweight tonnage of the vessel (in metric tons) multiplied by distance travelled, both laden and in ballast (in nautical miles).
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EEOI is reported in unit grams of CO2 per cargo ton-mile and is calculated by dividing (i) mass of fuel consumed by type, converted to equivalent mass of CO2 by (ii) cargo carried (in metric tons) multiplied by laden voyage distance (in nautical miles). This calculation is performed as per IMO MEPC.1/Circ.684
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International Labour Organization
The International Labour Organization, or ILO,
is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention 2006,
or MLC 2006. A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance will be required to ensure compliance
with the MLC 2006 for all vessels above 500 gross tons in international trade. The MLC 2006 came into force on August 20,
2013. Amendments to MLC were adopted in 2014 and 2016. We are in compliance with MLC 2006.
Vessel Security Regulations
Since the terrorist attacks of September 11,
2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, MTSA came into effect.
To implement certain portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements
on certain ports and facilities, some of which are regulated by the EPA.
Similarly, in December 2002, amendments to
SOLAS created a new chapter of the convention dealing specifically with maritime security. The new Chapter XI-2 became effective
in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the
ISPS Code. The ISPS Code is designed to enhance the security of ports and vessels against terrorism. After July 1, 2004, to
trade internationally, a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization
approved by the vessel’s flag state. The following are among the various requirements, some of which are found in SOLAS:
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on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped vessels and shore stations, including information on a vessel’s identity, position, course, speed and navigational status;
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on-board installation of vessel security alert systems, which do not sound on the vessel but only alert the authorities on shore;
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the development of a vessel security plan;
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vessel identification number to be permanently marked on a vessel’s hull;
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a continuous synopsis record kept onboard showing a vessel’s history including the name of the vessel, the state whose flag the vessel is entitled to fly, the date on which the vessel was registered with that state, the vessel’s identification number, the port at which the vessel is registered and the name of the registered owner(s) and their registered address; and
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compliance with flag state security certification requirements.
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Any vessel operating without a valid certificate
may be detained at port until it obtains an International Ship Security Certificate, or ISSC, or it may be expelled from port,
or refused entry at port.
The USCG regulations, intended to align with
international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have
on board a valid ISSC that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We or our
third-party technical managers, as applicable, implement the various security measures addressed by MTSA, SOLAS and the ISPS Code,
and our Fleet complies in all material respects with applicable security requirements.
Inspection by Classification Societies
Every oceangoing vessel must be “classed”
by a classification society. The classification society certifies that the vessel is “in class,” signifying that the
vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules
and regulations of the vessel’s country of registry and the international conventions of which that country is a member.
In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes
on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject
to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class certification,
regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required
to be performed as follows:
Annual Surveys. For seagoing vessels,
annual surveys are conducted for the hull and the machinery, including the electrical plant and where applicable for special equipment
classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate.
Intermediate Surveys. Extended annual
surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each
class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
Class Renewal Surveys. Class renewal
surveys, also known as special surveys, are carried out for the vessel’s hull, machinery, including the electrical plant,
and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special
survey the vessel is drydocked and is thoroughly examined, including audio-gauging to determine the thickness of the steel structures.
Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The
classification society may grant a one-year grace period for completion of the special survey. Substantial amounts of money may
have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the
special survey every four or five years, depending on whether a grace period was granted, a vessel owner has the option of arranging
with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part
of the vessel would be surveyed within a five-year cycle. Upon a vessel owner’s request, the surveys required for class renewal
may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous
class renewal.
All areas subject to survey as defined by
the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys
are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years. Vessels under five
years of age can waive drydocking in order to increase available days and decrease capital expenditures, provided the vessel is
inspected underwater.
Most of our vessels are drydocked every 30
to 36 months for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the
classification surveyor will issue a “recommendation” which must be rectified by the vessel owner within prescribed
time limits.
Most insurance underwriters make it a condition
for insurance coverage that a vessel be certified as “in class” by a classification society which is a member of the
International Association of Classification Societies, or the IACS. In 2012, the IACS issued draft harmonized Common Structural
Rules, that align with the IMO goals standards, and were adopted in winter 2013. All our vessels are certified as being “in
class” by the American Bureau of Shipping, or ABS, Det Norske Veritas, or DNV, Class NK, or NK, and Lloyd’s Register,
or LR. All new and secondhand vessels that we acquire must be certified prior to their delivery under our standard purchase contracts
and memoranda of agreement. If the vessel is not certified on the date of closing, we generally have no obligation to take delivery
of the vessel except in circumstances where the damage is easily remedied, in which case we will take delivery of the vessel and
have a claim for damages.
Oil Company Tanker Vetting Process
Traditionally there have been relatively few
charterers in the oil transportation business and that part of the industry has been undergoing consolidation. The oil majors represent
a significant percentage of the production, trading and, especially, seaborne transportation of crude oil and refined petroleum
products worldwide. Concerns about the environment have led oil majors to develop and implement a strict due diligence process,
known as vetting, when selecting vessels and considering their managers. Vetting has evolved into a sophisticated and comprehensive
assessment of both the vessel and the vessel technical manager. While numerous factors are considered and evaluated prior to a
commercial decision, the oil majors, through their association, Oil Companies International Marine Forum, or OCIMF, have developed
two basic assessment tools: the Ship Inspection Report program, or SIRE, and the Tanker Management & Self-Assessment program,
or TMSA. The former is a physical vessel inspection based upon a thorough vessel inspection questionnaire and performed by accredited
OCIMF inspectors, resulting in a report being logged on SIRE, while the latter is a recent addition to the risk assessment tools
used by the oil majors. Based upon commercial risk, there are three levels of assessment used by oil majors:
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terminal use, which clears a vessel to call at one of the oil major’s terminals;
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voyage charter, which clears the vessel for a single voyage; and
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period charter, which clears the vessel for use for an extended period of time.
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The depth and complexity of each of these levels
of assessment varies. Each charter agreement for our vessels requires that the applicable vessel have a valid SIRE report (less
than six months old) in the OCIMF website as recommended by OCIMF. In addition, under the terms of the charter agreements, the
charterers require that our vessels and their technical managers be vetted and approved to transport crude oil or refined petroleum
products (as applicable). The technical manager, whether us or our appointed third-party manager, is responsible for obtaining
and maintaining the vetting approvals required to successfully charter our vessels.
Risk of Loss and Liability Insurance
The operation of any drybulk carrier or tanker
includes risks such as mechanical and structural failure, hull damage, collision, property loss, cargo loss or damage, business
interruption due to political circumstances in foreign countries, piracy, hostilities and labor strikes. In addition, there is
always an inherent possibility of marine disaster, including oil spills and other environmental incidents, and the liabilities
arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners,
operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution incidents
in the United States, has made liability insurance more expensive for vessel owners and operators trading in the United States
market.
We maintain hull and machinery insurance, war
risks insurance, protection and indemnity cover, and freight, demurrage and defense cover for our Fleet in amounts that we believe
to be prudent to cover day-to-day risks in our operations. We do not maintain insurance for loss of hire or earnings arising out
of insured peril events other than limited loss coverage relating to defined war risk events. However, we may not be able to achieve
or maintain this level of coverage throughout a vessel’s useful life. In addition, while we believe that the insurance coverage
that we have obtained is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be
paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery and War Risks Insurance
We maintain marine hull and machinery and war
risks insurance, which will include the risk of actual or constructive total loss, for all of our owned vessels. We also maintain
increased value coverage for most of our vessels. Under this increased value coverage, in the event of total loss of a vessel,
we will be able to recover the sum insured under the increased value policy in addition to the sum insured under the hull and machinery
policy. Increased value insurance also covers excess liabilities which are not recoverable under our hull and machinery policy
by reason of under insurance. Each of our vessels is currently covered up to at least fair market value with deductibles ranging
between $125,000 to $162,500 per vessel per incident.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided
by mutual protection and indemnity associations, or P&I Associations, which insure liabilities to third parties in connection
with our shipping activities. This includes third-party liability and other related expenses resulting from the injury or death
of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage
to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including
wreck removal. Our P&I coverage will be subject to and in accordance with the rules of the P&I Association in which the
vessel is entered. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity
mutual associations, or clubs. Except for pollution and passenger and crew claims, our coverage is unlimited but restricted to
amounts as determined by law including laws pertaining to limitation of liability. Cover for pollution claims are limited to $1.0 billion
and cover for passenger and crew claims are restricted to $3.0 billion.
Our protection and indemnity insurance coverage
for pollution will be $1.0 billion per vessel per incident. The thirteen P&I Associations that comprise the International
Group insure approximately 90% of the world’s commercial tonnage and have entered into a pool agreement to reinsure each
association’s liabilities. Each P&I Association has capped its exposure to this pool agreement at a floating rate that
is generally valued at approximately $6.5 billion. As a member of a P&I Association which is a member of the International
Group, we are subject to calls payable to the associations based on the group’s claim records as well as the claim records
of all other members of the individual associations and members of the pool of P&I Associations comprising the International
Group.
Not all risks are insured and not all risks
are insurable. The principal insurable risks which nonetheless remain uninsured across our Fleet are “loss of hire”
and “strikes,” except in cases of loss of hire due to war risk event. Specifically, we do not insure these risks because
the costs are regarded as disproportionate. These insurances provide, subject to a deductible, a limited indemnity for hire that
would not be receivable by the vessel owner for reasons set forth in the policy. Should a vessel on time charter, where the vessel
earns fixed hire day by day, suffer a serious mechanical breakdown, the daily hire will no longer be payable by the charterer for
the period of off-hire. Under some circumstances, an event of force majeure may also permit the charterer to terminate the time
charter or suspend payment of charter hire. The purpose of the loss of hire insurance is to secure the loss of hire during such
periods. In the case of strikes insurance, if a vessel is being paid a fixed sum to perform a voyage and the vessel becomes strike
bound at a loading or discharging port, the insurance covers the loss of earnings during such periods.
Permits and Authorizations
We are required by various governmental and
quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits,
licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel
operates, the nationality of the vessel’s crew and the age of a vessel. We believe that we have obtained all permits, licenses
and certificates currently required to permit our vessels to operate our business as currently conducted. Additional laws and regulations,
environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business.
Emerging Growth Company
We are an emerging growth company, as defined
in the JOBS Act. As such, we are eligible to, and intend to, take advantage of certain exemptions from various reporting requirements
that are applicable to public companies that are not emerging growth companies, including, but not limited to, the provisions of
the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness
of our internal control over financial reporting; and any rules that may be adopted by the Public Company Accounting Oversight
Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. We currently
prepare our financial statements in accordance with IFRS as issued by the IASB, which do not have separate provisions for publicly
traded and private companies. However, in the event we convert to U.S. GAAP in the future while we are still an emerging growth
company, we may be able to take advantage of the benefits of Section 107 of the JOBS Act, which provides that an emerging
growth company can take advantage of the extended transition period provided in the Securities Act, for complying with new or revised
accounting standards. We intend to continue to take advantage of these exemptions until we are no longer an emerging growth company.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the
fifth anniversary of the date of our first sale of equity securities pursuant to an effective registration statement under the
Securities Act, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are
deemed to be a large accelerated filer, which means the market value of our ordinary shares that are held by non-affiliates exceeds
$700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in
non-convertible debt during the prior three-year period. See “Item 3. Key Information—Risk Factors—Risks
Relating to our Ordinary Shares—The Jumpstart Our Business Startups Act of 2012, or JOBS Act, will allow Grindrod Shipping
to postpone the date by which it must comply with some of the laws and regulations intended to protect investors and to reduce
the amount of information provided in Grindrod Shipping’s reports filed with the SEC, which could undermine investor confidence
in Grindrod Shipping and adversely affect the market price of Grindrod Shipping’s ordinary shares.”
Foreign Private Issuer
We are a “foreign private issuer”
as defined by the rules under pursuant to Rule 405 under the Securities Act. Our status as a foreign private issuer exempts
us from compliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ, including the proxy rules,
the short-swing profits recapture rules of Section 16 of the Exchange Act, and certain governance requirements, such as independent
director oversight of the nomination of directors and executive compensation. In addition, we are not required to file annual,
quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies registered
under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC. Furthermore, we are not subject
to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act, which restricts the selective disclosure
of material information.
We may take advantage of these exemptions for
foreign private issuers until such time as we are no longer a foreign private issuer. We are required to determine our status as
a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer
at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances
applies: (1) the majority of our executive officers or directors are U.S. citizens or residents; (2) more than 50% of
our assets are located in the United States; or (3) our business is administered principally in the United States. See “Item 3.
Key Information—Risk Factors—Risks Relating to Our Ordinary Shares—Grindrod Shipping may lose its foreign private
issuer status, which would then require it to comply with the Exchange Act’s domestic reporting regime and cause Grindrod
Shipping to incur additional legal, accounting and other expenses.”
Legal Proceedings
We may, from time to time, be involved in litigation
and claims arising out of our operations in the normal course of business that may be brought against us, that could have a material
adverse effect on our business, financial position, results of operations, cash flows or liquidity. From time to time we may face
claims which fall outside the scope of our insurance coverage. In respect of such claims, we purchase FD&D insurance, which
is discretionary coverage for the costs of defending or prosecuting such claims (for example, claims of a purely contractual nature,
or collection of freight and demurrage). Those claims, even if covered by insurance and/or lacking merit, could result in the expenditure
of significant financial and managerial resources.
We currently are involved in a dispute with
Her Majesty’s Revenue & Customs service of the United Kingdom, or HMRC, regarding a tax of 28% on a balancing charge
against one of our subsidiaries. This tax relates to the purchase of the Torea vessel in December 2010 (which we subsequently sold
in October 2017) following the vessel coming out of the U.K. tonnage tax regime earlier in the period. An adverse resolution of
this dispute could result in an additional tax liability to us of approximately $5.7 million plus interest on late paid tax.
While defenses are available to us, a liability amount of $2.4 million has been recorded in our consolidated and combined
financial statements. The HMRC has issued a Closure Notice indicating that this tax is payable, which we have appealed. On May 1,
2018, the HMRC upheld the Closure Notice. On May 22, 2018, we appealed to the Tax Tribunal in London and on October 31, 2018,
we agreed on a statement of facts with HMRC. On November 13, 2019, the First-Tier Tribunal issued its decision on our appeal, finding
in our favor. On January 8, 2020, HMRC made an application to the First-Tier Tribunal to appeal its decision and on February 6,
2020 the First-Tier Tribunal released its decision refusing HMRC’s application to appeal to it. On March 5, 2020, HMRC applied
to the Upper Tribunal for permission to appeal the decision of the First-Tier Tribunal, and on March 11, 2020, the Upper Tribunal
issued its decision granting the permission sought and we have opposed the appeal. The Upper Tribunal hearing took place on March
17, 2021 and we are waiting for the Upper Tribunal to make their final decision. It is not currently possible to predict when the
dispute will be resolved.
C.
|
Organizational Structure
|
Grindrod Shipping is a company incorporated
under the laws of Singapore. We directly own two subsidiaries through which business operations are conducted and staff are employed.
One is a Singapore company and the other is a South African company. Each of our wholly owned vessels is held through separate,
wholly owned subsidiaries of our Singapore subsidiary, each of which is incorporated in Singapore, except one incorporated in the
Marshall Islands. In addition, 12 ships in our fleet are held by Singapore incorporated subsidiaries of IVS Bulk, in which we hold
a 68.86% controlling interest. Please see Exhibit 8.1 to this annual report for a list of our current subsidiaries.
D.
|
Property, Plants and Equipment
|
We do not own any material real property. We
lease office space in several countries where we have staff or operations. Our largest offices are in Singapore, South Africa and
the United Kingdom. Our main material assets consist of our vessels which are owned through several subsidiaries and two joint
ventures. See “—Organizational Structure” above.
For a description of our Fleet, see “—History
and Development of the Company” and “—Business Overview—Our Fleet” above.
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
None.
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
You should read the following management’s
discussion and analysis and results of operations and financial condition together with our consolidated and combined financial
statements, including the notes, and the other financial information appearing elsewhere in this annual report. Certain information
contained in this discussion and analysis and elsewhere in this annual report includes forward-looking statements that involve
risks and uncertainties. See “Cautionary Statement Regarding Forward-looking Statements” and “Item 3. Key
Information—Risk Factors” for a discussion of important factors that could cause actual results to differ materially
from the results described in or implied by the forward-looking statements contained in this annual report.
Overview
We are an international shipping company that
owns, charters-in and operates a fleet of drybulk carriers and tankers. We own some of our vessels on our own and some of our vessels
through IVS Bulk in which a third party has an interest but which we control. We operate two businesses primarily in: the drybulk
carriers business, which is further divided into handysize, supramax/ultramax, and other operating segments; and the tankers business,
which is further divided into medium range tankers, small tankers, and other operating segments. Activities that do not relate
to these business segments are accumulated in an “unallocated” segment. Our historical business also includes a container
business which we held through OACL, and a bunker business which we held through Unicorn Bunker, both of which were separated from
Grindrod Shipping in the first quarter of 2018. See “—The Spin-Off” below.
Our handysize and supramax/ultramax operating
fleet consists of 23 owned drybulk carriers (including 12 drybulk carrier that we own through IVS Bulk) and eight long-term chartered-in
drybulk carriers. We have 15 handysize drybulk carriers and 16 supramax/ultramax drybulk carriers in our operating fleet with
sizes ranging from 28,240 dwt to 62,660 dwt. Our drybulk carriers transport a broad range of major and minor bulk and breakbulk
commodities, including ores, coal, grains, forestry products, steel products and fertilizers, along worldwide shipping routes,
and are currently employed in pools of similarly sized vessels or in the spot market.
Our tanker operating fleet consists of four
owned tankers. We have three medium range tankers and one small tanker in our operating fleet with sizes ranging from 16,900 dwt
to 50,140 dwt. Our tankers carry petroleum products, which include both clean products, such as petrol, diesel, jet fuel and naptha,
and dirty products, such as heavy fuel oil. Our tankers do not carry crude oil. Our tankers are also classed to carry low hazard
chemical products, which include liquid bulk vegetable oils. Our tankers are currently employed in pools of similarly sized vessels,
commercially managed by third parties, and under various other arrangements, including bareboat charter, under COAs or in the spot
market.
Recent Developments
Vessels
On February 22, 2021, we agreed to extend the
charter-in of the 2014-built Japanese eco supramax vessel IVS Crimson Creek for a period of 11 to 13 months commencing April
1, 2021.
On March 11, 2021, the 2013-built medium
range tankers Leopard Moon and Leopard Sun were contracted for sale for $21.4 million each. The vessels are expected
to be delivered to the new owners in April 2021, though we can provide no assurances that the delivery will take place by that
time or at all.
On March 11, 2021, the 2009-built small
tanker Breede was contracted for sale for $6.8 million. The vessel is expected to be delivered to the new owner in April
2021, though we can provide no assurances that the delivery will take place by that time or at all.
Following these vessel sales, our core Fleet will comprise of 15 handysize and 16 supramax/ultramax drybulk carriers, and
one medium range product tanker currently on bareboat charter-out.
Share Issuance
On March 1, 2021, the ordinary shares of Grindrod
Shipping increased from 19,063,833 to 19,310,024. The additional shares issued were issued to certain employees to partially settle
the 2018 FSP awards due to vest on March 1, 2021 (the balance of the 2018 FSP awards were settled with the remaining 56,975 treasury
shares).
Components of Our Operating Results
Revenue. Revenue includes vessel revenue,
ship sale revenue, and other revenue. Vessel revenue consists of charter hire revenue and freight revenue. Charter hire revenue
primarily relates to time charter contracts and freight revenue primarily relates to voyage charter contracts and pool distributions
(which consist of distributions to us of net earnings relating to our vessels in pools operated by third parties). Ship sale revenue
includes ship sales as well as the sale of bunkers and other consumables relating to ships sold. Other revenue includes management
fees and other revenue.
We generate revenue by charging customers
for their use of our vessels or for the transportation by us of their drybulk and liquid bulk cargoes. Historically, these services
generally have been provided by operating our vessels in commercial pools, in the spot market, and on time charters. We also manage
our charter rate risk and employment risk by using forward freight arrangements and entering into COAs.
The table below illustrates in general the
primary distinctions among these different employment arrangements.
|
|
Commercial Pool
|
|
Spot Market
|
|
Time Charters
|
Typical contract length
|
|
Varies
|
|
Varies
|
|
Varies
|
Charter hire rate basis(1)
|
|
Varies
|
|
Varies
|
|
Daily
|
Voyage expenses
|
|
Pool pays
|
|
We or customer pays
|
|
Customer pays
|
Vessel operating costs for owned vessels
|
|
We pay
|
|
We pay
|
|
We pay
|
Charter hire costs for vessels chartered-in by us
|
|
We pay
|
|
We pay
|
|
We pay
|
Off-hire(2)
|
|
Pool does not pay
|
|
Customer does not pay
|
|
Customer does not pay
|
(1)
|
“Charter hire rate” refers to the basic payment from the charterer for the use of the vessel under time charter.
|
(2)
|
“Off-hire” refers to the time a vessel is not available for service due primarily to scheduled and unscheduled repairs or drydockings. For time chartered-in vessels, we do not pay the charter hire cost when the vessel is off-hire. And for time chartered-out vessels, the charterer is not obliged to pay us the charter hire when the vessel is off-hire.
|
We also generate revenue by acting as commercial
manager for vessels owned by our joint ventures or by third parties, and as technical manager for vessels owned by our joint ventures.
The commercial management services we provide are in respect of our management and operation of our drybulk handysize pool, or
the IVS Handysize Pool, and our drybulk supramax/ultramax pool, or the IVS Supramax Pool, and the commercial management of three
large drybulk handysize vessels we own through a joint venture that, due to their size, do not trade in the IVS Handysize Pool.
Commercial management fees are charged per vessel as a fixed daily fee plus a fixed percentage of the TCE revenue achieved by the
managed vessel. Technical management fees are charged at an agreed fixed amount per year or part thereof to cover our time and
expertise.
Cost of sales. Cost of sales includes
voyage expenses which represent the direct costs associated with operating a vessel between loading and discharge at the applicable
ports and include pool distributions (which consist of net earnings payable to third-party and unconsolidated joint venture owners
of vessels in the pools we manage), fuel expenses, port expenses, other expenses and freight forward agreements; vessel operating
costs, which consist of crew expenses, repairs and maintenance, insurance, and other costs associated with the technical management
of the Fleet; charter hire costs, which primarily relates to time charter contracts; depreciation of ships, drydocking and plant
and equipment – owned assets; depreciation of ships and ship equipment – right-of-use assets; other expenses, which
consist of container expenses, freight expenses, cargo handling, provision for onerous contracts, and other logistic purchases;
and cost of ship sale, which consists of cost of sales on sale of ships classified as inventories and cost of sales on sale of
bunkers and other consumables sold with a vessel.
Other operating (expense) income. Other
operating expense consisted primarily of foreign exchange loss, impairment loss on ships, impairments on intangibles and goodwill,
impairment loss on right-of-use assets, impairment loss on the net assets of disposal groups and other operating expenses. Other
operating income consists of dividend income, profit on sale of business and foreign exchange gain.
Administrative expense. Administrative
expense comprise general corporate overhead expenses, including personnel costs, property costs, audit fees, legal and professional
fees, and other general administrative expenses. Personnel costs include, among other things, salaries and short- and long-term
incentives, pension costs, fringe benefits, travel costs and health insurance. Administrative expense may increase in connection
with becoming a publicly reporting, listed entity, as a result of, among other things, increased audit, legal and professional
fees and listing and exchange related costs. In addition, personnel costs may increase for a number of reasons, including in connection
with relocation of certain management personnel to our Singapore office in connection with the Spin-Off.
Share of losses of joint ventures. Share
of losses of joint ventures relates to operating profits or losses attributable to our joint ventures. Our joint ventures, which
include IVS Bulk for the period prior to February 14, 2020, are accounted for on an equity basis.
Impairment loss recognized on financial
assets. Impairment loss recognized on financial assets relates to expected credit losses and changes in those expected credit
losses, to reflect changes in credit risk since the initial recognition of the financial assets.
Interest income. Interest income primarily
relates to interest on loans to joint ventures; bank interests; and other interests.
Interest expense. Interest expense
primarily relates to interest on ship loans, interest on loans from related companies and interest on bank and non-bank loans.
Income tax. Income tax represents the
sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Deferred
tax is recognized on the differences between the carrying amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable income.
Factors Affecting Our Results of Operations
and Financial Condition
The principal factors which affect our results
of operations and financial condition include:
|
•
|
strength of world economies, in particularly in China and the rest of the Asia-Pacific region;
|
|
•
|
the effects of the COVID-19 pandemic on our operations and the demand and trading patterns for both the drybulk and product tanker markets, and the duration of these effects;
|
|
•
|
cyclicality in the drybulk and tanker industries and volatility of charter rates which is impacted by supply and demand;
|
|
•
|
our ability to successfully compete in the drybulk and tanker markets and employ or procure the employment of our vessels at economically attractive rates;
|
|
•
|
changes in supply of drybulk and tanker vessels;
|
|
•
|
the duration of our charter contracts and market conditions when charters expire;
|
|
•
|
our decisions relating to vessel acquisitions and disposals and our ability to buy and sell vessels, and to charter-in vessels at prices we deem satisfactory;
|
|
•
|
the strength of and growth in the number of our customer relationships;
|
|
•
|
an increase in the price of bunker or other market-related increases to components of our costs of sales, including the costs associated with the IMO 2020 regulations limiting sulfur content in fuels;
|
|
•
|
depreciation on our vessels and potential impairment charges;
|
|
•
|
the amount of time and expense that we spend positioning our vessels and changes in trade routes for a variety of reasons, including as a result of additional trade tariffs imposed by China and the United States;
|
|
•
|
loss of operating days through accidents or other damage to our vessels, as well as a result of disruptions along our operating routes;
|
|
•
|
the failure of counterparties to fully perform their contracts with us;
|
|
•
|
the required maintenance capital expenditures relating to our vessels and other administrative expenses;
|
|
•
|
the amount of expense incurred, and time that our vessels spend, in drydock undergoing repairs;
|
|
•
|
the age, condition and specifications of our vessels;
|
|
•
|
the effective and efficient technical management of our vessels and our vessel operating costs;
|
|
•
|
our ability to satisfy the technical, health, safety and compliance standards of our customers, especially major oil companies;
|
|
•
|
our ability to access capital to finance our Fleet, including our ability to pay down our existing credit facilities if the fair market values of our vessels decline;
|
|
•
|
our level of debt and related interest expense;
|
|
•
|
fluctuations in interest rates, and foreign exchange rates, and the uncertainty surrounding the continued existence of LIBOR;
|
|
•
|
corruption, piracy, militant activities, political instability and terrorism in locations where we may operate;
|
|
•
|
losses or provisions for losses on uncollectible revenue;
|
|
•
|
the effectiveness of forward freight agreements, bunker swaps and other contracts we may enter into to manage our revenue and expenses and costs in unwinding them;
|
|
•
|
the cost and adequacy or otherwise of our insurance coverage;
|
|
•
|
fluctuations in foreign currency exchange rates; and
|
The Spin-Off
In connection with the Spin-Off, Former Parent
sold all of the shares it held in its wholly-owned subsidiaries, GSPL and GSSA, to Grindrod Shipping, in exchange for a market
related consideration. On the Closing Date, Former Parent made a pro rata distribution to its shareholders that resulted
in its shareholders receiving Grindrod Shipping ordinary shares in the same proportion as they held their Former Parent ordinary
shares immediately prior to the consummation of the Spin-Off.
Our consolidated and combined financial statements
and, unless otherwise indicated, other financial information concerning us included in this annual report, are presented in U.S.
dollars. We have prepared our consolidated and combined financial statements in accordance with IFRS as issued by the IASB. Our
audited consolidated and combined financial statements presented in this annual report represent the combined financial statements
of GSPL and GSSA prior to June 18, 2018 and represent the consolidated financial statements of the company as a separate publicly
traded company on and subsequent to June 18, 2018 following the Spin-Off. In addition, for periods prior to January 1, 2018 the
financial statements include components of Former Parent’s shipping business which were not transferred to us in the Spin-Off.
In the first quarter of 2018, GSSA sold two of its businesses, OACL and Unicorn Bunker, to another Former Parent subsidiary and
such businesses are not part of our results of operations for periods following the disposal on January 1, 2018, however,
the proceeds from these sales remained with us. The historical financial information has been prepared with the objective of presenting
the results and net assets of Grindrod Shipping over the periods presented. Consequently, this historical financial information
may not necessarily be indicative of the financial performance that would have been achieved had Grindrod Shipping operated as
a stand-alone entity for the periods presented. Accordingly, our historical results of operations may not be indicative of our
future results of operations or financial condition as a separate, stand-alone public company.
Non-GAAP Financial Measures
The financial information included in this
annual report includes certain “non-GAAP financial measures” as such term is defined in SEC regulations governing the
use of non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating
performance, financial position or cash flows that excludes or includes amounts that are included in, or excluded from, the most
directly comparable measure calculated and presented in accordance with IFRS. For example, non-GAAP financial measures may exclude
the impact of certain unique and/or non-operating items such as acquisitions, divestitures, restructuring charges, large write-offs
or items outside of management’s control. Management believes that the non-GAAP financial measures described below provide
investors and analysts useful insight into our financial position and operating performance.
TCE Revenue and TCE per day. TCE revenue
is defined as vessel revenue less voyage expenses. Such TCE revenue, divided by the number of our operating days during the period,
is TCE per day. Vessel revenue and voyage expenses as reported for our operating segments include a proportionate share of vessel
revenue and voyage expenses attributable to our joint ventures based on our proportionate ownership of the joint ventures for the
period the joint venture existed during a relevant period. The number of operating days used to calculate TCE per day also includes
the proportionate share of our joint ventures’ operating days for the period the joint venture existed during in a relevant
period and also includes charter-in days. TCE per day is a common shipping industry performance measure used primarily to compare
daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter
hire rates for vessels on voyage charters have to cover voyage costs and are generally not expressed in per-day amounts while charter
hire rates for vessels on time charters do not cover voyage costs and generally are expressed in per day amounts.
Below is a reconciliation from TCE revenue
to revenue.
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
(In thousands of U.S. dollars)
|
|
Revenue
|
|
|
Voyage
Expenses
|
|
|
TCE
Revenue
|
|
|
Revenue
|
|
|
Voyage
Expenses
|
|
|
TCE Revenue
|
|
|
Revenue
|
|
|
Voyage
Expenses
|
|
|
TCE
Revenue
|
|
Vessel revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handysize
|
|
|
74,641
|
|
|
|
(30,995
|
)
|
|
|
43,646
|
|
|
|
102,805
|
|
|
|
(53,449
|
)
|
|
|
49,356
|
|
|
|
116,372
|
|
|
|
(57,707
|
)
|
|
|
58,665
|
|
Supramax/ultramax
|
|
|
124,352
|
|
|
|
(48,547
|
)
|
|
|
75,805
|
|
|
|
153,937
|
|
|
|
(74,286
|
)
|
|
|
79,651
|
|
|
|
146,097
|
|
|
|
(71,087
|
)
|
|
|
75,010
|
|
Medium range tankers
|
|
|
23,412
|
|
|
|
(15
|
)
|
|
|
23,397
|
|
|
|
37,813
|
|
|
|
(5,502
|
)
|
|
|
32,311
|
|
|
|
37,911
|
|
|
|
(7,966
|
)
|
|
|
29,945
|
|
Small tankers
|
|
|
6,647
|
|
|
|
(1,586
|
)
|
|
|
5,061
|
|
|
|
13,419
|
|
|
|
(2,497
|
)
|
|
|
10,922
|
|
|
|
17,395
|
|
|
|
(3,463
|
)
|
|
|
13,932
|
|
Other drybulk carriers
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
Other tankers
|
|
|
5,241
|
|
|
|
|
|
|
|
|
|
|
|
5,182
|
|
|
|
|
|
|
|
|
|
|
|
5,183
|
|
|
|
|
|
|
|
|
|
Ship sale revenue
|
|
|
43,075
|
|
|
|
|
|
|
|
|
|
|
|
16,546
|
|
|
|
|
|
|
|
|
|
|
|
8,667
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
|
2,105
|
|
|
|
|
|
|
|
|
|
|
|
5,989
|
|
|
|
|
|
|
|
|
|
|
|
6,496
|
|
|
|
|
|
|
|
|
|
Adjustments(*)
|
|
|
(478
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,645
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,321
|
)
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
279,217
|
|
|
|
|
|
|
|
|
|
|
|
331,046
|
|
|
|
|
|
|
|
|
|
|
|
319,018
|
|
|
|
|
|
|
|
|
|
*
|
Vessel revenue earned and voyage expenses incurred by the joint-ventures are included within the operating segment information on a proportionate consolidation basis for the period the joint venture existed during the relevant period. Accordingly, joint-ventures’ proportionate financial information are adjusted out to reconcile to the consolidated and combined financial statements.
|
Vessel operating costs per day. Vessel
operating costs per day represents vessel operating costs divided by the number of calendar days for owned vessels during the period.
The vessel operating costs and the number of calendar days used to calculate vessel operating costs per day includes the proportionate
share of our joint ventures’ vessel operating costs and calendar days for the period the joint venture existed during the
relevant period and excludes charter-in costs and charter-in days.
Vessel operating costs per day is a non-GAAP
performance measure commonly used in the shipping industry to provide an understanding of the daily technical management costs
relating to the running of owned vessels.
Long-term charter-in costs and Long-term
charter-in costs per day. Long-term charter-in costs is defined as the charter costs relating to chartered-in vessels included
in our Fleet from time to time, which are vessels for which the period of the charter that we initially commit to is 12 months
or more, even if at a given time the remaining period of their charter may be less than 12 months (“long-term charter-in
vessels”). Such long-term charter-in costs, divided by the number of operating days for the relevant vessels during the
period, is long-term charter-in costs per day.
Before the application of IFRS 16 on January
1, 2019, long-term charter-in costs were included in charter hire costs in the statement of profit and loss. From January 1, 2019,
charter hire costs in the statement of profit and loss only includes charter costs that meet the definition of short-term leases
in terms of IFRS 16 which, due to practical expedients allowed under IFRS 16, for the period from January 1, 2019 to December 31,
2019 includes charter costs relating to some but not all of our long-term charter-in vessels, with the charter costs relating to
the remainder of our long-term charter-in vessels presented as lease payments on ships. Accordingly, charter hire costs and lease
payments on ships together comprise “adjusted charter hire costs”.
Long-term charter-in costs and long-term charter-in
costs per day are non-GAAP performance measures used primarily to provide an understanding of the total costs and total costs per
day relating to the charter-in of the company’s long-term chartered-in vessels.
Below is a reconciliation from long-term charter-in
costs to adjusted charter hire costs for the 12 month periods ended December 31, 2020, 2019, and 2018.
|
|
Year ended December 31,
|
|
|
|
2020
|
|
(In thousands of U.S. dollars)
|
|
Charter hire
costs
|
|
|
Lease payments
on Ships
|
|
|
Adjusted charter
hire costs
|
|
|
Long-term
charter-in
costs
|
|
|
Short-
term charter-
in costs
|
|
|
Adjusted
charter hire
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handysize
|
|
|
8,827
|
|
|
|
—
|
|
|
|
8,827
|
|
|
|
—
|
|
|
|
8,827
|
|
|
|
8,827
|
|
Supramax/ultramax
|
|
|
25,541
|
|
|
|
27,388
|
|
|
|
52,929
|
|
|
|
27,143
|
|
|
|
25,786
|
|
|
|
52,929
|
|
Medium range tankers
|
|
|
3,851
|
|
|
|
1,795
|
|
|
|
5,646
|
|
|
|
5,646
|
|
|
|
—
|
|
|
|
5,646
|
|
Small tankers
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Others
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Adjustments(*)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
38,219
|
|
|
|
29,183
|
|
|
|
67,402
|
|
|
|
|
|
|
|
|
|
|
|
67,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
(In thousands of U.S. dollars)
|
|
Charter hire
costs
|
|
|
Lease payments
on Ships
|
|
|
Adjusted charter
hire costs
|
|
|
Long-term
charter-in
costs
|
|
|
Short-
term charter-
in costs
|
|
|
Adjusted
charter hire
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handysize
|
|
|
15,162
|
|
|
|
—
|
|
|
|
15,162
|
|
|
|
—
|
|
|
|
15,162
|
|
|
|
15,162
|
|
Supramax/ultramax
|
|
|
41,393
|
|
|
|
26,953
|
|
|
|
68,346
|
|
|
|
29,738
|
|
|
|
38,608
|
|
|
|
68,346
|
|
Medium range tankers
|
|
|
5,581
|
|
|
|
5,585
|
|
|
|
11,166
|
|
|
|
11,166
|
|
|
|
—
|
|
|
|
11,166
|
|
Small tankers
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Others
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Adjustments(*)
|
|
|
(468
|
)
|
|
|
—
|
|
|
|
(468
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(468
|
)
|
|
|
|
61,668
|
|
|
|
32,538
|
|
|
|
94,206
|
|
|
|
|
|
|
|
|
|
|
|
94,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2018
|
|
(In thousands of U.S. dollars)
|
|
Charter hire
costs
|
|
|
Lease payments
on Ships
|
|
|
Adjusted charter
hire costs
|
|
|
Long-term
charter-in
costs
|
|
|
Short-
term charter-
in costs
|
|
|
Adjusted
charter hire
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handysize
|
|
|
16,091
|
|
|
|
—
|
|
|
|
16,091
|
|
|
|
1,904
|
|
|
|
14,187
|
|
|
|
16,091
|
|
Supramax/ultramax
|
|
|
69,428
|
|
|
|
—
|
|
|
|
69,428
|
|
|
|
29,580
|
|
|
|
39,848
|
|
|
|
69,428
|
|
Medium range tankers
|
|
|
16,090
|
|
|
|
—
|
|
|
|
16,090
|
|
|
|
16,090
|
|
|
|
—
|
|
|
|
16,090
|
|
Small tankers
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Others
|
|
|
1,468
|
|
|
|
—
|
|
|
|
1,468
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,468
|
|
Adjustments(*)
|
|
|
(2,429
|
)
|
|
|
—
|
|
|
|
(2,429
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,429
|
)
|
|
|
|
100,648
|
|
|
|
—
|
|
|
|
100,648
|
|
|
|
|
|
|
|
|
|
|
|
100,648
|
|
|
*
|
Charter hire costs, Lease payments on Ships, Long-term charter-in costs and Short-term charter-in costs incurred by the joint ventures are included within the operating segment information on a proportionate consolidation basis. Accordingly, joint ventures’ proportionate financial information are adjusted out to reconcile to the consolidated and combined financial statements.
|
EBITDA and Adjusted EBITDA. EBITDA is
defined as earnings before income tax expense or credit, interest income, interest expense, impairment loss recognized on financial
assets, share of losses of joint ventures and depreciation and amortization. For periods commencing January 1, 2019, interest expense
and depreciation include amounts relating to leases and classified, as appropriate, as interest expense or depreciation –
right-of-use assets under the application of IFRS 16. Adjusted EBITDA is EBITDA adjusted to exclude the items set forth in the
table below, which represent certain non-recurring, non-operating or other items that we believe are not indicative of the ongoing
performance of our core operations.
EBITDA and Adjusted EBITDA are used by analysts
in the shipping industry as common performance measures to compare results across peers. EBITDA and Adjusted EBITDA are not items
recognized by IFRS, and should not be considered in isolation or used as alternatives to loss for the period or any other indicator
of our operating performance.
Our presentation of EBITDA and Adjusted EBITDA
is intended to supplement investors’ understanding of our operating performance by providing information regarding our ongoing
performance that exclude items we believe do not directly affect our core operations and enhancing the comparability of our ongoing
performance across periods. Our management considers EBITDA and Adjusted EBITDA to be useful to investors because such performance
measures provide information regarding the profitability of our core operations and facilitate comparison of our operating performance
to the operating performance of our peers. Additionally, our management uses EBITDA and Adjusted EBITDA as measures when reviewing
our operating performance. While we believe these measures are useful to investors, the definitions of EBITDA and Adjusted EBITDA
used by us may not be comparable to similar measures used by other companies.
The table below presents the reconciliation
between loss for the period to EBITDA and Adjusted EBITDA for the 12 month periods ended December 31, 2020, 2019 and 2018:
|
|
Year Ended December 31,
|
|
(In thousands of U.S. dollars)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Loss for the Period
|
|
$
|
(41,100
|
)
|
|
$
|
(43,487
|
)
|
|
$
|
(20,640
|
)
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
723
|
|
|
|
685
|
|
|
|
1,389
|
|
Interest income
|
|
|
(565
|
)
|
|
|
(1,979
|
)
|
|
|
(3,787
|
)
|
Interest expense
|
|
|
16,938
|
|
|
|
11,916
|
|
|
|
6,517
|
|
Impairment loss recognized on financial assets
|
|
|
1,823
|
|
|
|
—
|
|
|
|
1,583
|
|
Share of losses of joint ventures
|
|
|
945
|
|
|
|
1,420
|
|
|
|
454
|
|
Depreciation and amortization
|
|
|
51,549
|
|
|
|
48,763
|
|
|
|
14,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
30,313
|
|
|
$
|
17,318
|
|
|
$
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for
|
|
|
|
|
|
|
|
|
|
|
|
|
Listing costs
|
|
|
—
|
|
|
|
—
|
|
|
|
3,582
|
|
Impairment loss recognized on ships
|
|
|
16,282
|
|
|
|
16,995
|
|
|
|
—
|
|
Impairment loss recognized on right-of-use assets
|
|
|
—
|
|
|
|
2,250
|
|
|
|
—
|
|
Impairment loss recognized on goodwill and intangibles
|
|
|
—
|
|
|
|
3,179
|
|
|
|
—
|
|
Impairment loss recognized on assets in disposal group
|
|
|
576
|
|
|
|
—
|
|
|
|
—
|
|
Impairment loss recognized on office equipment, furniture and fittings and motor vehicles
|
|
|
138
|
|
|
|
—
|
|
|
|
—
|
|
Gain on disposals of businesses
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,255
|
)
|
Gain on deemed disposal of previously held joint venture
|
|
|
—
|
|
|
|
—
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTED EBITDA
|
|
$
|
47,309
|
|
|
$
|
39,742
|
|
|
$
|
(78
|
)
|
Headline Loss and Headline Loss Per Share.
The JSE requires that we calculate and publicly disclose Headline Loss Per Share and Diluted Headline Loss Per Share. Headline
Loss Per Share is calculated using net income which has been determined based on IFRS. Accordingly, this may differ to the Headline
Loss Per Share calculation of other companies listed on the JSE because such companies may report their financial results under
a different financial reporting framework such as U.S. GAAP.
Headline Loss for the period represents Loss
for the period adjusted for the re-measurements that are more closely aligned to the operating or trading results as set forth
below, and Headline Loss Per Share represents this figure divided by the weighted average number of ordinary shares outstanding
for the period.
The table below presents a reconciliation between
Loss for the period to Headline Loss for the 12 month periods ended December 31, 2020, 2019 and 2018:
|
|
Year ended December 31,
|
|
(In thousands of U.S. dollars, other than per share data)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Reconciliation between loss for the period and headline earnings:
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(38,795
|
)
|
|
$
|
(43,487
|
)
|
|
$
|
(20,640
|
)
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss recognized on joint venture’s ships
|
|
|
—
|
|
|
|
—
|
|
|
|
2,862
|
|
Impairment loss recognized on ships
|
|
|
16,282
|
|
|
|
16,995
|
|
|
|
—
|
|
Impairment loss recognized on right-of-use assets
|
|
|
—
|
|
|
|
2,250
|
|
|
|
—
|
|
Impairment loss recognized on goodwill and intangibles
|
|
|
|
|
|
|
3,179
|
|
|
|
—
|
|
Impairment loss recognized on assets of disposal group
|
|
|
576
|
|
|
|
—
|
|
|
|
—
|
|
Impairment loss recognized on office equipment, furniture and fittings and motor vehicles
|
|
|
138
|
|
|
|
—
|
|
|
|
—
|
|
(Gain) loss on disposals of plant and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
(63
|
)
|
Gain on disposals of business
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,255
|
)
|
Gain on deemed disposal of previously held joint venture
|
|
|
—
|
|
|
|
—
|
|
|
|
(213
|
)
|
Capital gains tax on sale of businesses
|
|
|
—
|
|
|
|
—
|
|
|
|
1, 797
|
|
Headline Loss
|
|
$
|
(21,799
|
)
|
|
$
|
(21,063
|
)
|
|
$
|
(19,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares on which the per share figures have been calculated
|
|
|
18,966,414
|
|
|
|
19,022,665
|
|
|
|
19,063,833
|
|
Basic and diluted loss per share
|
|
$
|
(2.05
|
)
|
|
$
|
(2.29
|
)
|
|
$
|
(1.08
|
)
|
Basic and diluted headline loss per share
|
|
$
|
(1.15
|
)
|
|
$
|
(1.11
|
)
|
|
$
|
(1.02
|
)
|
Critical Accounting Policies and Estimates
Our consolidated and combined financial statements
and accompanying notes are prepared in accordance with IFRS. In many instances, the application of such principles requires management
to make estimates or to apply subjective principles to particular facts and circumstances.
Critical
accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different
results under different assumptions and conditions. Described below are our critical accounting policies and estimates
where we believe that had we made different estimations, judgments or interpretations from the ones we made, would have yielded
the most significant differences in our consolidated and combined financial statements.
See Note 2 to the consolidated and combined
financial statements for a summary of all of our significant accounting policies.
Vessels and depreciation
Owned vessels are measured at cost less accumulated
depreciation and any accumulated impairment losses. Cost comprises acquisition cost and costs directly related to the acquisition
up until the time when the asset is ready for use, including interest expense incurred to finance the vessel during that period.
The market average useful life of a vessel is estimated to range from 25 to 30 years at which point it would usually be scrapped.
Our strategy is to maintain a young fleet compared to the market average. For accounting purposes, we estimate useful life as 15 years
from date of delivery for new vessels. Vessels are depreciated on a straight-line basis to an estimated residual value over their
useful life.
An increase in the useful life of the vessel
or in its residual value would have the effect of decreasing the annual depreciation charge and, in the case of an increased useful
life, extending it into later periods. A decrease in the useful life of the vessel or in its residual value would have the effect
of increasing the annual depreciation charge.
The carrying value of our vessels will not
necessarily represent the fair market value of such vessels or the amount we could obtain if we were to sell any of our vessels.
Pursuant to our bank credit facilities, prior to drawdown of loans under the credit facilities we submit to the lenders open-market,
individual, charter-free valuations of the vessels collateralizing the relevant facility. Thereafter, we will regularly submit
to the lenders valuations of our vessels done on the same basis in order to evidence our compliance with the collateral maintenance
covenants under our bank credit facilities. We also obtain such valuations each quarter on all 100% owned vessels, joint venture
owned vessels and all chartered-in vessels where there is a purchase option in our Fleet. These valuations as well as the valuations
for the purposes of the bank credit facilities, are performed by an independent valuator not connected with the group, who has
appropriate qualifications and relevant experience in the valuation of the vessels in the relevant sectors. We have received valuations
on all 100% owned vessels, joint venture owned vessels and all chartered-in vessels where we have purchase options in our Fleet
as of December 31, 2020. If we were to compare those valuations to the carrying value of our consolidated vessels as of December 31,
2020, that carrying value would exceed their valuations by an aggregate of $90.8 million, and, for those individual vessels
where the carrying value exceeds the valuation, ranging from $0.1 million to $6.8 million. The valuations of our vessels can
vary depending on the shipyards where they were built and the dates of delivery.
Impairment of Vessels (including owned and right-of-use)
The carrying amount of our vessels will not
necessarily represent the fair market value of such vessels or the amount we could obtain if we were to sell any of our vessels.
We evaluate the carrying amount of our vessels for events or indicators of potential impairment. We consider if we have contracted
to divest the vessel for any reason, business plans such as if a joint venture that owns vessels comes to an end in accordance
with its terms or if it no longer fits into our strategic planning and overall market conditions. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable
amount is the higher of fair value less costs of disposal and value in use. Recoverable amount is the higher of fair value less
costs to sell and value in use.
In developing a value in use calculation
for a vessel, we make assumptions and estimates about vessels’ future performance, with the most significant assumptions
relating to (i) charter rates on vessels which are based on management’s estimate of the average charter rates over
the remaining life of the vessel to 15 years, (ii) off-hire days, which are based on historical off-hire statistics
for our Fleet, (iii) operating costs, based on current levels escalated over time based on long-term trends, (iv) drydocking
frequency, duration and cost, (v) estimated remaining useful life which is assessed as a total of 15 years from construction
and (vi) estimated sale value of that vessel when the vessel reaches 15 years. We apply the U.S. dollar inflation rate
to vessel operating costs (not including depreciation). The future cash flows are discounted to their present value using the
current fiscal year’s discount rate to reflect the time value of money.
Although we believe that the assumptions
used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no
assurance as to how long-term charter rates and vessel values (for owned vessels) will remain at their current levels, whether
they will improve by any significant degree, or whether they will achieve the forecast charter rates estimated in the value in
use calculations. Charter rates may remain at depressed levels for some time, which could adversely affect our revenue and profitability,
and future assessments of vessel impairment.
For vessels that we have contracted to
sell, the recoverable amount will be classified as inventories are determined based on estimated selling price less cost to sell,
with fair value determined based on the market comparable approach that reflects recent transaction prices for similar vessels,
with similar age and specifications. In valuing the vessels, the appraisers take into consideration the prevailing market conditions
and make adjustments for differences where necessary before arriving at the most appropriate value for the vessels.
Management monitors developments in the market
charter rates in order to assess the appropriateness of the charter rates that are utilized in the impairment analyses.
As of December 31, 2020, a change to the
following estimate used in management’s assessment would result in the recoverable amount of each vessels being below the
carrying amount of the vessel (on the basis that each of the other key assumptions remain unchanged):
Drybulk Carriers: 0.0% to 21.91%
decrease to the charter rate or 0.0% to 72.25% increase to the discount rate
Tankers: 22.87% decrease to the charter
rate or 13.15% increase to the discount rate
Based on our impairment analysis, an impairment
loss on our ships of $16.3 million was recognized in “other operating (expense) income” for the year ended December
31, 2020. The impairment loss was largely due to the depressed charter rates and vessel values as a result of an oversupply of
vessel capacity.
Revenue Recognition and Voyage Expenses
Vessel revenue
The primary source of revenue is vessel revenue
which comprise of charter hire of ships and freight revenue.
Charter hire revenue is recognized over time
as we satisfy our performance obligation based on time elapsed between the delivery of a vessel to a charterer and the redelivery
of a vessel from the charterer. Other variable hire components of the charter contract, such as off-hire and speed claims, are
recognized only to the extent that it is highly probable that a significant reversal will not occur when the uncertainty is subsequently
resolved.
Included in the charter hire revenue is the
revenue that we earned from pool arrangements. For IVS Handysize Pool and IVS Supramax Pool, we recognize total gross revenue earned
by the pools as we are principal to the arrangements and correspondingly, we also recognizes the share of third party vessel owners’
net earnings of the pool in the voyage expenses in the period incurred. For third party pool arrangements that our vessels participate
in, we recognize revenue based on its portion of the net distributions reported by the relevant pool, which represents the net
voyage revenue of the pool after voyage expenses and pool manager fees.
Freight revenue is recognized over time as
we satisfy our performance obligation based on the duration of the voyage between the time the ship is ready at the load port until
the cargo has been delivered at the discharge port, as measured using the time that has elapsed from commencement of performance
at the load port. The duration of a voyage depends on the size of the ship being loaded, cargo type and quantity, ship speed as
well as delays occasioned by weather or due congestion at load or discharge ports. Included in freight revenue is demurrage and
dispatch which is recognized in the period such consideration was incurred. We consider demurrage and despatch at contract inception
and reassess them throughout the contract period.
We recognize a provision for onerous contract
when we have a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits
expected to be received under such contract. Full provision is made for the present obligations of the unavoidable future losses
of fulfilling the terms of onerous vessel charter contracts or COAs to which we are committed.
Sale of vessels, bunkers and consumables
We generate revenue from the sale of vessels,
bunkers and consumables. Immediately prior to the contracted sale, the vessel would be classified as inventories. Revenue is recognized
when control of the ships, bunkers and consumables have been delivered to the buyer. We only have the right to the consideration
at the point of transfer of the asset. The corresponding cost shall be accounted for as cost of sales.
Management fees
We also generate revenue from the management
and operation of vessels owned by third parties and by equity-accounted investees as well as providing corporate management services
to such entities. The performance obligations within these contracts will typically consist of crewing, technical management, insurance
and potentially commercial management. The performance obligations are satisfied concurrently and consecutively rendered over the
duration of the management contract, as measured using the time that has elapsed from commencement of performance. Consideration
for such contracts will generally consist of a fixed monthly management fee, plus the reimbursement of crewing and other costs
for vessels being managed. Management fees are typically invoiced monthly.
Voyage expenses
Voyage expenses that relate directly to a contract
include charter hire expenses, fuel expenses and port expenses. Contract costs are deferred and amortized over the course of the
voyage on a percentage completion basis that is consistent with the revenue recognition. This percentage of completion is derived
from time elapsed between the tender of readiness to load a cargo or delivery of a vessel to a charterer, and the completion of
discharging a cargo or redelivery of a vessel from a charterer. Contract costs are recognized as an asset if they represent incremental
costs of obtaining a contract or fulfilment costs that (i) relate directly a contract or to an anticipated contract, (ii) generate
or enhance resources to be used in meeting obligations under the contract and (iii) are expected to be recovered.
Leases
We adopted IFRS 16 on January 1, 2019 which
resulted in the initial measurement of right-of-use assets of $69.4 million and corresponding lease liabilities of $68.7 million
on our consolidated statement of financial position on January 1, 2019. Prepayments relating to leases of $0.7 million were reclassified
to right-of-use assets and there is no impact to retained earnings on January 1, 2019. Please see Note 2.15 Significant Accounting
Policies to our consolidated and combined financial statements for additional information. Prior to January 1, 2019, we recognized
lease expense in accordance with IAS 17 where rental payables under operating leases are charged to profit or loss on a straight-line
basis over the term of the relevant lease.
Right-of-use assets are subsequently measured
at cost less accumulated depreciation and impairment losses. Depreciation of right-of-use assets commences at the start of the
lease and they are depreciated over the shorter period of lease term and useful life of the underlying asset. The lease liability
is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments made.
For leases with extension options, we exercised
our judgement by considering the circumstances that would create an economic incentive to exercise such options. This is assessed
on an ongoing basis and the extension options are only included in the lease term if the lease is reasonably certain to be exercised.
At December 31, 2020, we have not recognized $90.6 million of lease liabilities because it is not reasonably certain that the leases
will be extended.
One of the charter contracts requiring the
recognition of a right-of-use assets and a lease liability contains variable payment terms that is linked to an index and such
variable lease payments are recognized in charter hire cost in the profit or loss in the period in which the condition that triggers
those payments occurs. A 5% increase in the index will result in such variable lease contracts to increase its total lease payments
by approximately $0.02 million.
Results of Operations
Year Ended December 31, 2020 Compared
to the Year Ended December 31, 2019
Certain financial data on a consolidated and
combined basis and for our key segments was as follows for the years ended December 31, 2020 and 2019. This information was
derived from our consolidated and combined financial statements for the respective periods.
Consolidated and Combined Results of Operations
|
|
Year Ended December 31,
|
|
(In thousands of U.S. dollars)
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
279,217
|
|
|
$
|
331,046
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
(83,441
|
)
|
|
|
(149,444
|
)
|
Vessel operating costs
|
|
|
(47,477
|
)
|
|
|
(33,889
|
)
|
Charter hire costs
|
|
|
(38,220
|
)
|
|
|
(61,668
|
)
|
Depreciation of ships, drydocking and plant and equipment - owned assets
|
|
|
(23,849
|
)
|
|
|
(17,529
|
)
|
Depreciation of ships and ship equipment – right-of-use assets
|
|
|
(26,413
|
)
|
|
|
(30,449
|
)
|
Other expenses
|
|
|
(980
|
)
|
|
|
(697
|
)
|
Cost of ship sale
|
|
|
(43,731
|
)
|
|
|
(16,844
|
)
|
Gross profit
|
|
|
15,106
|
|
|
|
20,526
|
|
Other operating expense
|
|
|
(11,734
|
)
|
|
|
(23,559
|
)
|
Administrative expense
|
|
|
(24,608
|
)
|
|
|
(28,412
|
)
|
Share of losses of joint ventures
|
|
|
(945
|
)
|
|
|
(1,420
|
)
|
Impairment loss recognized on financial assets
|
|
|
(1,823
|
)
|
|
|
—
|
|
Interest income
|
|
|
565
|
|
|
|
1,979
|
|
Interest expense
|
|
|
(16,938
|
)
|
|
|
(11,916
|
)
|
Loss before taxation
|
|
|
(40,377
|
)
|
|
|
(42,802
|
)
|
Income tax
|
|
|
(723
|
)
|
|
|
(685
|
)
|
Loss for the year
|
|
$
|
(41,100
|
)
|
|
$
|
(43,487
|
)
|
Segment Results of Operations(1)
|
|
Year Ended December 31,
|
|
(In thousands of U.S. dollars)
|
|
2020
|
|
|
2019
|
|
Drybulk Carriers Business
|
|
|
|
|
|
|
|
|
Handysize Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
84,519
|
|
|
$
|
112,232
|
|
Cost of Sales
|
|
$
|
(90,453
|
)
|
|
$
|
(111,454
|
)
|
Supramax/ultramax Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
124,672
|
|
|
$
|
155,155
|
|
Cost of Sales
|
|
$
|
(121,284
|
)
|
|
$
|
(148,671
|
)
|
Tankers Business
|
|
|
|
|
|
|
|
|
Medium Range Tankers Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
52,226
|
|
|
$
|
45,165
|
|
Cost of Sales
|
|
$
|
(43,893
|
)
|
|
$
|
(39,898
|
)
|
Small Tankers Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
15,730
|
|
|
$
|
21,899
|
|
Cost of Sales
|
|
$
|
(14,088
|
)
|
|
$
|
(18,762
|
)
|
|
(1)
|
Segment results of operations include the impact of the proportionate share of joint ventures, which differs from the statements of profit or loss in our consolidated and combined financial statements which account for our investments in joint ventures under the equity method.
|
Set forth below are selected historical and
statistical data of our operating fleet for the years ended December 31, 2020 and 2019 that we believe may be useful in better
understanding our operating fleet’s financial position and results of operations(1).
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Drybulk Carriers Business
|
|
|
|
|
|
|
|
|
Handysize Segment
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
6,882
|
|
|
|
6,495
|
|
Available days(3)
|
|
|
6,713
|
|
|
|
6,405
|
|
Operating days(4)
|
|
|
6,584
|
|
|
|
6,352
|
|
Owned fleet operating days(5)
|
|
|
5,354
|
|
|
|
4,546
|
|
Long-term charter-in days(6)
|
|
|
-
|
|
|
|
—
|
|
Short-term charter-in days(7)
|
|
|
1,230
|
|
|
|
1,806
|
|
Fleet utilization(8)
|
|
|
98.1
|
%
|
|
|
99.2
|
%
|
TCE per day(9)
|
|
$
|
6,629
|
|
|
$
|
7,770
|
|
Vessel operating costs per day(10)
|
|
$
|
5,030
|
|
|
$
|
5,040
|
|
Long-term charter in costs per day(11)
|
|
|
—
|
|
|
$
|
—
|
|
Supramax/ultramax Segment
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
7,787
|
|
|
|
6,670
|
|
Available days(3)
|
|
|
7,736
|
|
|
|
6,626
|
|
Operating days(4)
|
|
|
7,526
|
|
|
|
6,601
|
|
Owned fleet operating days(5)
|
|
|
2,514
|
|
|
|
959
|
|
Long-term charter-in days(6)
|
|
|
2,261
|
|
|
|
2,351
|
|
Short-term charter-in days(7)
|
|
|
2,751
|
|
|
|
3,291
|
|
Fleet utilization(8)
|
|
|
97.3
|
%
|
|
|
99.6
|
%
|
TCE per day(9)
|
|
$
|
10,072
|
|
|
$
|
12,067
|
|
Vessel operating costs per day(10)
|
|
$
|
5,073
|
|
|
$
|
4,545
|
|
Long-term charter in costs per day(11)
|
|
$
|
12,005
|
|
|
$
|
12,650
|
|
|
|
|
|
|
|
|
|
|
Tankers Business
|
|
|
|
|
|
|
|
|
Medium Range Tankers Segment
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
1,434
|
|
|
|
2,253
|
|
Available days(3)
|
|
|
1,434
|
|
|
|
2,253
|
|
Operating days(4)
|
|
|
1,432
|
|
|
|
2,253
|
|
Owned fleet operating days(5)
|
|
|
1,063
|
|
|
|
1,523
|
|
Long-term charter-in days(6)
|
|
|
369
|
|
|
|
730
|
|
Short-term charter-in days(7)
|
|
|
—
|
|
|
|
—
|
|
Fleet utilization(8)
|
|
|
99.9
|
%
|
|
|
100.0
|
%
|
TCE per day(9)
|
|
$
|
16,339
|
|
|
$
|
14,341
|
|
Vessel operating costs per day(10)
|
|
$
|
6,723
|
|
|
$
|
6,691
|
|
Long-term charter in costs per day(11)
|
|
$
|
15,300
|
|
|
$
|
15,300
|
|
Small Tankers Segment
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
425
|
|
|
|
908
|
|
Available days(3)
|
|
|
425
|
|
|
|
897
|
|
Operating days(4)
|
|
|
409
|
|
|
|
896
|
|
Owned fleet operating days(5)
|
|
|
409
|
|
|
|
896
|
|
Long-term charter-in days(6)
|
|
|
—
|
|
|
|
—
|
|
Short-term charter-in days(7)
|
|
|
—
|
|
|
|
—
|
|
Fleet utilization(8)
|
|
|
96.2
|
%
|
|
|
99.9
|
%
|
TCE per day(9)
|
|
$
|
12,374
|
|
|
$
|
12,190
|
|
Vessel operating costs per day(10)
|
|
$
|
6,384
|
|
|
$
|
6,321
|
|
Long-term charter in costs per day(11)
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
Segment results of operations include the proportionate share of joint ventures, which differs from the statements of profit or loss in our consolidated and combined financial statements which account for our investments in joint ventures under the equity method.
|
|
(2)
|
Calendar days: total calendar days the vessels were in our possession for the relevant period. Comparability of the calendar days are affected by the consolidation of the IVS Bulk vessels since February 2020.
|
|
(3)
|
Available days: total number of calendar days a vessel is in our possession for the relevant period after subtracting off-hire days for scheduled drydocking and special surveys. We use available days to measure the number of days in a relevant period during which vessels should be available for generating revenue. Comparability of the available days are affected by the consolidation of the IVS Bulk vessels since February 2020.
|
|
(4)
|
Operating days: the number of available days in the relevant period a vessel is controlled by us after subtracting the aggregate number of days that the vessel is off-hire due to a reason other than scheduled drydocking and special surveys, including unforeseen circumstances. We use operating days to measure the aggregate number of days in a relevant period during which vessels are actually available to generate revenue. Comparability of the operating days are affected by the consolidation of the IVS Bulk vessels since February 2020.
|
|
(5)
|
Owned fleet operating days: the number of operating days in which our owned fleet is operating for the relevant period.
|
|
(6)
|
Long-term charter-in days: the number of operating days for which our long-term charter-in fleet is operating for the relevant period. We regard chartered-in vessels as long-term charters if the period of the charter that we initially commit to is 12 months or more. Once we have included such chartered-in vessels in our Fleet, we will continue to regard them as part of our Fleet until the end of their chartered-in period, including any period that the charter has been extended under an option, even if at a given time the remaining period of their charter may be less than 12 months.
|
|
(7)
|
Short-term charter-in days: the number of operating days for which we have chartered-in third party vessels for durations of less than one year for the relevant period.
|
|
(8)
|
Fleet utilization: the percentage of time that vessels are available for generating revenue, determined by dividing the number of operating days during a relevant period by the number of available days during that period. We use fleet utilization to measure a company’s efficiency in technically managing its vessels.
|
|
(9)
|
TCE per day: vessel revenue less voyage expenses during a relevant period divided by the number of operating days during the period. The number of operating days used to calculate TCE revenue per day includes the proportionate share of our joint ventures’ operating days and includes charter-in days. See “—Non-GAAP Financial Measures” above for a discussion of TCE revenue and a reconciliation of TCE revenue to revenue.
|
|
(10)
|
Vessel operating costs per day: vessel operating costs per day represents vessel operating costs divided by the number of calendar days for owned vessels. The vessel operating costs and the number of calendar days used to calculate vessel operating costs per day includes the proportionate share of our joint ventures’ vessel operating costs and calendar days and excludes charter-in costs and charter-in days. See “—Non-GAAP Financial Measures” above for a discussion of vessel operating costs per day.
|
|
(11)
|
Long-term charter-in costs per day: charter costs associated with long-term charter-in vessels divided by long-term charter-in days for the relevant period. See “—Non-GAAP Financial Measures” above for a discussion of long-term charter-in costs and its reconciliation to adjusted charter hire costs. That discussion also shows an analysis of adjusted charter hire costs split between long-term charter-in costs and short-term charter-in costs.
|
Revenue. Revenue decreased by $51.8 million,
or approximately 15.6%, from $331.0 million for the year ended December 31, 2019 to $279.2 million for the year
ended December 31, 2020. The decrease in revenue was primarily due to a decrease in spot rates in the drybulk market and a
decrease in the number of operating days in the tanker business, partially offset by an increase in ship sale revenue and an increase
in spot rates for the tanker business. The largest component of revenue is vessel revenue. Vessel revenue decreased by $74.5 million,
or approximately 24.1%, from $308.5 million for the year ended December 31, 2019 to $234.0 million for the year
ended December 31, 2020, respectively. The decrease in vessel revenue was primarily due to a decline in the demand for dry
bulk tonnage as a result of the COVID-19 pandemic, which negatively impacted the spot rates in the drybulk market and a decrease
in the number of tanker operating days in 2020 due to the vessel sales, partially offset by an increase in spot rates for the tanker
business.
Drybulk Business Revenue and Vessel Revenue
In the drybulk business, our handysize
total revenue decreased by $27.7 million, or approximately 24.7%, from $112.2 million for the year ended December 31, 2019
to $84.5 million for the year ended December 31, 2020. The handysize business experienced a decrease in the spot rates due to
the impact of the COVID-19 pandemic on the demand for drybulk tonnage, partially offset by the increase in ship sale revenue.
The supramax/ultramax total revenue decreased by $30.5 million, or approximately 19.7%, from $155.2 million for the
year ended December 31, 2019 to $124.7 million for the year ended December 31, 2020. The decrease in the supramax/ultramax
total revenue was primarily due to a decrease in the spot rates in 2020 as a consequence of the COVID-19 pandemic, partially offset
by an increase in operating days as a result of the delivery of two long-term chartered in vessels in 2020 and the delivery of
a long-term chartered in vessel and two owned vessels in 2019.
Our handysize vessel revenue decreased by $28.2 million,
or approximately 27.4%, from $102.8 million for the year ended December 31, 2019 to $74.6 million for the year ended
December 31, 2020. The decrease in 2020 was primarily due to the same reasons set forth above. Our supramax/ultramax vessel
revenue decreased by $29.5 million, or approximately 19.2%, from $153.9 million for the year ended December 31,
2019 to $124.4 million for the year ended December 31, 2020. The decrease in 2020 was primarily due to the same reasons
set forth above.
Tankers Business Revenue and Vessel Revenue
In the tankers business, our medium range
tankers total revenue increased by $7.0 million, or approximately 15.5%, from $45.2 million, for the year ended December 31,
2019 to $52.2 million for the year ended December 31, 2020. The increase in the medium range tankers total revenue was
primarily due to revenue from the sale of two medium range tankers in 2020 compared with the sale of a medium tanker by a joint
venture in 2019, partially offset by a decrease in the number of operating days in 2020 as a result of the vessel sales mentioned
above and the redelivery of two long-term chartered in medium range tankers in 2020. The small tankers total revenue decreased
by $6.2 million, or approximately 28.3%, from $21.9 million for the year ended December 31, 2019 to $15.7 million,
for the year ended December 31, 2020. The decrease in the small tankers total revenue was primarily due to a decrease in
the operating days as a result of the sale of a small tanker in 2019 and a further sale in 2020 offset partially by an increase
in spot rates for small tankers.
Our medium range tankers and small tankers
vessel revenue decreased by $14.4 million and $6.8 million, respectively, or approximately 38.1% and 50.7%, respectively,
from $37.8 million and $13.4 million, respectively for the year ended December 31, 2019 to $23.4 million and
$6.6 million, respectively, for the year ended December 31, 2020. The decrease in the medium range tankers and small
tankers vessel revenue was primarily due to the decrease in operating days as a result of tanker sales, offset partially by an
increase in spot rates for medium range tankers.
Drybulk Business TCE Revenue
Handysize TCE per day decreased by $1,141 per
day, or approximately 14.7%, from $7,770 per day for the year ended December 31, 2019 to $6,629 per day for the year
ended December 31, 2020 primarily due to a decrease in the handysize spot market rates.
Supramax/ultramax TCE per day decreased by
$1,995 per day, or approximately 16.5%, from $12,067 per day for the year ended December 31, 2019 to $10,072 per day for the
year ended December 31, 2020 primarily due to a decrease in the supramax/ultramax spot market rates.
Global lockdowns due to the COVID-19 pandemic and the resultant
decline in the demand for dry bulk tonnage negatively impacted the drybulk spot market.
Tankers Business TCE Revenue
Medium range tankers TCE per day increased
by $1,998 per day, or approximately 13.9%, from $14,341 per day for the year ended December 31, 2019 to $16,339 per day for
the year ended December 31, 2020 primarily due to an increase in medium range tanker spot rates in the first half of 2020.
Small tankers TCE per day increased by $184 per
day, or approximately 1.5%, from $12,190 per day for the year ended December 31, 2019 to $12,374 per day for the year
ended December 31, 2020 primarily due to an increase in tanker spot rates in the first half of 2020, partially offset by market
and operational disruptions.
Cost of sales. Total cost of sales
decreased by $46.4 million, or approximately 14.9%, from $310.5 million for the year ended December 31, 2019 to
$264.1 million for the year ended December 31, 2020. The largest component of cost of sales is voyage expenses, which
decreased by $66.0 million from $149.4 million for the year ended December 31, 2019 to $83.4 million for the
year ended December 31, 2020. This decrease in voyage expenses was primarily due to the decrease in pool distributions to
third party pool participants, a decrease in fuel costs and the expiry of a tanker cargo contract in the second half of 2019.
The decrease in pool distributions was due to the additional acquisition and subsequent consolidation of IVS Bulk. Fuel costs
declined significantly in the first quarter of 2020 as the COVID-19 pandemic reduced the demand for fuel. In addition, the reduced
number of freight voyages reduced the quantity of fuel used by us. Charter hire costs decreased by $23.5 million from $61.7 million
for the year ended December 31, 2019 to $38.2 million for the year ended December 31, 2020. This decrease was due
to a decrease in the short- term charter-in days due to the decrease in the demand for drybulk vessels, the lower spot rate for
short term chartered in dry bulk vessels and the redelivery of certain vessels that were classified as short term vessels under
the practical expedients on the implementation of IFRS 16. Vessel operating costs increased by $13.6 million from $33.9 million
in the year to December 31, 2019 to $47.5 million in the year to December 31, 2020. The main reason for this increase was the
additional acquisition and subsequent consolidation of IVS Bulk, offset by a reduction in vessel operating costs as a result of
the sale of a handysize drybulk carrier in each of 2020 and 2019, and the sale of a small tanker in each of 2020 and 2019 and
the sale of two medium range tankers in 2020. Depreciation of ships, dry-docking and plant and equipment – owned assets
increased by $6.3 million from $17.5 million in the year to December 31, 2019 to $23.8 million in the year to December 31, 2020.
The main reason for this increase was the additional acquisition and subsequent consolidation of IVS Bulk, partially offset by
the sale of vessels as described above. Depreciation of ships and ship equipment - right-of-use assets decreased by $4.0 million
from $30.4 million in the year to December 31, 2019 to $26.4 million in the year to December 31, 2020. The main reason for this
decrease was due to the redelivery of a medium range long-term chartered in vessels and a long-term chartered in supramax/ultramax
vessel and the extension of two long-term charter-in vessels at lower rates, partially offset by the delivery of two long-term
charter-in newbuildings. Other expenses remained relatively flat with an increase of $0.3 million from $0.7 million in the year
to December 31, 2019 to $1.0 million in the year to December 31, 2020. Cost of ship sale increased by $26.9 million from $16.8
million in the year to December 31, 2019 to $43.7 million in the year to December 31, 2020. This increase is due to four vessels,
a handysize drybulk carrier, a small tanker and two medium range tankers being sold in 2020 as compared to one handysize drybulk
carrier and one small tanker being sold in 2019.
Drybulk Business Cost of Sales
In the drybulk business, our handysize segment
cost of sales decreased by $21.0 million, or approximately 18.8%, from $111.5 million for the year ended December 31,
2019 to $90.5 million for the year ended December 31, 2020. This decrease was primarily due to a decrease in the pool
distributions to third party pool participants in our handysize pool due to the additional acquisition and subsequent consolidation
of IVS Bulk, lower fuel costs as the COVID-19 pandemic reduced demand and lower spot rates for short term chartered in vessels,
partially offset by an increase in operating costs and depreciation due to the additional acquisition and subsequent consolidation
of IVS Bulk. Our handysize segment voyage expenses decreased by $22.4 million, or approximately 41.9%, from $53.4 million
for the year ended December 31, 2019 to $31.0 million for the year ended December 31, 2020. This decrease was primarily
due to a decrease in the pool distributions to third party pool participants in our handysize pool due to the additional acquisition
and subsequent consolidation of IVS Bulk and the decreased fuel costs in 2020. The charter hire costs in the handysize segment
decreased by $6.4 million, or approximately 42.1%, from $15.2 million for the year ended December 31, 2019 to $8.8 million for
the year ended December 31, 2020. There were fewer short term chartered in vessels in 2020 and at a lower charter-in cost per day
due to reduced global demand for drybulk tonnage. Our handysize vessel operating costs increased by $4.8 million, or approximately
20.3%, from $23.6 million for the year ended December 31, 2019 to $28.4 million for the year ended December 31,
2020. The increase was primarily due to the additional acquisition and subsequent consolidation of IVS Bulk, partially offset by
the reduced number of owned vessels as a result of the sale of a vessel in 2019 and a further sale in 2020.
Our supramax/ultramax segment cost of sales
decreased by $27.4 million, or approximately 18.4%, from $148.7 million for the year ended December 31, 2019 to
$121.3 million for the year ended December 31, 2020. This decrease was primarily due to a decrease in the pool distributions
to third party pool participants in our supramax/ultramax pool due to the additional acquisition and subsequent consolidation of
IVS Bulk, lower fuel costs as the COVID-19 pandemic reduced demand and lower spot rates for short term chartered in vessels, partially
offset by an increase in operating costs and depreciation due to the additional acquisition and subsequent consolidation of IVS
Bulk. Our supramax/ultramax segment voyage expenses decreased by $25.8 million, or approximately 34.7%, from $74.3 million
for the year ended December 31, 2019 to $48.5 million for the year ended December 31, 2020. This decrease was primarily
due to a decrease in the pool distributions to third party pool participants due to the additional acquisition and subsequent consolidation
of IVS Bulk and lower fuel costs as the COVID-19 pandemic reduced demand. The charter hire costs in the supramax/ultramax segment
decreased by $15.9 million, or approximately 38.4%, from $41.4 million for the year ended December 31, 2019 to $25.5 million for
the year ended December 31, 2020. There was a lower number of short- term charter-in days in 2020 at a lower charter-in cost per
day due to reduced global demand for drybulk tonnage. Our supramax/ultramax vessel operating costs increased by $9.2 million, or
approximately 209.1%, from $4.4 million for the year ended December 31, 2019 to $13.6 million for the year ended December 31,
2020. The increase was primarily due to the additional acquisition and subsequent consolidation of IVS Bulk and repair costs on
a small number of vessels arising from the change over from high sulphur fuel to low sulphur fuel.
Drybulk Business Vessel Operating Costs Per Day
Handysize vessel operating costs per day decreased
by $10, or approximately 0.2%, from $5,040 per day for the year ended December 31, 2019 to $5,030 per day for the year ended
December 31, 2020.
Supramax/ultramax vessel operating costs per
day increased by $528, or approximately 11.6%, from $4,545 per day for the year ended December 31, 2019 to $5,073 per
day for the year ended December 31, 2020. These increases were primarily due to the repair costs on a small number of vessels
arising from the change over from high sulphur fuel to low sulphur fuel.
In the first half of 2020, employment contracts
for crew were extended to protect the crew from exposure to COVID-19 and to continue the operation of the vessels. This resulted
in temporary cost savings on the crew repatriation. These savings were reversed in the second half of 2020 as the costs of flights
increased, vessels were deviated to facilitate repatriation of existing crew and collect replacement crew from accessible ports,
additional costs of COVID-19 testing were incurred and cost for the purchase of personal protective equipment were incurred.
Tankers Business Cost of Sales
In the tankers business, our medium range tankers
cost of sales increased by $4.0 million, or approximately 10.0%, from $39.9 million for the year ended December 31,
2019 to $43.9 million for the year ended December 31, 2020. The increase was primarily due to the increase in cost of
ship sale due to the two medium range tankers sold in 2020, partially offset by a decrease in operating costs and depreciation
as a result of the reduced number of vessels, the decrease in charter hire due to the redelivery of a vessel and the decrease in
voyage expenses due to the expiry of a cargo contract. Our small tankers cost of sale decreased by $4.7 million, or approximately
25.0%, from $18.8 million for the year ended December 31, 2019 to $14.1 million for the year ended December 31,
2020. This decrease was primarily due to a decrease in the number of vessels as a result of ship sales.
Our medium range tankers voyage expenses and
small tankers voyage expenses decreased by $5.5 million and $0.9 million, respectively, or approximately 100.0% and 36.0%,
respectively, from $5.5 million and $2.5 million, respectively, for the year ended December 31, 2019 to $0 million
and $1.6 million, respectively, for the year ended December 31, 2020. The decrease in medium range tankers voyage expenses
was primarily due to the expiry of a cargo contract in the second half of 2019. The decrease in the small tanker voyage expenses
was due to reduced operating days due to vessel sales and operational disruptions.
Our medium range tankers charter hire costs
decreased by $1.7 million or approximately 30.4%, from $5.6 million for the year ended December 31, 2019 to $3.9 million
for the year ended December 31, 2020. The decrease in the medium range tankers charter hire costs was largely due to the redelivery
of a vessel during 2020.
Our medium range tankers vessel operating costs
and small tankers vessel operating costs decreased by $3.0 million and $3.0 million, respectively, or approximately 29.4%
and 52.6%, respectively, from $10.2 million and $5.7 million, respectively for the year ended December 31, 2019
to $7.2 million and $2.7 million, respectively for the year ended December 31, 2020. These decreases were primarily
due to a decrease in the number of vessels operating in 2020 as a result of vessel sales. In the medium range tanker segment two
medium range tankers were sold in 2020 and in the small tankers segment a small tanker in each of 2020 and 2019 were sold.
Tankers Business Vessel Operating Costs Per Day
Medium range tankers vessel operating cost
per day increased by $32, or approximately 0.5%, from $6,691 per day for the year ended December 31, 2019 to $6,723 per day
for the year ended December 31, 2020.
Small tankers vessel operating costs per day
increased by $63, or approximately 1.0%, from $6,321 per day for the year ended December 31, 2019 to $6,384 per day for
the year ended December 31, 2020.
Gross profit. Gross profit decreased
by $5.4 million, or 26.3%, from $20.5 million for the year ended December 31, 2019 to $15.1 million for the
year ended December 31, 2020 primarily for the reasons described above.
Other operating expense. Other operating
expense decreased by $11.9 million or 50.4% from $23.6 million recorded in the year ended December 31, 2019 to $11.7 million recorded
in the year ended December 31, 2020. In the year ended December 31, 2020, we recorded impairment losses on vessel sales of $16.3
million, an impairment loss on the disposal group of $0.6 million and an impairment loss on office equipment, furniture and fittings
and motor vehicles of $0.1 million. For the year ended December 31, 2019, we recorded impairment losses on vessel sales of $17.0
million, impairment losses on goodwill and intangibles of $3.2 million and impairment losses on right-of-use assets of $2.3 million.
We recorded a foreign exchange gain of $5.2 million and for the year ended December 31, 2020 and we incurred a foreign exchange
loss of $0.3 million for the year ended December 31, 2019 as a result of unrealized and realized revaluations of foreign currency
bank balances, vendor balances and customer balances at period end.
Administrative expense. Administrative
expense decreased by $3.8 million, or approximately 13.4%, from $28.4 million for the year ended December 31, 2019
to $24.6 million for the year ended December 31, 2020 primarily due to reduced staff costs, travel costs and office costs
which were partially offset by increased information technology costs.
Share of losses of joint ventures.
Share of losses of joint ventures decreased from a loss of $1.4 million for the year ended December 31, 2019 to a loss
of $0.9 million for the year ended December 31, 2020. Following the consolidation of IVS Bulk in February 2020 and the
sale of the IVS Triview in November 2020, we no longer have any vessels in unconsolidated joint venture structures. Our drybulk
joint ventures were impacted by lower spot market rates, which was partially offset by a gain in our tanker joint venture on the
forgiving of a loan from the shareholder.
Impairment loss recognized on financial
assets. On December 31, 2020, we impaired a financial asset being a receivable from Leopard Tankers to the extent of $1.8 million
due to the impending process of winding up the joint venture, and for the year ended December 31, 2019 there was no impairment
loss recognized on financial assets.
Interest income. Interest income decreased
by $1.4 million from $2.0 million for the year ended December 31, 2019 to $0.6 million for the year ended December 31,
2020. Interest on loans to our joint ventures decreased for the 12 months ended December 31, 2020 due to loan repayments by joint
ventures. Bank interest decreased for the 12 months ended December 31, 2020 due to the reduction in the average interest rate.
Interest expense. Interest expense increased
by $5.0 million from $11.9 million for the year ended December 31, 2019 to $16.9 million for the year ended December
31, 2020, primarily due to the additional acquisition and subsequent consolidation of IVS Bulk, the interest on the $35.8 million
senior secured credit facility used to fund the acquisition of 33.25% of IVS Bulk, the amortization of upfront fees on the $35.8
million senior secured credit facility, partially offset by the reduction in the LIBOR rate as a consequence of the COVID-19 pandemic
and the sale of vessels that were secured by credit facilities. Interest expense on bank loans increased by $3.8 million from $7.8
million for the year ended December 31, 2019 to $11.6 million for the year ended December 31, 2020. Interest expense on bank loans
reflect the payment of interest on debt that principally funds our vessels. Our bank loans outstanding increased from $165.4 million
as at December 31, 2019 to $278.4 million as at December 31, 2020 primary due to the acquisition of 33.25% of IVS Bulk and the
subsequent consolidation of the subsidiary. The weighted average effective interest rate on our outstanding debt decreased from
5.1% in 2019 to 4.1% in 2020. The decrease in the weighted average effective interest rate was primarily due to the reduction in
LIBOR as a consequence of the COVID-19 pandemic, partially offset by the $35.8 million senior secured credit facility that incurs
interest at a fixed rate of 7.5% per annum.
Income tax. Income tax for the year
remained flat at $0.7 million for the year ended December 31, 2019 and $0.7 million for the year ended December 31,
2020.
Loss for the year. Our loss for the
year ended December 31, 2020 decreased to a loss of $41.1 million from a loss of $43.5 million for the year ended December 31,
2019 for the same reasons set forth above.
Year Ended December 31, 2019 Compared
to the Year Ended December 31, 2018
Certain financial data on a consolidated and
combined basis and for our key segments was as follows for the years ended December 31, 2019 and 2018. This information was
derived from our consolidated and combined financial statements for the respective periods.
Consolidated and Combined Results of Operations
|
|
Year Ended December 31,
|
|
(In thousands of U.S. dollars)
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
331,046
|
|
|
$
|
319,018
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
(149,444
|
)
|
|
|
(151,705
|
)
|
Vessel operating costs
|
|
|
(33,889
|
)
|
|
|
(32,657
|
)
|
Charter hire costs
|
|
|
(61,668
|
)
|
|
|
(100,648
|
)
|
Depreciation of ships, drydocking and plant and equipment - owned assets
|
|
|
(17,529
|
)
|
|
|
(14,094
|
)
|
Depreciation of ships and ship equipment – right-of-use assets
|
|
|
(30,449
|
)
|
|
|
—
|
|
Other expenses
|
|
|
(697
|
)
|
|
|
(1,146
|
)
|
Cost of ship sale
|
|
|
(16,844
|
)
|
|
|
(7,675
|
)
|
Gross profit
|
|
|
20,526
|
|
|
|
11,093
|
|
Other operating (expense) income
|
|
|
(23,559
|
)
|
|
|
6,022
|
|
Administrative expense
|
|
|
(28,412
|
)
|
|
|
(31,599
|
)
|
Share of losses of joint ventures
|
|
|
(1,420
|
)
|
|
|
(454
|
)
|
Impairment loss recognized on financial assets
|
|
|
—
|
|
|
|
(1,583
|
)
|
Interest income
|
|
|
1,979
|
|
|
|
3,787
|
|
Interest expense
|
|
|
(11,916
|
)
|
|
|
(6,517
|
)
|
Loss before taxation
|
|
|
(42,802
|
)
|
|
|
(19,251
|
)
|
Income tax
|
|
|
(685
|
)
|
|
|
(1,389
|
)
|
Loss for the year
|
|
$
|
(43,487
|
)
|
|
$
|
(20,640
|
)
|
Segment Results of Operations(1)
|
|
Year Ended December 31,
|
|
(In thousands of U.S. dollars)
|
|
2019
|
|
|
2018
|
|
Drybulk Carriers Business
|
|
|
|
|
|
|
|
|
Handysize Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
112,232
|
|
|
$
|
126,709
|
|
Cost of Sales
|
|
$
|
(111,454
|
)
|
|
$
|
(117,554
|
)
|
Supramax/ultramax Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
155,155
|
|
|
$
|
147,322
|
|
Cost of Sales
|
|
$
|
(148,671
|
)
|
|
$
|
(146,612
|
)
|
Tankers Business
|
|
|
|
|
|
|
|
|
Medium Range Tankers Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
45,165
|
|
|
$
|
37,911
|
|
Cost of Sales
|
|
$
|
(39,898
|
)
|
|
$
|
(39,795
|
)
|
Small Tankers Segment
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
21,899
|
|
|
$
|
21,175
|
|
Cost of Sales
|
|
$
|
(18,762
|
)
|
|
$
|
(18,641
|
)
|
|
(1)
|
Segment results of operations include the proportionate share of joint ventures, which differs from the statements of profit or loss in our consolidated and combined financial statements which account for our investments in joint ventures under the equity method.
|
Set forth below are selected historical and
statistical data of our operating fleet for the years ended December 31, 2019 and 2018 that we believe may be useful in better
understanding our operating fleet’s financial position and results of operations(1).
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Drybulk Carriers Business
|
|
|
|
|
|
|
|
|
Handysize Segment
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
6,495
|
|
|
|
6,704
|
|
Available days(3)
|
|
|
6,405
|
|
|
|
6,565
|
|
Operating days(4)
|
|
|
6,352
|
|
|
|
6,495
|
|
Owned fleet operating days(5)
|
|
|
4,546
|
|
|
|
4,915
|
|
Long-term charter-in days(6)
|
|
|
—
|
|
|
|
221
|
|
Short-term charter-in days(7)
|
|
|
1,806
|
|
|
|
1,359
|
|
Fleet utilization(8)
|
|
|
99.2
|
%
|
|
|
98.9
|
%
|
TCE per day(9)
|
|
$
|
7,770
|
|
|
$
|
9,032
|
|
Vessel operating costs per day(10)
|
|
$
|
5,040
|
|
|
$
|
5,201
|
|
Long-term charter in costs per day(11)
|
|
|
—
|
|
|
$
|
8,600
|
|
Supramax/ultramax Segment
|
|
|
|
|
|
|
|
|
Calendar days(2)
|
|
|
6,670
|
|
|
|
6,401
|
|
Available days(3)
|
|
|
6,626
|
|
|
|
6,345
|
|
Operating days(4)
|
|
|
6,601
|
|
|
|
6,315
|
|
Owned fleet operating days(5)
|
|
|
959
|
|
|
|
704
|
|
Long-term charter-in days(6)
|
|
|
2,351
|
|
|
|
2,299
|
|
Short-term charter-in days(7)
|
|
|
3,291
|
|
|
|
3,312
|
|
Fleet utilization(8)
|
|
|
99.6
|
%
|
|
|
99.5
|
%
|
TCE per day(9)
|
|
$
|
12,067
|
|
|
$
|
11,878
|
|
Vessel operating costs per day(10)
|
|
$
|
4,545
|
|
|
$
|
4,641
|
|
Long-term charter in costs per day(11)
|
|
$
|
12,650
|
|
|
$
|
12,866
|
|
|
|
|
|
|
|
|
|
|
Tankers Business
|
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Medium Range Tankers Segment
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Calendar days(2)
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2,253
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2,733
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Available days(3)
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2,253
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2,721
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Operating days(4)
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2,253
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2,660
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Owned fleet operating days(5)
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1,523
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1,587
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Long-term charter-in days(6)
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730
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1,073
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Short-term charter-in days(7)
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—
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—
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Fleet utilization(8)
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100.0
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%
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97.8
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%
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TCE per day(9)
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$
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14,341
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$
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11,258
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Vessel operating costs per day(10)
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$
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6,691
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$
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6,888
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Long-term charter in costs per day(11)
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$
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15,300
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$
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14,995
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Small Tankers Segment
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Calendar days(2)
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908
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1,268
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Available days(3)
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897
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1,234
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Operating days(4)
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896
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1,223
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Owned fleet operating days(5)
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896
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1,223
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Long-term charter-in days(6)
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—
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—
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Short-term charter-in days(7)
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—
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—
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Fleet utilization(8)
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99.9
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%
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99.1
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%
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TCE per day(9)
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$
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12,190
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$
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11,392
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Vessel operating costs per day(10)
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$
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6,321
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$
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7,069
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Long-term charter in costs per day(11)
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—
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—
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(1)
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Segment results of operations include the proportionate share of joint ventures, which differs from the statements of profit or loss in our consolidated and combined financial statements which account for our investments in joint ventures under the equity method.
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(2)
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Calendar days: total calendar days the vessels were in our possession for the relevant period.
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(3)
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Available days: total number of calendar days a vessel is in our possession for the relevant period after subtracting off-hire days for scheduled drydocking and special surveys. We use available days to measure the number of days in a relevant period during which vessels should be available for generating revenue.
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(4)
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Operating days: the number of available days in the relevant period a vessel is controlled by us after subtracting the aggregate number of days that the vessel is off-hire due to a reason other than scheduled drydocking and special surveys, including unforeseen circumstances. We use operating days to measure the aggregate number of days in a relevant period during which vessels are actually available to generate revenue.
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(5)
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Owned fleet operating days: the number of operating days in which our owned fleet is operating for the relevant period.
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(6)
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Long-term charter-in days: the number of operating days for which our long-term charter-in fleet is operating for the relevant period. We regard chartered-in vessels as long-term charters if the period of the charter that we initially commit to is 12 months or more. Once we have included such chartered-in vessels in our Fleet, we will continue to regard them as part of our Fleet until the end of their chartered-in period, including any period that the charter has been extended under an option, even if at a given time the remaining period of their charter may be less than 12 months.
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(7)
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Short-term charter-in days: the number of operating days for which we have chartered-in third party vessels for durations of less than one year for the relevant period.
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(8)
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Fleet utilization: the percentage of time that vessels are available for generating revenue, determined by dividing the number of operating days during a relevant period by the number of available days during that period. We use fleet utilization to measure a company’s efficiency in technically managing its vessels.
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(9)
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TCE per day: vessel revenue less voyage expenses during a relevant period divided by the number of operating days during the period. The number of operating days used to calculate TCE revenue per day includes the proportionate share of our joint ventures’ operating days and includes charter-in days. See “—Non-GAAP Financial Measures” above for a discussion of TCE revenue and a reconciliation of TCE revenue to revenue.
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(10)
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Vessel operating costs per day: vessel operating costs per day represents vessel operating costs divided by the number of calendar days for owned vessels. The vessel operating costs and the number of calendar days used to calculate vessel operating costs per day includes the proportionate share of our joint ventures’ vessel operating costs and calendar days and excludes charter-in costs and charter-in days. See “—Non-GAAP Financial Measures” above for a discussion of vessel operating costs per day.
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(11)
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Long-term charter-in costs per day: charter costs associated with long-term charter-in vessels divided by long-term charter-in days for the relevant period. See “—Non-GAAP Financial Measures” above for a discussion of long-term charter-in costs and its reconciliation to adjusted charter hire costs. That discussion also shows an analysis of adjusted charter hire costs split between long-term charter-in costs and short-term charter-in costs.
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Revenue. Revenue increased by $12.0 million,
or approximately 3.8%, from $319.0 million for the year ended December 31, 2018 to $331.0 million for the year ended
December 31, 2019. The largest component of revenue is vessel revenue. Vessel revenue increased by $4.6 million, or approximately
1.5%, from $303.9 million for the year ended December 31, 2018 to $308.5 million for the year ended December 31,
2019, respectively. The increase in revenue was primarily due to an increase in ship sale revenue, increased spot rates for the
supramax/ultramax segment, medium range tanker segment and small tanker segment and the consolidation into our accounts of the
revenue of two additional medium range tankers in 2019.
Drybulk Business Revenue and Vessel Revenue
In the drybulk business, our handysize total
revenue decreased by $14.5 million, or approximately 11.4%, from $126.7 million for the year ended December 31, 2018 to $112.2
million for the year ended December 31, 2019. The handysize business experienced a decrease in the number of operating days in
2019 due to the redelivery of a vessel in August 2018, the sale of a vessel in October 2018 and a further sale of a vessel in April
2019 partially offset by an increase in the number of short term operating days. The handysize business also experienced a decrease
in the spot rates in 2019. The supramax/ultramax total revenue increased by $7.9 million, or approximately 5.4%, from $147.3 million
for the year ended December 31, 2018 to $155.2 million for the year ended December 31, 2019. The increase in the
supramax/ultramax total revenue was primarily due to an increase in the number of operating days due to the delivery of a long
term chartered in vessel in June 2019 and the delivery of two owned vessels in August 2019 and September 2019 respectively. This
was offset by the redelivery of a long term chartered in vessel in December 2018. The supramax/ultramax business also experienced
an increase in the spot rates in 2019.
Our handysize vessel revenue decreased by $13.6 million,
or approximately 11.7%, from $116.4 million for the year ended December 31, 2018 to $102.8 million for the year
ended December 31, 2019. The decrease in 2019 was primarily due to the same reasons set forth above. Our supra/ultramax vessel
revenue increased by $7.8 million, or approximately 5.3%, from $146.1 million for the year ended December 31, 2018
to $153.9 million for the year ended December 31, 2019. The increase in 2019 was primarily due to the same reasons set
forth above.
Tankers Business Revenue and Vessel Revenue
In the tankers business, our medium range tankers
and small tankers total revenue increased by $7.3 million and $0.7 million, respectively, or approximately 19.3% and
3.3%, respectively, from $37.9 million and $21.2 million, respectively, for the year ended December 31, 2018 to
$45.2 million and $21.9 million, respectively, for the year ended December 31, 2019. The increase in the medium
range tankers total revenue was primarily due to ship sale revenue from the sale of a medium range tanker that was part of a joint
venture structure in 2019 compared with no tanker sales in 2018, and an increase in the tanker spot rates in 2019. This was partially
offset by a decrease in the number of operating days in 2019 as a result of the vessel sale mentioned above and the redelivery
of a long term chartered in medium range tanker in December 2018. The increase in the small tankers total revenue was primarily
due to ship sale revenue on the sale of a wholly-owned small tanker in 2019 compared to the sale of a small tanker in 2018 that
was owned by a joint venture, and an increase in the tanker spot rates in 2019. This was partially offset by the effect of a decrease
in the operating days as a result of the sale of the vessels mentioned above.
Our medium range tankers and small tankers
vessel revenue decreased by $0.1 million and $4.0 million, respectively, or approximately 0.3% and 23.0%, respectively,
from $37.9 million and $17.4 million, respectively for the year ended December 31, 2018 to $37.8 million and
$13.4 million, respectively, for the year ended December 31, 2019. The decrease in the medium range tankers vessel revenue
was primarily due to a decrease in the number of operating days in 2019 as a result of the sale of a medium range tanker at the
end of 2019 and the redelivery of a long term chartered in medium range tanker in December 2018 which was largely offset by an
increase in tanker spot rates. The decrease in the small tanker vessel revenue was primarily due to a decrease in the number of
operating days in 2019 as a result of the sale of a small tanker in each of 2018 and 2019, partially offset by an increase in tanker
spot rates in 2019.
Drybulk Business TCE Revenue
Handysize TCE per day decreased by $1,262 per
day, or approximately 14.0%, from $9,032 per day for the year ended December 31, 2018 to $7,770 per day for the year
ended December 31, 2019 primarily due to a decrease in the handysize spot market.
Supramax/ultramax TCE per day increased by
$189 per day, or approximately 1.6%, from $11,878 per day for the year ended December 31, 2018 to $12,067 per day for the
year ended December 31, 2019 While the supramax/ultramax spot market was lower in 2019, our spot rates in 2019 were higher
than in 2018.
Tankers Business TCE Revenue
Medium range tankers TCE per day increased
by $3,083 per day, or approximately 27.4%, from $11,258 per day for the year ended December 31, 2018 to $14,341 per day for
the year ended December 31, 2019 primarily due to an increase in medium range tanker spot rates.
Small tankers TCE per day increased by $798 per
day, or approximately 7.0%, from $11,392 per day for the year ended December 31, 2018 to $12,190 per day for the year
ended December 31, 2019 primarily due to an increase in tanker spot rates.
Cost of sales. Total cost of sales increased
by $2.6 million, or approximately 0.8%, from $307.9 million for the year ended December 31, 2018 to $310.5 million
for the year ended December 31, 2019. The largest component of cost of sales is voyage expenses, which decreased by $2.3 million
from $151.7 million for the year ended December 31, 2018 to $149.4 million for the year ended December 31,
2019. This decrease in voyage expenses was primarily due to the decrease in pool distributions to third party pool participants
and a decrease in port costs which was partially offset by an increase in fuel costs. The decrease in pool distributions was attributable
to a decrease in the net earnings of the pools with a decrease in the handysize spot rate which was partially offset by an increase
in the supramax/ultramax spot rate. The port costs decreased largely due to a decrease in the number of voyages, and as a result
the number of port calls, reported for the medium range tankers commercially managed by us for various reasons including fewer
medium range tankers being commercially managed by us in 2019 compared to 2018. Fuel costs increased due to an increase in the
quantity of fuel consumed on voyages and an increase in the price of certain fuels consumed. The second largest component of cost
of sales is charter hire costs, which decreased by $38.9 million from $100.6 million for the year ended December 31,
2018 to $61.7 million for the year ended December 31, 2019. This decrease was due to the implementation of IFRS 16 as
a result of which long-term lease payments that were reported as charter hire costs in 2018 were split into a Depreciation of ships
and ship equipment - right-of-use assets portion and an interest expense portion in 2019. Vessel operating costs increased by $1.2
million from $32.7 million in the year to December 31, 2018 to $33.9 million in the year to December 31, 2019. The main reason
for this increase was the purchase of two tankers in 2019 from a joint venture resulting in the consolidation of the vessel operating
costs of these vessels following their acquisition by us, and the delivery of two supramax/ultramax drybulk carriers in 2019, offset
by a reduction in vessel operating costs as a result of the sale of a handysize drybulk carrier in each of 2018 and 2019, and the
sale of a small tanker in 2019 and general savings in vessel operating costs. Depreciation of ships, dry-docking and plant and
equipment – owned assets increased by $3.4 million from $14.1 million in the year to December 31, 2018 to $17.5 million in
the year to December 31, 2019. The main reason for this increase was the purchase of two tankers in 2019 from a joint venture resulting
in their consolidation into our accounts following their outright acquisition and the delivery of two new supramax/ultramax vessels
in 2019. Depreciation of ships and ship equipment - right-of-use assets of $30.4 million was recognized in the year ended December
31, 2019 due to the implementation of IFRS 16 in which long-term lease payments that were reported as charter hire costs in 2018
are split into a Depreciation of ships and ship equipment – right-of-use assets portion and an interest expense portion in
2019. Other expenses decreased by $0.4 million from $1.1 million in the year to December 31, 2018 to $0.7 million in the year to
December 31, 2019. Cost of ship sale increased by $9.1 million from $7.7 million in the year to December 31, 2018 to $16.8 million
in the years to December 31, 2019. This increase is due to two vessels, a handysize drybulk carrier and a small tanker, being sold
in 2019 as compared to only one handysize drybulk carrier being sold in 2018. The book value of the vessel we sold in 2018, with
its associated bunkers and consumables, was lower than the book values of the vessels, bunkers and consumables we sold in 2019.
Drybulk Business Cost of Sales
In the drybulk business, our handysize segment
cost of sales decreased by $6.1 million, or approximately 5.2%, from $117.6 million for the year ended December 31,
2018 to $111.5 million for the year ended December 31, 2019. This decrease was primarily due to a decrease in the number
of owned and long term chartered in vessels and the increase in short-term vessels off the spot market that were chartered in at
a lower spot rate and lower third party pool distributions due to lower earnings in our handysize pool. The charter hire costs
in the handysize segment decreased by $0.9 million, or approximately 5.6%, from $16.1 million for the year ended December 31, 2018
to $15.2 million for the year ended December 31, 2019. While there was a higher number of short term chartered in vessels in 2019,
this was more than offset by a lower charter-in cost per day. Our handysize segment voyage expenses decreased by $4.3 million,
or approximately 7.5%, from $57.7 million for the year ended December 31, 2018 to $53.4 million for the year ended
December 31, 2019. This decrease was primarily due to lower pool distributions to third party vessels as a result of a lower
charter rates earned in our handysize pool in 2019, partially offset by higher fuel costs in 2019. Our handysize vessel operating
costs decreased by $2.9 million, or approximately 10.9%, from $26.5 million for the year ended December 31, 2018 to $23.6 million
for the year ended December 31, 2019. The decrease was primarily due to the reduced number of owned vessels as a result of
the sale of a vessel in October 2018 and a further sale in April 2019, as well as a decrease in vessel operating costs per day
as a result of general cost saving initiatives.
Our supramax/ultramax segment cost of sales
increased by $2.1 million, or approximately 1.4%, from $146.6 million for the year ended December 31, 2018 to $148.7 million
for the year ended December 31, 2019. This increase was primarily due to an increase in the pool distributions to third party
pool participants and higher fuel costs. The charter hire costs in the supramax/ultramax segment decreased by $28.0 million, or
approximately 40.3%, from $69.4 million for the year ended December 31, 2018 to $41.4 million for the year ended December 31, 2019.
This was as a result of the implementation of IFRS 16 in 2019 in terms of which long-term lease payments that were previously reported
as charter hire costs are split into a Depreciation of ships and ship equipment - right-of-use assets portion and an interest expense
portion. Our supramax/ultramax segment voyage expenses increased by $3.2 million, or approximately 4.5%, from $71.1 million
for the year ended December 31, 2018 to $74.3 million for the year ended December 31, 2019. This increase was primarily
due to an increase in the pool distributions to third party pool participants and higher fuel costs. Our supramax/ultramax vessel
operating costs increased by $1.0 million, or approximately 29.4%, from $3.4 million for the year ended December 31, 2018
to $4.4 million for the year ended December 31, 2019. The increase was primarily due to an increase in the operating
days from the owned fleet due to the delivery of two vessels in 2019 partially offset by a decrease in vessel operating costs per
day as a result of general cost savings initiatives.
Drybulk Business Vessel Operating Costs Per Day
Handysize vessel operating costs per day decreased
by $161, or approximately 3.1%, from $5,201 per day for the year ended December 31, 2018 to $5,040 per day for the year ended
December 31, 2019.
Supramax/ultramax vessel operating costs per
day decreased by $96, or approximately 2.1%, from $4,641 per day for the year ended December 31, 2018 to $4,545 per day
for the year ended December 31, 2019.
These decreases were primarily due to general
cost saving initiatives.
Tankers Business Cost of Sales
In the tankers business, our medium range tankers
segment and small tankers segment cost of sales remained relatively flat at $39.8 million and $18.6 million, respectively,
for the year ended December 31, 2018 and $39.9 million and $18.8 million, respectively, for the year ended December 31,
2019. In our medium range tankers segment, an increase in depreciation (owned and right-of use assets) and cost of ship sale was
partially offset by a decrease in charter hire costs and voyage expenses. In our small tankers segment, an increase in cost of
ship sale was partially offset by a decrease in vessel operating costs and voyage expenses due to the reduced number of operating
days.
Our medium range tankers charter hire costs
decreased by $10.5 million or approximately 65.2%, from $16.1 million for the year ended December 31, 2018 to $5.6 million
for the year ended December 31, 2019. The decrease in the medium range tankers charter hire costs was largely due to the implementation
of IFRS 16 in 2019 where long-term lease payments that were previously reported as charter hire costs are split into a Depreciation
of ships and ship equipment - right-of-use assets portion and an interest expense portion and the redelivery of a long-term chartered
in vessel in December 2018.
Our medium range tankers voyage expenses and
small tankers voyage expenses decreased by $2.5 million and $1.0 million, respectively, or approximately 31.3% and 28.6%,
respectively, from $8.0 million and $3.5 million, respectively, for the year ended December 31, 2018 to $5.5 million
and $2.5 million, respectively, for the year ended December 31, 2019. The decrease in medium range tankers voyage expenses
was largely due to a decrease in the number of voyages reported for the medium range tankers commercially managed by us for various
reasons including fewer medium range tankers being commercially managed by us in 2019 compared to 2018. The decrease in the small
tanker voyage expenses was due to one of the small tankers entering a pool operated by a third party, as a result of which we no
longer report its voyage expenses but instead report its share of the pool revenue after voyage expenses and other disbursements
incurred by the third party pool.
Our medium range tankers vessel operating costs
and small tankers vessel operating costs decreased from $11.3 million and $9.0 million, respectively, for the year ended
December 31, 2018 to $10.2 million and $5.7 million, respectively, for the year ended December 31, 2019. These
decreases were primarily due to a decrease in the number of vessels operating in 2019 as a result of, in the case of the medium
range tankers segment, the sale of a medium range tanker and, in the case of the small tankers segment, sale of a small tanker
in 2019 and a small tanker in 2018.
Tankers Business Vessel Operating Costs Per Day
Medium range tankers vessel operating costs
per day decreased by $197, or approximately 2.9%, from $6,888 per day for the year ended December 31, 2018 to $6,691 per day
for the year ended December 31, 2019.
Small tankers vessel operating costs per day
decreased by $748, or approximately 10.6%, from $7,069 per day for the year ended December 31, 2018 to $6,321 per day
for the year ended December 31, 2019.
These decreases were primarily due to unplanned
and significant repairs in 2018 on an MR tanker and a small tanker that was not repeated in 2019 and general cost saving initiatives.
Gross profit. Gross profit increased
by $9.4 million, or 84.7%, from $11.1 million for the year ended December 31, 2018 to $20.5 million for the
year ended December 31, 2019 primarily for the reasons described above.
Other operating (expense) income. Other
operating income decreased by $29.6 million or 493.3% from $6.0 million recorded in the year ended December 31, 2018 to other operating
expense of $23.6 million recorded in the year ended December 31, 2019. For the year ended December 31, 2019, we recorded impairment
losses on vessel sales of $17.0 million, impairment losses on goodwill and intangibles of $3.2 million and impairment losses on
right-of-use assets of $2.3 million. In the year ended December 31, 2018, we recorded a gain on sale of the two non-core businesses
of $3.3 million. For year ended December 31, 2018, we recorded a foreign exchange gain of $4.3 million and for the year ended
December 31, 2019 we incurred a foreign exchange loss of $0.3 million as a result of unrealized and realized revaluations
of foreign currency bank balances, vendor balances and customer balances at period end.
Administrative expense. Administrative
expense decreased by $3.2 million, or approximately 10.1%, from $31.6 million for the year ended December 31, 2018
to $28.4 million for the year ended December 31, 2019 primarily due to costs associated with the spin off in 2018.
Share of losses of joint ventures. Share
of losses of joint ventures increased from a loss of $0.5 million for the year ended December 31, 2018 to a loss of $1.4 million
for the year ended December 31, 2019. The performances of our various joint ventures in 2019 compared to 2018 was mixed, with
some improving their results and the results of others deteriorating. Our drybulk joint ventures were impacted by lower spot market
rates.
Impairment loss recognized on financial
assets. On December 31, 2018, we impaired a financial asset being a receivable from Leopard Tankers to the extent of $1.6 million
due to the impending process of winding up the joint venture, and for the year ended December 31, 2019 there was no impairment
loss recognized on financial assets.
Interest income. Interest income decreased
by $1.8 million from $3.8 million for the year ended December 31, 2018 to $2.0 million for the year ended December 31,
2019. Interest on loans to our joint ventures decreased for the 12 months ended December 31, 2019 due to partial loan repayments
by joint ventures.
Interest expense. Interest expense increased
by $5.4 million from $6.5 million for the year ended December 31, 2018 to $11.9 million for the year ended December 31,
2019, primarily due to the recognition of interest on lease liabilities of $3.4 million in 2019 following the implementation of
IFRS 16 on January 1, 2019. Interest expense on bank loans increased by $1.7 million from $6.1 million for the year ended December
31, 2018 to $7.8 million for the year ended December 31, 2019. Interest expense on bank loans reflect the payment of interest on
debt that principally funds our vessels. Our bank loans outstanding increased from $114.4 million as at December 31, 2018 to $165.4
million as at December 31, 2019. The weighted average effective interest rate on our outstanding debt decreased from 5.3% in 2018
to 5.1% in 2019. The decrease in the weighted average effective interest rate was partially offset by the new facilities obtained
for two medium range tankers and two supramax/ultramax drybulkers and the new financing arrangements that were entered into in
2019 for three existing handysize vessels which was in aggregate greater than the reduction in debt on the sale of vessels that
secured existing credit facilities.
Income tax. Income tax for the year
decreased from $1.4 million for the year ended December 31, 2018 to $0.7 million for the year ended December 31, 2019.
Income tax was higher in the year ended December 31, 2018 due to the recognition of capital gains tax on the sale of non-core businesses
sold on January 1, 2018.
Loss for the year. Our loss for the
year ended December 31, 2019 increased to a loss of $43.5 million from a loss of $20.6 million for the year ended December 31,
2018 for the same reasons set forth above.
Liquidity and Capital Resources
Overview
We operate in a capital intensive industry.
Our primary short-term liquidity needs relate to working capital needs relating to voyages in progress, corporate overhead, installment
payments on new building construction contracts, payments of interest, quarterly principal payments under our credit facilities,
and any balloon payments on loans coming due in the next 12 months, while our long-term liquidity needs are expected to primarily
relate to drydock payments, installment payments on new building construction contracts, investment in joint ventures or directly
in new and secondhand vessels and final balloon payments relating to our credit facilities. We anticipate that our primary sources
of funds for our short-term liquidity needs will be cash flows from operations, which includes proceeds from the sale of vessels,
including planned and contracted sales, and borrowings. Generally, our long-term sources of funds will be from cash from operations,
long-term borrowings and other debt or equity financings.
As of the date of this annual report, we have
purchase options to acquire five vessels. We have options to purchase the IVS Naruo, the IVS Pinehurst, the
IVS Hayakita, the IVS Pebble Beach and the IVS Atsugi that have or are expected to first enter into the exercise
periods under their respective charter parties in December 2019, October 2020, September 2021, September 2022
and January 2023 respectively. See “Item 4. Information on the Company—Business Overview—Our Fleet”.
The prices of these purchase options range from approximately $18.0 million to $26.6 million, subject to adjustments,
where an option is exercisable on more than one date, based on the remaining time balance of the charter. In each case, such purchase
option is subject to certain other adjustments and conditions and will expire at the completion of the applicable time charter.
The shipping environment has been challenging
and volatile over the last several years due to an oversupply of vessels allied to a lower growth rate of the world economy. As
a result, we have reported losses and negative cash flow for the last three consecutive years. The outbreak of COVID-19 in
2020 has resulted in governments of many countries implementing measures to mitigate the spread of the virus. These measures have
resulted in a significant reduction in global economic activity and extreme volatility in the freight rates for drybulk vessels
which has a significant impact on our operations and cash flows. We manage liquidity risk by monitoring forecast and actual cash
flows and ensuring that adequate borrowing facilities are maintained. Our management may, from time to time, at their discretion
raise or borrow monies for our requirements as they deem fit. There are measures in place to preserve cash, maintain adequate financing
to meet our obligations and protect existing loan covenants imposed by the banks. The covenant levels are monitored continuously
to identify any potential covenant issues so that solutions such as waivers or modifications to the loan covenants to obtain more
favorable terms can be implemented in advance. We may seek to accomplish any of these independently or in conjunction with one
or more of these actions. If the unfavorable market conditions persist, we may be unable to accomplish any of the foregoing on
acceptable terms or at all. Based on the 12 months cash flow forecast prepared by management from the date of this annual report,
our Board of Directors has no reason to believe that we will not continue as a going concern and has assessed that that there is
no material uncertainty related to these conditions and there is no substantial doubt about our ability to continue as a going
concern. We have plans in place to sell certain vessels, repay certain loans, protect existing covenants on term loans and maintain
adequate liquidity.
Cash Flow Discussion
The following table presents cash flow information
for each of the years ended December 31, 2020, 2019 and 2018.
|
|
Year Ended December 31,
|
|
(In thousands of U.S. dollars)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net cash flows generated from (used in)
operating activities(1)
|
|
$
|
70,384
|
|
|
$
|
(55,587
|
)
|
|
$
|
(37,360
|
)
|
Net cash (used in) generated from investing activities
|
|
|
(22,559
|
)
|
|
|
35,166
|
|
|
|
40,024
|
|
Net cash flows (used in) generated
from financing activities
|
|
|
(41,983
|
)
|
|
|
19,373
|
|
|
|
(11,887
|
)
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
5,842
|
|
|
|
(1,048
|
)
|
|
|
(9,223
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
32,527
|
|
|
|
33,498
|
|
|
|
45,245
|
|
Effect of exchange rate changes
on the balance of cash held in foreign currencies
|
|
|
(427
|
)
|
|
|
77
|
|
|
|
(2,524
|
)
|
Cash and cash equivalents,
end of year
|
|
$
|
37,942
|
|
|
$
|
32,527
|
|
|
$
|
33,498
|
|
|
(1)
|
Net cash flows generated from (used in) generated from operating activities includes capital expenditure on ships of $9,021,000, $106,107,000 and $21,351,000 and proceeds from disposal of ships of $40,366,000, $15,634,000 and $8,313,000 for the years ended December 31, 2020, 2019 and 2018, respectively.
|
Net cash flows generated from (used
in) operating activities. Net cash flows generated from (used in) operating activities was an inflow of $70.4 million for
the 12 months ended December 31, 2020 and an outflow of $55.6 million and $37.4 million for the 12 months ended December 31, 2019
and 2018, respectively. Net cash flows generated from operating activities for the 12 months ended December 31, 2020 includes
capital expenditure on vessels of $9.0 million and proceeds from vessel sales of $40.4 million. Net cash flows used in operating
activities for the 12 months ended December 31, 2019 includes capital expenditure on vessels of $106.1 million and proceeds from
vessel sales of $15.6 million. The implementation of IFRS 16 on January 1, 2019 resulted in long-term lease payments that were
previously reported as cash flows used in operations being split into a principal portion and an interest portion, the interest
portion remaining in cash used in operating activities, and the principal portion being presented as cash flow used in financing
activities. In the 12 months ended December 31, 2020 and 2019, the effect of this was that net cash flows from operations increased
by $27.9 million and $29.9 million respectively and cash from financing activities decreased by $27.9 million and $29.9 million
respectively. Net cash flows used in operating activities for the 12 months ended December 31, 2018 includes capital expenditure
on vessels of $21.4 million, proceeds from vessel sales of $8.3 million and payments to related parties of $6.0 million.
Net cash flows generated from (used in) operating
activities increased by $126.0 million due to an inflow of $70.4 million for the year ended December 31, 2020 as compared to an
outflow of $55.6 million for the year ended December 31, 2019, primarily because capital expenditure on vessels decreased by $97.1 million,
proceeds on the sale of ships increased by $24.8 million and positive movements in working capital increased by $8.8 million. This
was partially offset by an increase in interest paid of $3.7 million due to the additional acquisition and subsequent consolidation
of IVS Bulk and the decrease in interest received of $1.1 million due to the settlement of loans to joint ventures.
Net cash flows used in operating activities
increased by $18.2 million to $55.6 million for the year ended December 31, 2019 as compared to $37.4 million for the year ended
December 31, 2018, primarily because capital expenditure on vessels increased by $84.7 million. This was partially offset
by a decrease in cash used in operating activities of $29.9 million as a result of the implementation of IFRS 16, improved cash
flow (before the movement in working capital and ships) in 2019 of $15.8 million (excluding the impact of IFRS 16), positive movements
in the working capital of $13.5 million and proceeds from vessel sales increased by $7.3 million in 2019 compared to 2018.
Net cash (used in) generated from investing
activities. Net cash (used in) generated from investing activities was an outflow of $22.6 million for the 12 months ended
December 31, 2020, an inflow of $35.2 million and $40.0 for the 12 months ended December 31, 2019 and 2018, respectively. Net
cash used in investing activities in the 12 months ended December 31, 2020 was impacted by the acquisition of 33.25% of IVS Bulk
(net of cash acquired) of $28.3 million, repayment of related parties of $2.1 million partially offset by the receipt of loan
repayments from joint ventures of $5.1 million and the dividends and distributions from joint ventures of $3.1 million. Net cash
generated from investing activities in the 12 months ended December 31, 2019 was impacted by the repayment by joint ventures of
$20.3 million of loans to joint ventures, repayments by related parties of $7.6 million of balances with related parties, dividends
received from a joint venture of $5.0 million and capital distribution from a joint venture of $2.5 million. Net cash generated
from investing activities in the 12 months ended December 31, 2018 was impacted by the proceeds from the sales of the two non-core
businesses of $25.3 million and payments received from related parties of $14.1 million.
Net cash flows from investing activities decreased
by $57.6 million for the 12 months to December 31, 2020 compared to the 12 months to December 31, 2019 primarily due to the acquisition
of IVS Bulk (net of the cash acquired) was $28.3 million, distributions received from joint ventures decreased by $4.4 million,
the recovery of joint venture loans decreased by $15.2 million and a decrease of $9.7 million in related party transactions due
to payments made to related parties of $2.1 million in 2020 compared to payments received from related parties of $7.6 million
in 2019. Net cash flows from investing activities decreased by $4.8 million for the 12 months to December 31, 2019 compared to
the 12 months to December 31, 2018 primarily because the net proceeds from the disposal of business and the repayment from related
parties was $25.3 million and US$6.4 million, respectively, more in 2018 than in 2019, which was partially offset by repayment
of loans from joint venture, dividends received from a joint venture and capital distribution from a joint venture being $20.3
million, $5.0 million and $2.5 million, respectively, more in 2019 than in 2018.
Net cash flows (used in) generated from
financing activities. Net cash flows (used in) generated from financing activities was an outflow of $42.0 million for the
12 months ended December 31, 2020, an inflow of $19.4 million for the 12 months ended December 31, 2019 and an outflow of $11.9
million for the 12 months ended December 31, 2018. Net cash flows used in financing activities in the 12 months ended December
31, 2020 was primarily impacted by $74.9 million repayment of existing debt (including repayment of debt as a result of ship sales)
and $28.0 million repayment of lease liabilities, offset by a net inflow of $60.7 million from the incurrence of new debt. Net
cash flows generated from financing activities in the 12 months ended December 31, 2019 was primarily impacted by a net inflow
of $95.8 million from the incurrence of new debt, $45.5 million repayment of existing debt (including repayment of debt as a result
of ship sales), $29.9 million repayment of lease liabilities, $0.9 million of restricted cash was released and treasury shares
of $2.0 million were acquired. Net cash flows used in financing activities in the 12 months ended December 31, 2018 was primarily
impacted by the repayment of loans from related parties of $8.4 million, movement of cash to restricted cash of $8.6 million and
a net inflow of $5.0 million from the incurrence of new debt and the repayment of existing debt. The increase in the restricted
cash was mainly due to the security provided in the debt service reserve account required under the $100.0 million senior secured
credit facility described in “Description of Indebtedness” in this Item 5.
Net cash flows from financing activities
declined by $61.4 million from an inflow of $19.4 million for the year ended December 31, 2019 to an outflow of $42.0 million
for the year ended December 31, 2020 primarily due to the raising of long-term interest bearing debt decreased by $35.1 million,
$0.9 million of restricted cash was released and the payment of the capital portion of long term interest-bearing debt increased
by $29.4 million as a result of increased ship sales, a maturing loan and the acquisition and consolidation of IVS Bulk. This
was partly offset by a decrease in principal repayments on lease liabilities of $1.9 million and a decrease in the acquisition
of treasury shares of $2.0 million.
Net cash flows from financing activities
improved by $31.3 million from an outflow of $11.9 million for the year ended December 31, 2018 to an inflow of $19.4 million
for the year ended December 31, 2019 primarily because the payment of capital portion of long-term interest-bearing debt decreased
by $54.0 million, movements in restricted cash improved by $9.6 million and repayments to related parties decreased by $8.4 million
in 2019 compared to 2018, partly offset by principal repayments on lease liabilities of $29.9 million which was presented in net
cash flows from financing activities as a result of the implementation of IFRS 16 on January 1, 2019 and long-term interest bearing
debt raised being $8.7 million less in 2019 compared to 2018.
Restricted cash. The above cash flow
figures in this “Cash Flow Discussion” are after deducting restricted cash of $12.6 million which is pledged
to certain banks to secure loans and other credit facilities. As of December 31, 2020, we had cash and bank balances (including
restricted cash) of $50.6 million.
Capital Expenditures
We make capital expenditures from time to time
in connection with drydocking activities and maintenance in the ordinary course and in order to comply with environmental and other
governmental regulations and in connection with our vessel acquisitions. We or our joint ventures have previously and may in the
future enter into newbuilding contracts or contracts to acquire newbuildings, or resale contracts, or to acquire second hand vessels.
In addition, we may also explore purchases of vessels held in our joint ventures, or shares in these joint ventures, in the future.
On February 14, 2020, as discussed above under
“Item 4. Information on the Company—Our Joint Ventures”, we acquired all of Regiment’s 33.25% ordinary
shares and preferred shares in IVS Bulk for a total consideration of $44.1 million and we entered into a $35.8 million senior secured
credit facility to partially fund this acquisition.
On December 1, 2020, a loan of $4.0 million
provided by us to IVS Bulk was converted to equity in the form of “A Class” shares in line with the shareholders agreement
dated February 14, 2020. The loan was initially provided on September 30, 2020 with interest calculated at LIBOR plus 3.1%. The
transaction increased our shareholding by 2.11% in IVS Bulk from 66.75% to 68.86%.
In addition to acquisitions that we may undertake
in future periods, we will incur additional expenditures due to drydockings for our Fleet. The location of the drydock will be
decided when the vessel is scheduled to drydock. We estimate our drydocking costs, including capitalized costs incurred during
drydocking related to vessels and vessel equipment, and scheduled off-hire days for our Fleet through 2021 and 2022 to be:
Year
|
|
Estimated Drydocking Cost(1)
|
|
Estimated
Off-hire Days(1)
|
|
|
(U.S. dollars)
|
|
|
2021
|
|
$ 8.1 million
|
|
212.13 days
|
2022
|
|
$ 4.4 million
|
|
96.00 days
|
|
(1)
|
The estimated costs and off-hire days include 100% of the estimated costs and drydocking days relating to IVS Bulk and its subsidiaries as we will consolidate their results into our financial statements following our acquisition of a further 33.25% in IVS Bulk effective February 14, 2020. Please see “Item 4. Information on the Company—Our Joint Ventures” and “Item 5. Operating and Financial Review and Prospects—Recent Developments—Joint Ventures and Vessels”.
|
Actual costs will vary based on various factors,
including where the drydockings are actually performed. We expect to fund these costs with cash from operations. These costs do
not include drydock expense items that are reflected in vessel operating costs or costs associated with the installation of ballast
water treatment systems.
Actual length of drydocking will vary based
on the condition of the vessel, yard schedules and other factors. Higher repairs and maintenance expenses during drydocking for
vessels which are over 15 years old typically result in a higher number of off-hire days depending on the condition of the
vessel.
For the years ended December 31, 2020,
2019 and 2018, we incurred a total of $8.6 million, $4.8 million, and $6.7 million of drydocking costs, respectively, excluding
costs incurred during drydocking that were capitalized to vessel assets or vessel equipment.
During 2020, nine of our vessels (of which
one was held in a joint venture) completed their scheduled drydockings. We estimate that 11 of our vessels (of which none are held
in un-consolidated joint ventures) will be drydocked in 2021 and six of our vessels (of which none are held in un-consolidated
joint ventures) will be drydocked in 2022.
Description of Indebtedness
Below is a summary of our significant debt
obligations.
Loan Agreements
$27.0 Million Senior Secured Credit Facility
On December 9, 2016, a subsidiary of GSPL
entered into a $27.0 million senior secured term loan facility, as has been amended from time to time, with DVB Bank SE Singapore
Branch relating to one medium range tanker. The loan was fully settled on December 22, 2020.
$100.0 Million Senior Secured Credit Facility
On May 8, 2018, GSPL entered into a $100.0 million
senior secured credit facility with Crédit Agricole Corporate and Investment Bank, DVB Bank SE Singapore Branch and Standard
Chartered Bank, Singapore Branch originally relating to 11 handysize drybulk carriers and five tankers, and now relating to six
remaining vessels. The facility bears interest at LIBOR plus a margin of 2.95% per annum. The facility is made up of two tranches
(A and B) of up to $10.0 million and up to $90.0 million respectively. Tranche A matures on May 15, 2022
and Tranche B matures on May 15, 2023. The facility is secured by, among other things (a) first priority mortgages
over each of the remaining vessels, each owned by a subsidiary of GSPL, (b) a guarantee from each of the GSPL subsidiaries
owning the remaining six vessels, as well as Grindrod Shipping, and (c) security over the shares in the GSPL subsidiaries
owning the remaining six vessels. On December 14, 2018, GSPL, as borrower, and Grindrod Shipping, as corporate guarantor and the
subsidiaries owning the vessels, as owner guarantors, entered into a side letter to, among other things, release the proceeds of
the sale of IVS Kanda from a collateral account under the facility, and amend certain terms of the credit facility relating
to mandatory prepayments with the proceeds of a sale of a vessel and the minimum required security cover. On June 28, 2019, GSPL,
as borrower, Grindrod Shipping, as corporate guarantor and the subsidiaries owning the vessels, as owner guarantors, entered into
a second side letter to amend the minimum book value net worth covenant and introduce a new working capital covenant as set out
further in “—Loan Covenants” below, and clarify the calculations of the covenants following the implementation
of IFRS16. On April 16, 2020, the parties to the facility agreement entered into further amendments the purpose of which was to
amend the definitions of consolidated current assets and consolidated current liabilities for purposes of the working capital covenant,
such that the determination of the consolidated current assets and consolidated current liabilities of Grindrod Shipping excludes
any adjustments made for IFRS 16. On December 31, 2020, the parties to the facility agreement entered into further amendments the
purpose of which was to provide relief on the book value net worth covenant, the debt to market adjusted tangible fixed asset ratio
and the working capital covenant as set out further in “—Loan Covenants” below. The covenants applicable to this
facility are the same as the covenants that apply to the $29.9 million senior secured credit facility described below. As of December
31, 2020, $22.6 million was outstanding on this facility.
$29.9 Million Senior Secured Credit Facility
On December 21, 2018, Grindrod Shipping, as
parent guarantor, and two of its subsidiaries that each acquired a medium range “eco” tanker from the Leopard Tankers
joint venture, as joint and several borrowers and hedge guarantors, entered into a $29.9 million senior secured term loan
facility with NIBC Bank N.V. relating to the two tankers. The facility bears interest at LIBOR plus a margin of 3.20% per annum.
The facility matures on December 21, 2023. The facility is secured by, among other things (a) first priority mortgages over
each of the two vessels, each owned by the subsidiaries of Grindrod Shipping party to the facility, (b) a guarantee from each
of the Grindrod Shipping subsidiaries owning the two vessels as well as Grindrod Shipping, and (c) security over the shares
in the Grindrod Shipping subsidiaries owning the two vessels. On June 28, 2019, the parties to the facility agreed to amend the
minimum book value net worth covenant and introduce a new working capital covenant as set out further in “—Loan Covenants”
below, and clarify the calculations of the covenants following the implementation of IFRS16. On May 8, 2020, the parties to the
facility agreement entered into further amendments the purpose of which was to amend the definitions of consolidated current assets
and consolidated current liabilities for purposes of the working capital covenant, such that the determination of the consolidated
current assets and consolidated current liabilities of Grindrod Shipping excludes any adjustments made for IFRS 16. On December
30, 2020, the parties to the facility agreement entered into further amendments the purpose of which was to provide relief on the
book value net worth covenant, the debt to market adjusted tangible fixed asset ratio and the working capital covenant as set out
further in “—Loan Covenants” below. The covenants applicable to this facility are the same as the covenants that
apply to the $100.0 million senior secured credit facility described above. As of December 31, 2020, $25.5 million was outstanding
on this facility.
$114.1 Million Senior Secured Credit Facility
On February 10, 2020, Grindrod Shipping and
IVS Bulk, as joint and several borrowers, entered into a $114.1 million senior secured term loan facility with Credit Agricole
Corporate and Investment Bank and Hamburg Commercial Bank AG relating to all of the vessels owned by the subsidiaries of IVS Bulk,
other than the IVS North Berwick, being a total of 11 drybulk vessels. The facility was drawn in full on February 13, 2020,
for the purpose of refinancing the existing indebtedness of the IVS Bulk subsidiaries, other than the subsidiary that owns the
IVS North Berwick, refinancing other indebtedness of IVS Bulk and for general corporate purposes. The facility bears interest
at LIBOR plus a margin of 3.10% per annum and matures on February 13, 2025. The facility is secured by, among other things, (a) first
priority mortgage over each of the 11 vessels owned by IVS Bulk’s subsidiaries other than the IVS North Berwick, (b) a
guarantee from each of the IVS Bulk subsidiaries other than the subsidiary that owns the IVS North Berwick, and (c) security
over the shares in the IVS Bulk subsidiaries other than the subsidiary owning the IVS North Berwick. Grindrod Shipping has
provided an undertaking to Sankaty, the other shareholder in IVS Bulk, that Grindrod Shipping will not directly borrow under this
facility, and to the extent Grindrod Shipping has not borrowed under this facility but are nevertheless required, as a joint and
several borrower, to make payments to the lenders, Sankaty has provided Grindrod Shipping with an indemnity for its share of such
payment, so that as between us and Sankaty the net payment is borne in proportion to each of our shareholding in IVS Bulk. On December
29, 2020, the parties to the facility agreement entered into an amendment the purpose of which was to provide relief on the book
value net worth covenant, the debt to market adjusted tangible fixed asset ratio and the working capital covenant as set out further
in “—Loan Covenants” below. The covenants applicable to this facility are the same as the covenants that apply
to the $100.0 million senior secured credit facility and the $29.9 million senior secured credit facility described above. As of
December 31, 2020, $106.0 million was outstanding on this facility.
$13.1 Million Senior Secured Credit Facility
On January 31, 2020, IVS Bulk and its subsidiary
that owns the drybulk vessel the IVS North Berwick entered into a $13.1 million senior secured term loan facility with
Showa Leasing Co., Ltd. relating to the IVS North Berwick. The facility was drawn in full on February 13, 2020, the proceeds
of which were used primarily to refinance the existing indebtedness of the IVS Bulk subsidiary that owns the IVS North Berwick.
The facility bears interest at LIBOR plus a margin of 2.75% per annum and matures on February 13, 2025. The facility is secured
by, among other things (a) first priority mortgage over the IVS North Berwick, (b) a guarantee from IVS Bulk,
and (c) security over the shares in the IVS Bulk subsidiary owning the IVS North Berwick. As of December 31, 2020,
$12.4 million was outstanding on this facility.
Combined $31.4 Million Senior Secured Credit
Facility
On July 29, 2019, each of the subsidiaries
owning IVS Okudogo and IVS Prestwick, entered into a separate term loan facility, as borrower, with The IYO Bank,
each for an amount up to approximately $15.7 million, the proceeds of which were used to finance a portion of the purchase price
of IVS Okudogo on her delivery on August 8, 2019, and of IVS Prestwick, on her delivery on September 26, 2019, respectively.
Grindrod Shipping is a party, as guarantor, to each of these agreements. On August 27, 2019, the respective parties to each of
these two facilities entered into an addendum to the relevant facility agreement, in each case to clarify matters relating to the
balloon payment. The facilities each have a seven-year term, are repayable in quarterly installments with a balloon payment at
the end of the repayment schedule, bear interest at a rate of LIBOR plus 2.00% per annum and are secured by, amongst other security,
a mortgage over the relevant vessel and, in each case, a mortgage over the vessel IVS Ibis and a guarantee by Grindrod Shipping.
As of December 31, 2020, a total of $28.9 million was outstanding on these facilities.
$35.8 Million Senior Secured Credit Facility
On February 13, 2020, our wholly owned subsidiary
GSPL entered into a $35.8 million senior secured term loan facility with Sankaty to partly finance the acquisition by GSPL of Regiment’s
33.25% ordinary shares and preference shares in IVS Bulk. The facility was drawn in full on February 13, 2020, net of fees and
original issue discount, and matures on June 13, 2021. The facility may be optionally prepaid or repaid at maturity. The facility
bears interest at a fixed rate of 7.5% per annum, payable in cash or compounded in kind (at GSPL's option) quarterly. All prepayments
of the loan are subject to a premium calculated at 4.00% of the principal amount of the loan prepaid. The facility is secured by
among other things a first fixed charge over all the shares held by GSPL in IVS Bulk and any loans that may be owed by IVS Bulk
to GSPL, which is further subject to the condition that at each fiscal quarter end of GSPL the net asset value of the security
must be at least 1.30 times the aggregate amount of the outstanding principal of the loan. In addition to other default conditions
including customary cross-default provisions in relation to other borrowings of GSPL, a default under the IVS Bulk shareholders’
agreement, other than a default by Sankaty, and a borrowing by Grindrod Shipping under the $114.1 million senior secured credit
facility constitute defaults under this facility. As of December 31, 2020, $25.8 million was outstanding on this facility.
Other Borrowings
GSPL has other borrowings that relate to $62,550,000
in financing arrangements entered into with third parties with respect to four of the vessels we regard as owned, namely IVS
Knot, IVS Kinglet, IVS Magpie and Matuku. The arrangements commenced on June 26, 2019, September 19, 2019,
November 20, 2019 and December 22, 2020, respectively, the loans are payable monthly in advance and bear interest at a rate of
LIBOR plus 1.7% per annum. The loans mature on June 25, 2030, October 18, 2031, November 19, 2031 and November 30, 2035. As at
December 31, 2020, the outstanding balances in relation to these borrowings was $57.0 million.
Loan Covenants
On June 28, 2019, the parties to the relevant
agreements entered into amendments to our $27.0 million senior secured credit facility, our $100.0 million senior secured credit
facility and our $29.9 million senior secured credit facility, the purpose of which was to lower the amount of the minimum book
value net worth covenant, introduce a new working capital covenant and clarify, for purposes of calculating financial covenants,
the treatment of assets and liabilities that will be reflected in our financial statements from January 1, 2019 as a consequence
of the adoption of IFRS 16. On April 16, 2020, April 16, 2020 and May 8, 2020, the parties to the relevant agreements entered into
further amendments to our $27.0 million senior secured credit facility, our $100.0 million senior secured credit facility and our
$29.9 million senior secured credit facility, respectively, the purpose of which was to amend the definitions of consolidated current
assets and consolidated current liabilities for purposes of the working capital covenant described below, in each case such that
the determination of the consolidated current assets and consolidated current liabilities of Grindrod Shipping excludes any adjustments
made for IFRS 16. Further, in respect of these facilities, the lenders agreed to the following covenant amendments:
•
|
the reduction of the cash covenant to be tested as at June 30, 2020 and September 30, 2020 from $30 million to $20 million; and
|
•
|
the determination of current liabilities will exclude the amount owed under the $35.8 million senior secured credit facility for purposes of testing, as at June 30, 2020 and September 30, 2020, the covenant that requires our current assets to exceed our current liabilities.
|
On December 29, 2020, December 30, 2020 and
December 31, 2020, the parties to the relevant agreements entered into further amendments to our $114.1 million senior secured
credit facility, our $29.9 million senior secured credit facility and our $100.0 million senior secured credit facility, respectively,
in which the Lenders agreed to the following covenant amendments:
•
|
the book value net worth for the purposes of testing, as at December 31, 2020 shall not be lower than US$225 million;
|
•
|
the ratio of debt to market adjusted tangible fixed assets for the purposes of testing, as at December 31, 2020 shall be not more than 80%;
|
•
|
the determination of current liabilities shall exclude the amount owed to the $35.8 million senior secured credit facility for purposes of testing, as at December 31, 2020, the working capital covenant that requires our current assets to exceed our current liabilities.
|
The $114.1 million senior secured credit facility,
$29.9 million senior secured credit facility and the $100.0 million senior secured credit facility described above contain, among
other conditions and obligations, the following amended financial covenants the most stringent of which require us and our subsidiaries,
to maintain on a consolidated basis:
•
|
book value net worth of the lower of (a) the aggregate of $240 million (except as at December 31, 2020 it shall be $225 million) plus 25% of the amount of positive retained earnings plus 50% of each capital raise and (b) $275 million. For purposes of the forgoing, “positive retained earnings” means the positive retained earnings of Grindrod Shipping and its subsidiaries on a consolidated basis tested bi-annually at each June 30 and December 31, and “capital raise” means the dollar amount (or equivalent amount in dollars) of the proceeds of any equity capital raised by Grindrod Shipping (without giving effect to any capital raised by its subsidiaries), as evidenced in the latest accounts as of each June 30 or December 31;
|
•
|
cash and cash equivalents (which may, depending on the facility, include cash restricted in certain security accounts) of not less than $30,000,000 except that as at June 30, 2020 and September 30, 2020 cash and cash equivalents shall be not less than $20 million;
|
•
|
a ratio of debt to market adjusted tangible fixed assets of not more than 75% (except that as at December 31, 2020 the debt to market adjusted tangible fixed assets shall be not more than 80%). For purposes of the foregoing, the definition of “debt” excludes lease obligations recognized under IFRS 16 and the definition of “tangible fixed assets” excludes right-of-use assets relating to ships; and
|
•
|
positive working capital, such that consolidated current assets (excluding any adjustments made for IFRS 16) must exceed the consolidated current liabilities (excluding any adjustments for IFRS 16) as evidenced in the latest accounts as of each June 30 and December 31, except that the determination of current liabilities shall exclude the amount owed under the $35.8 million senior secured credit facility for purposes of testing, as at June 30, 2020 and September 30, 2020 and December 31, 2020.
|
The $114.1 million senior secured credit facility requires the consolidated
financial position of IVS Bulk and its subsidiaries to be such that:
•
|
its adjusted minimum net worth, as defined, is greater than $50.0 million;
|
•
|
the ratio of net debt to market value tangible fixed assets, as defined, is less than 70%; and
|
•
|
cash and cash equivalents, as defined, are not less than $9.0 million.
|
The lenders reduced the minimum amount of the
adjusted minimum net worth covenant for IVS Bulk in a supplementary letter on December 29, 2020.
Further, the credit facilities referred to
above, other than the $35.8 million senior secured credit facility which contains its own security coverage ratio, contain provisions
requiring a minimum value of the collateral for each relevant facility, such that the aggregate fair market value of the vessels
securing the relevant facility plus any additional security securing that facility divided by the relevant debt amount results
in at least a specified minimum amount (depending on the relevant facility agreement and the type and age of the vessels securing
the loan), with the relevant minimum amount ranging between 125% and 145%. GSPL’s $35.8 million credit facility is secured
by among other things a first fixed charge over all the shares held by GSPL in IVS Bulk and any loans that may be owed by IVS Bulk
to GSPL, which is further subject to the condition that at each fiscal quarter end of GSPL the value of the security must be at
least 1.30 times the amount of the outstanding principal of the loan. If any of the relevant thresholds is not met, the relevant
party to the agreement may be required to prepay a portion of the relevant loan or provide additional collateral security to eliminate
the shortfall.
The credit facilities referred to above, other
than the $35.8 million senior secured credit facility in respect of the vessel-related covenants, also contain, among other conditions,
restrictive covenants which could or would restrict our ability, amongst other restrictions, to:
|
•
|
incur additional indebtedness on the relevant vessels securing that facility;
|
|
•
|
sell any collateral vessel (unless a corresponding amount under the relevant facility were prepaid in accordance with its terms);
|
|
•
|
upon the happening of an event of default or potential event of default, make additional investments or acquisitions;
|
|
•
|
upon the happening of an event of default or potential event of default, pay dividends; or
|
|
•
|
effect a change of ownership or control of the relevant borrower group under each facility.
|
GSPL’s $35.8 million senior secured credit
facility contains a number of additional restrictions on GSPL and its subsidiaries in addition to those discussed above, including
conditions relating to:
|
•
|
additional vessel acquisitions;
|
|
•
|
the terms of asset disposals;
|
|
•
|
refinancing or restructuring of existing indebtedness;
|
|
•
|
the provision of additional security towards other indebtedness;
|
|
•
|
investments by GSPL in its subsidiaries; and
|
|
•
|
distributions by GSPL to Grindrod Shipping.
|
A violation of any of the financial or restrictive
covenants, or various other provisions, contained in the credit facilities described above and under “—Off-Balance
Sheet Arrangements” below may constitute an event of default under the relevant credit facility, which, unless cured (if
permitted, and capable of being cured), or waived or modified by the relevant banks, provides those banks with the right to, among
other things (and as the case may be), require the relevant borrowers or other obligors to post additional collateral, enhance
their equity and liquidity, increase the interest payable, pay down the relevant indebtedness to a level where compliance with
relevant loan covenants are met, sell vessels, reclassify indebtedness as current liabilities, accelerate indebtedness, enforce
security on fleet vessels and the other assets securing the credit facilities, and make demand under guarantees, which would impair
our ability to continue to conduct our business.
Furthermore, the credit facilities contain
cross-default provisions. A cross-default provision in one facility means that an event of default under one or more other facilities
could, subject to any applicable thresholds, result in an event of default occurring under the first facility. Because of the presence
of cross-default provisions in the facilities, the refusal of the lenders under any credit facilities to grant or extend a waiver
could result in certain indebtedness being accelerated, even if the other lenders under the other credit facilities have waived
defaults under their respective credit facilities. If any of our secured indebtedness is accelerated in full or in part, it could
be difficult in the current financing environment for us to refinance the relevant debt or obtain additional financing in such
circumstances and we could lose vessels and other assets securing the credit facilities if the lenders foreclose their security,
which would adversely affect our ability to conduct our business.
Moreover, in connection with any waivers of
or amendments to the credit facilities that have been obtained, or may be obtained in the future, the banks may impose additional
operating and financial restrictions or modify the terms of the existing credit facilities. These restrictions may further restrict
our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through
the issuance of guarantees. In addition, the banks may require the payment of additional fees, require prepayment of a portion
of the indebtedness owed to them, accelerate the amortization schedule for facility indebtedness and increase the interest rates
charged on outstanding indebtedness.
As of December 31, 2020, Grindrod Shipping,
GSPL, the borrowers and the other GSPL subsidiaries were in compliance with all of the financial and restrictive covenants contained
in our credit facilities.
See Note 26 to our consolidated and combined
financial statements for further details regarding the credit facilities.
Trend Information
Our results of operations depend primarily
on the charter hire rates that we are able to realize for our vessels, which depend on demand and supply dynamics characterizing
the drybulk and tanker markets at any given time. For other trends affecting our business, please see other discussions under “—Factors
Affecting our Results of Operations and Financial Condition” above.
Off Balance Sheet Arrangements
Charter Hire Obligations
We are committed to make certain charter hire
payments to third parties for chartered-in vessels. IFRS 16 requires us to recognize, on a discounted basis, the rights and obligations
created by the commitment to lease assets on the balance sheet, unless the term of the lease is less than 12 months or of low value.
Please see “—Contractual Obligations
and Contingencies” below for these and our other contractual obligations and commitments.
Contractual Obligations and Contingencies
Our contractual obligations and commercial
commitments consist primarily of long-term debt, time charter agreements and newbuilding commitments.
The following table summarizes our contractual
obligations as of December 31, 2020:
|
|
Payments Due by Period
|
|
(In thousands of U.S. dollars)
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
1–3 Years
|
|
|
3–5 Years
|
|
|
More than
5 Years
|
|
Secured Bank Loans and Other Borrowings(1)
|
|
|
278,432
|
|
|
|
53,394
|
|
|
|
78,855
|
|
|
|
93,295
|
|
|
|
52,888
|
|
Interest on secured bank loans and other borrowings(2)
|
|
|
34,644
|
|
|
|
9,018
|
|
|
|
13,172
|
|
|
|
6,906
|
|
|
|
5,548
|
|
Capital Expenditure on Vessels(1)
|
|
|
1,057
|
|
|
|
1,057
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Time Charter Agreements(3)
|
|
|
3,927
|
|
|
|
3,927
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Lease Liabilities(4)
|
|
|
54,008
|
|
|
|
29,862
|
|
|
|
24,146
|
|
|
|
—
|
|
|
|
—
|
|
Office, Residential and Other Leases(3)
|
|
|
16
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total contractual obligations
|
|
|
372,084
|
|
|
|
97,274
|
|
|
|
116,173
|
|
|
|
100,201
|
|
|
|
58,436
|
|
(1)
|
These obligations are disclosed in Notes 26 and 44 of the consolidated and combined financial statements.
|
(2)
|
Interest is based on LIBOR assumption of 0.22% per annum for secured bank loans and other borrowings.
|
(3)
|
Represents lease obligations that qualify as short term leases and hence they are not recorded as lease liabilities. Please see Note 2.15 and 39 of the consolidated and combined financial statements.
|
(4)
|
Include obligations under certain time charter agreements. Please see Note 2.15 and 25 of the consolidated and combined financial statements.
|
Recent Accounting Pronouncements
From 1 January 2020, we applied a number of new IFRSs and amendments
to IFRSs issued by the IASB that are mandatorily effective for an accounting period that begins on or after 1 January 2020. The
adoption of these new and revised IFRSs has not resulted in significant changes to our accounting policies and has no material
effect on the amounts reported for the current or prior periods.
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
Directors
The table below details the names of, and information
about, the individuals that are currently serving as directors or alternate directors of Grindrod Shipping. At our next annual
general meeting, Mr. Michael Hankinson and Mr. Pieter Uys (Petrus Johannes Uys) will retire from office and will be eligible to
and, we expect, will stand for re-election.
Name
|
|
Age
|
|
Position
|
|
Term Expires
|
Stephen Griffiths
|
|
60
|
|
Director
|
|
*
|
Murray Grindrod
|
|
53
|
|
Director
|
|
Next Annual General Meeting, by retirement(4)
|
Michael Hankinson(1)
|
|
71
|
|
Director/Chairman
|
|
Next Annual General Meeting, by rotation
|
John Herholdt
|
|
72
|
|
Director
|
|
Annual General Meeting, by rotation (3)
|
Quah Ban Huat
|
|
54
|
|
Director
|
|
Annual General Meeting, by rotation (3)
|
Pieter Uys(1)
|
|
58
|
|
Director
|
|
Next Annual General Meeting(3)
|
Martyn Wade
|
|
61
|
|
Director
|
|
*
|
Alternate Directors:
|
|
|
|
|
|
|
Willem van Wyk(2)
|
|
42
|
|
Alternate Director
|
|
Next Annual General Meeting (3)
|
*
|
Messrs Wade and Griffiths will serve as Directors so long as they continue to hold the positions of Chief Executive Officer and Chief Financial Officer, respectively.
|
(1)
|
Currently also serves as a director of Former Parent.
|
(2)
|
Mr. van Wyk is an alternate director of Grindrod Shipping appointed by Mr. Pieter Uys. Mr. van Wyk is entitled to notice of directors’ meetings and, if Mr. Uys is not present at a meeting, is entitled to vote and be counted in the quorum as a director. Mr. van Wyk is entitled to attend, but not vote at and not count in the quorum for, each meeting at which Mr. Uys is present. Mr, van Wyk currently also serves as an alternate director of Former Parent
|
(3)
|
At each Annual General Meeting subsequent to the first Annual General Meeting, one-third of the directors for the time being (or, if their number is not a multiple of three the number nearest to one-third) shall retire from office by rotation. The directors to retire in every year shall be those, subject to retirement by rotation, who have been longest in office since their last re-election or appointment and so that as between persons who became or were last re-elected directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring director shall be eligible for re-election.
|
(4)
|
Mr. Grindrod was appointed by the Directors of the Company on December 21, 2020 and shall hold office only until the next Annual General Meeting. He is required to retire at the Annual General Meeting of the Company pursuant to Regulation 106 of the Constitution and shall be eligible for re-election but shall not be taken into account in determining the number of Directors who are to retire by rotation at such meeting.
|
Stephen Griffiths has served as a member
of our board of directors and as our Chief Financial Officer since November 7, 2017, and also served as Chief Financial Officer
of Former Parent’s shipping business from April 2009 until the Spin-Off. Mr. Griffiths joined Grindrod Limited in 2004
as Group Financial Manager. Previously, Mr. Griffiths worked for the Reunert Group from 1989 to 2003 in financial management
roles. Mr. Griffiths qualified as a Chartered Accountant (South Africa) in 1985 and completed his articles at Hudson, Langham,
Morrison and Co.
Murray Grindrod graduated from the
University of Cape Town, South Africa in 1989 with a Bachelor of Arts degree. From 1993 to 1996, he worked in the corporate finance
and corporate banking divisions of The Standard Bank of South Africa Limited group. Since 1997 he has held various management
roles within the Grindrod Limited group across its shipping, investments and freight logistics businesses. He is currently employed
at Grindrod Limited where his responsibilities include treasury and investments and he is a director of a number of its subsidiaries
including Grindrod Bank Limited. Mr. Grindrod has a number of years of experience in the Grindrod Shipping group, both prior to
and after the spin-off and separate listing in June 2018, and therefore has a good knowledge of the Company and its operations.
Michael Hankinson has served as a member
of our board of directors since June 20, 2018. Mr. Hankinson has served as a director of Former Parent since 2009, as its
Non-Executive Chairman from 2014 to 2017, its Executive Chairman from August 2017 to November 2018 at which time he once again
became its Non-Executive Chairman. Mr. Hankinson has also been the non-executive Chairman of The Spar Group Limited since
2004 and has retired on 28 February 2021. In 1997, Mr. Hankinson was appointed its Chief Executive at Dunlop Limited, a tire
and rubber manufacturer listed on the Johannesburg Stock Exchange, and held this position until 2006. In 1976, Mr. Hankinson
joined Romatex Limited as Financial Manager and in 1994 was appointed as Chief Executive Officer. Mr. Hankinson has also held
numerous non-executive positions on various boards related to the textile, tire and sugar industries as well at Transnet Limited.
Mr. Hankinson qualified as a Chartered Accountant (South Africa) in 1976 after completing his articles at Deloitte and Touche.
John Herholdt has served as a member
of our board of directors since November 6, 2017 and is the Chairman of the Compensation and Nomination Committee. Between
2012 and 2015, Mr. Herholdt consulted the Maitland Group. From 1987 to 2012 Mr. Herholdt served as a London based senior
partner of the Maitland Group with offices in Europe, South Africa, North America and elsewhere. He also served as a Director on
the boards of several of its subsidiaries. The London office of Shepstone and Wylie was established by Mr. Herholdt in 1985
and in 1987 merged the Shepstone and Wylie operation with that of Maitlands, then the offshore arm of the South African law firm
Webber Wentzel. He remained associated with Shepstone and Wylie until 2012. In 1984, Mr. Herholdt joined the South African
law firm Shepstone and Wylie as a senior partner in the maritime department, acting primarily for vessel owners and P&I Clubs.
In 1979, Mr. Herholdt was appointed a Director of Leo Raphaely and Sons, an international commodity trading firm. From 1972
to 1979, Mr. Herholdt was a partner of the law firm Goodrickes and specialized in maritime and commodities law. His responsibilities
included all maritime and commodity issues, as well as, legal, commercial, and tax matters. Mr. Herholdt obtained his Bachelor
of Arts in Law Degree in 1969 and his Bachelor of Laws degree in 1971, and was admitted as an attorney of the Supreme Court of
South Africa in 1972.
Quah Ban Huat has served as a member
of our board of directors since November 2, 2017 and is the Chairman of the Audit and Risk Committee. He is a principal advisor
at KPMG Corporate Finance and specializes in mergers & acquisitions, structuring and financing. In addition, he is also
a director of AP Oil International Limited, Samudera Shipping Line Ltd and Primeur Holdings Pte. Ltd. and its subsidiary.
Prior to that, Mr. Quah served as a director on the boards of mDR Ltd from 2014 to 2017 and Croesus Asset Management
Pte. Ltd. (the trustee manager of Croesus Retail Trust) from 2012 to 2017. Prior to this he held various key finance positions
including Regional Business Area Controller at Deutsche Bank for its Asia Pacific Money Markets and Treasury operations, Group
Finance Director at the IMC Group, Chief Financial Officer at City Gas Pte. Ltd. and Rickmers Trust Management Pte. Ltd.
(the trustee manager of Rickmers Maritime Trust). Mr. Quah qualified as an accountant with the Institute of Chartered Accountants
of England and Wales and the Association of Certified Chartered Accountants. He completed his articles with Benjamin Taylor &
Co and was a manager at the banking division of Coopers and Lybrand prior to joining Deutsche Bank in London.
Pieter Uys has served as a member of
our board of directors since June 20, 2018. Mr. Uys has been a member of Former Parent’s board of directors since August
2013. Mr. Uys is currently a director of Mediclinic International PLC, Dark Fibre Africa, Seacom Ltd, Seacom Capital Ltd,
Former Parent, Blue Bulls Company (Pty) Ltd., CIV Fibre Network Solutiona (Pty) Ltd., Community Investment Ventures Holdings (Pty)
Ltd., Kagiso Media Pty Ltd. and Kagiso Tiso Holdings (Pty) Ltd. and Remgro Management Services Ltd.. Since 2013, Mr. Uys has
served as an investment executive for Remgro Limited, one of our significant shareholders. From 2008 to 2012 Mr. Uys was Chief
Executive Officer of the Vodacom Group. Prior to that, Mr. Uys served as Managing Director of Vodacom South Africa since 2001,
and as Vodacom Group Chief Operating Officer since 2004. From 1993 to 2001, Mr. Uys was an employee at Vodacom as a member
of the initial engineering team. Mr. Uys holds a Bachelor of Science degree in Engineering, a Masters in Engineering degree
from the University of Stellenbosch and a Master of Business Administration degree from the Stellenbosch Business School.
Martyn Wade has served as a member
of our board of directors since November 15, 2017. Mr. Wade served on the Grindrod Limited board from November 2011
until November 1, 2017. Mr. Wade continues to serve as the Chief Executive Officer of GSPL, a role he has been in since
July 2011. Mr. Wade is currently a director of The UK Freight Demurrage & Defense Association (UK), The United Kingdom
Mutual Steam Ship Assurance Association (Europe) Limited, or The UK P&I Club, and a member of the advisory panel to the Singapore
Maritime Foundation. Mr. Wade has 43 years’ international shipping experience and has worked for vessel owners,
operators and shipbrokers in London, Johannesburg, New York and now Singapore. The companies Mr. Wade has worked for include
Van Ommeren UK, Simpson Spence and Young Johannesburg, Clipper Bulk USA and HSBC Shipping Services London. Mr. Wade is a
member of the Baltic Exchange having been first elected in 1979.
Willem van Wyk has served on our board
as an Alternate Director to Pieter Uys since March 16, 2020. Mr. van Wyk was appointed as the Group Tax Manager of Remgro Limited
on January 16, 2006, where he was later appointed as Investment Manager in the Corporate Finance division. Mr. van Wyk is also
an alternate director on the board of the Former Parent, Pembani Remgro Infrastructure Managers, and a Members’ Trustee of
the M& I Retirement Fund. Mr. van Wyk qualified as a Chartered Accountant (South Africa) in 2005 and completed his articles
at Ernst & Young and Mr. van Wyk holds an Honours degree in accounting from the University of Stellenbosch and an Honours degree
in taxation from the University of Cape Town.
Senior Management
The table below details the names of, and information
about, the individuals who serve as Executive Officers:
Name
|
|
Age
|
|
Position
|
Martyn Wade
|
|
61
|
|
Chief Executive Officer
|
Stephen Griffiths
|
|
60
|
|
Chief Financial Officer
|
The business address of the persons noted above
is Grindrod Shipping’s executive office at #03-01 Southpoint, 200 Cantonment Road, Singapore 089763.
Compensation of Directors and Senior Management
We paid an aggregate cash compensation of $2.6
million to our Executive Officers and non-executive directors in 2020. Currently, on an annual basis, each non-executive director,
other than the chairman of the board, is compensated with a fee of $65,000 for his or her services as one of our directors and
an additional fee of $20,000 for his or her services as chairman of one of the board committees or an additional fee of $10,000
for his or her services as a member of one of the board committees; the chairman of the board receives a total annual fee of $150,000
for his or her services, inclusive of any such services as a director and as a committee chairman or member; and Mr. van Wyk
does not receive any fees for services as an Alternate Director.
Our Executive Officers are remunerated in accordance
with their contracts of employment. In addition, Executive Officers are eligible for variable compensation under our forfeitable
share plan for achieving company-wide objectives and for their individual contribution to our results and objectives. In 2018 we
granted awards of 743,000 forfeitable ordinary shares with a value of $7.6 million to our employees, including our Chief Executive
Officer and our Chief Financial Officer. In respect of these awards, $1.3 million, $3.0 million and $1.8 million was expensed in
our 2018, 2019 and 2020 statement of profit or loss and other comprehensive income, respectively, and further expenses in respect
of these awards will be recorded in subsequent financial periods pro rata to the vesting period. Included in the 2018 awards
of 743,000 forfeitable ordinary shares are 180,000 and 100,000 forfeitable ordinary shares that we awarded to our Chief Executive
Officer and our Chief Financial Officer, respectively, and which, in each case, vest in three equal tranches, the first having
vested on March 1, 2020, and the subsequent vesting at March 1, 2021 and 2022. During 2019, awards of 15,000 ordinary shares were
forfeited by employees.
In 2020 we granted awards of 225,000 forfeitable
ordinary shares with a value of $652,500 to our employees, including our Chief Executive Officer and our Chief Financial Officer.
In respect of these awards, $269,048 was expensed in our 2020 statement of profit or loss and other comprehensive income, and further
expenses in respect of this new tranche of awards will be recorded in subsequent financial periods pro rata to the vesting period.
Included in the 2020 awards of 225,000 forfeitable ordinary shares are 73,000 and 37,000 forfeitable ordinary shares that we awarded
to our Chief Executive Officer and our Chief Financial Officer, respectively. The Chief Executive Officer’s awards will vest
in two equal tranches, on March 1, 2021 and 2022 whilst the Chief Financial Officer’s awards will vest in three equal tranches
on March 1, 2021, 2022 and 2023. During 2020, awards of 20,000 ordinary shares were forfeited due to the resignation of one employee.
The following description is only a summary
of the material provisions of the forfeitable share plan and is governed in its entirely by the forfeitable share plan which is
included as an exhibit to this annual report. We adopted the forfeitable share plan to provide selected employees with the opportunity
to receive compensatory equity awards of our ordinary shares and to serve as a retention mechanism and recruitment tool. The forfeitable
share plan also provides participants with the opportunity to share in the success of the company and aligns forfeitable share
plan participant interests with the interests of our shareholders. The forfeitable share plan is administered by the compensation
and nomination committee. Participants receive grants of forfeitable ordinary shares, subject to applicable time and/or performance
vesting conditions and other terms, that settle in ordinary shares when vested and are forfeited, in part in or in full, upon certain
termination of employment events if not previously vested. Under the terms of the forfeitable share plan, the aggregate number
of ordinary shares that may be granted and not yet vested under the forfeitable share plan at any one time shall not exceed 5%
of the number of shares in issue (excluding treasury shares) as determined in reference to the day preceding the award.
We will obtain shareholder approval annually
to authorize the issuance of ordinary shares under the plan. We have obtained such approval until the conclusion of our next annual
general meeting.
Board Practices
Grindrod Shipping’s board of directors
comprises seven directors, including four independent non-executive members, as determined in accordance with the prevailing Code
of Corporate Governance issued by the Monetary Authority of Singapore, which is the 2018 Singapore Corporate Governance Code. Each
of Grindrod Shipping’s directors is elected by Grindrod Shipping’s shareholders or appointed by the directors pursuant
to Grindrod Shipping’s constitution. In addition, Mr. van Wyk is an Alternate Director appointed by Mr. Uys. Mr. van
Wyk is entitled to notice of directors’ meetings and, if Mr. Uys is not present at a meeting, is entitled to vote and
be counted in the quorum as a director. Mr. van Wyk is entitled to attend, but not vote at, each meeting at which Mr. Uys
is present. In addition, Mr. Quah is also a director of Samudera Shipping Line Ltd. To the extent that Mr. Quah’s
service as a member of the board of directors of Samudera Shipping Line Ltd. presents a conflict of interest with respect
to any matters involving us, Mr. Quah has agreed to inform our board of directors of any such conflict and recuse himself
from any proceedings or vote relating to such matters.
At our first annual general meeting, which
was held on May 29, 2019, all of the directors, other than the Chief Executive Officer and the Chief Financial Officer, retired
from office and were eligible to and stood for re-election. At each subsequent annual general meeting, one-third of the directors
then in office, or if their number is not a multiple of three, the number nearest to one-third, shall retire from office by rotation,
provided no director holding office as Chief Executive Officer or Chief Financial Officer shall be subject to retirement by rotation
or be taken into account in determining the number of directors to retire. In addition, any director who has been appointed by
the directors to fill a vacancy during any given year will be required to retire from office at the next annual general meeting
and shall be eligible for re-election at such meeting. Directors holding office as Chief Executive Officer or Chief Financial Officer
shall resign from their directorship upon no longer holding such positions.
The directors to retire by rotation in every
year shall be those who have been longest serving in office since their last re-election or appointment. Where directors were re-elected
or appointed on the same day, those to retire shall be agreed amongst themselves or be determined by lot.
A director shall vacate his office upon his
resignation, removal, bankruptcy, becoming mentally disordered or disqualification. A director may only be removed from office
by or according to resolution of the shareholders.
No director is entitled to any severance benefits
on termination of his or her service as a director.
Grindrod Shipping has established two committees
of the board of directors: the audit and risk committee and the compensation and nomination committee.
Audit and Risk Committee
The members of the audit and risk committee
are Messrs. Quah (chairman), Herholdt and Hankinson. The audit and risk committee, among other things, oversees our financial
reporting, risk management, related party transactions and internal controls (in relation to financial, operational, compliance
and information technology controls), engages our external auditors and oversees our internal audit activities, tax policies and
effectiveness of our legal and compliance systems.
Compensation and Nomination Committee
The members of the compensation and nomination
committee are Messrs. Herholdt (chairman), Quah, and Hankinson. The compensation and nomination committee oversees our compensation
policy and the executive compensation policy, approves awards of stock based incentives, approves the individual package of the
chief executive officer, reviews and monitors the nomination and appointment process and composition of the board of directors
and succession planning of the board, the committees of the board of directors and the performance of the board.
Corporate Governance Practices
Pursuant to an exception under NASDAQ listing
standards available to foreign private issuers, we are not required to comply with many of the corporate governance practices followed
by U.S. companies under the NASDAQ listing standards. Accordingly, we are exempt from many of NASDAQ’s corporate governance
practices. We are incorporated under the laws of Singapore and have elected to voluntarily comply with the relevant guidelines
of the 2018 Singapore Corporate Governance Code. In connection with the listing of our ordinary shares on NASDAQ, we certified
to NASDAQ that our corporate governance practices are in compliance with, and are not prohibited by, Singapore law. We also agreed
or elected to comply with certain JSE corporate governance requirements in addition to complying with the applicable Singapore
Corporate Governance Code and NASDAQ listing standards. Set forth below is a list of the significant differences between our corporate
governance practices and NASDAQ listing standards applicable to listed U.S. companies.
Independence of Directors. NASDAQ requires
that a U.S.-listed company maintain a majority of independent directors. Our board of directors consists of seven directors, three
of whom are the members of our audit and risk committee and are considered “independent” under Rule 10A-3 promulgated
under the Exchange Act as it applies to us under the rules of NASDAQ. Under the 2018 Singapore Corporate Governance Code, our board
of directors is not required to consist of a majority of independent directors. Under the 2018 Singapore Corporate Governance Code,
only one-third of our board of directors is required to be independent if the chairman of our board of directors is independent.
However, the determination of independence under the 2018 Singapore Corporate Governance Code is different from NASDAQ standards.
Under the 2018 Singapore Corporate Governance Code, four of our directors (excluding Mr Grindrod due to his prior employment with
GSSA) and our alternate director are considered independent.
Compensation and Nomination Committee.
NASDAQ requires that a U.S.-listed company have a compensation committee consisting only of independent directors and that director
nominees be selected or recommended for the board’s selection by either a vote in which only independent directors participate
or a nominations committee comprised solely of independent directors. Under the 2018 Singapore Corporate Governance Code, a company’s
remuneration committee and nominating committee, which we combine as our compensation and nomination committee, are not required
to consist entirely of independent directors. The 2018 Singapore Corporate Governance Code requires each of these committees be
comprised of at least three directors, a majority of whom should be independent (including the chairman or chairmen of such committee
or committees), and that all members of the remuneration committee be non-executive directors. Our compensation and nomination
committee currently consists of Messrs. Herholdt, Quah and Hankinson, all of whom are independent and non-executive directors
under the 2018 Singapore Corporate Governance Code.
Audit and Risk Committee. NASDAQ requires
that a U.S.-listed company have an audit committee comprised of at least three members, all of whom shall be entirely independent
directors. The 2018 Singapore Corporate Governance Code requires an audit committee to be comprised of at least three directors,
a majority of whom should be independent (including the chairman of such committee), and that all members of the audit committee
be non-executive directors. Our audit and risk committee currently consists of Messrs. Quah, Herholdt and Hankinson, all of
whom are independent and non-executive directors under the 2018 Singapore Corporate Governance Code and “independent”
under Rule 10A-3 promulgated under the Exchange Act.
Executive Sessions. NASDAQ requires
that the independent directors of a U.S. listed company have regularly scheduled meetings at which only independent directors are
present, or executive sessions. The 2018 Singapore Corporate Governance Code provides that the independent directors should meet
periodically without the presence of the other directors.
Quorum. NASDAQ requires that a U.S.-listed
company’s bylaws provide for a quorum of at least 33 1/3 percent of the outstanding shares of the company’s common
voting stock. Our constitution provides that shareholders holding an aggregate not less than 15 percent of the issued and
fully paid shares in the capital of the company, present in person or by proxy, shall be a quorum. The 2018 Singapore Corporate
Governance Code does not prescribe a quorum requirement.
Employees
As of December 31, 2020, we had approximately
571 employees, of which approximately 419 seagoing staff serve on the vessels that we manage and 152 provide general management,
financial management, and commercial and technical management to the vessels that we manage. Our seafarers are represented by collective
bargaining agreements but we have not experienced a work stoppage in the past few years. Seafarers employed by our vessel managers
are unionized under various jurisdictions and are employed under various collective bargaining agreements which does expose us
to a risk of potential labor unrest at times when those collective bargaining agreements are being re-negotiated.
Share Ownership of Directors and Executive Officers
The following sets forth, to the knowledge
of Grindrod Shipping’s management, the total amount of ordinary shares directly or indirectly owned by Grindrod Shipping’s
current Directors, Alternate Directors and Executive Officers based on 19,310,024 ordinary shares outstanding as of March 1, 2021.
Holder
|
|
Direct
interest in
Grindrod
Shipping
Ordinary Shares
|
|
|
Direct Percentage
Ownership
|
|
Indirect
interest
in
Grindrod
Shipping
Ordinary Shares
|
|
|
Indirect
Percentage
Ownership
|
|
Stephen Griffiths
|
|
|
74,033
|
|
|
*
|
|
|
—
|
|
|
|
—
|
|
Michael Hankinson
|
|
|
1,675
|
|
|
*
|
|
|
200
|
|
|
|
*
|
|
John Herholdt
|
|
|
—
|
|
|
*
|
|
|
—
|
|
|
|
—
|
|
Murray Grindrod
|
|
|
45,000
|
|
|
*
|
|
|
1,424,853
|
|
|
|
7.4
|
%
|
Quah Ban Huat
|
|
|
—
|
|
|
*
|
|
|
—
|
|
|
|
—
|
|
Pieter Uys
|
|
|
—
|
|
|
*
|
|
|
—
|
|
|
|
—
|
|
Martyn Wade
|
|
|
142,000
|
|
|
*
|
|
|
—
|
|
|
|
—
|
|
Willem van Wyk
|
|
|
—
|
|
|
*
|
|
|
—
|
|
|
|
—
|
|
ITEM 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Major Shareholders
To our knowledge: (1) no corporation or
foreign government owns more than 50% of our outstanding ordinary shares; and (2) there are no arrangements the operation
of which may at a subsequent date result in a change in control of Grindrod Shipping. To the knowledge of Grindrod Shipping’s
management and as otherwise set forth herein there is no controlling shareholder of Grindrod Shipping.
A list of the individuals and organizations
holding, to the knowledge of Grindrod Shipping’s management, directly or indirectly, 5% or more of our issued share capital,
based on 19,310,024 ordinary shares outstanding (excluding treasury shares) as of March 1, 2021, is set forth below.
Beneficial owner
|
|
Grindrod
Shipping
Ordinary
Shares
|
|
|
Percentage
Ownership
|
|
Industrial Partnership Investments Proprietary
Limited(1)
|
|
|
4,329,580
|
|
|
|
22.8
|
%
|
PSG Asset Management Proprietary Limited(2)
|
|
|
2,026,572
|
|
|
|
10.7
|
%
|
Grindrod Investments Proprietary Limited(3)
|
|
|
1,922,740
|
|
|
|
10.1
|
%
|
Grindrod Limited(4)
|
|
|
1,841,962
|
|
|
|
9.7
|
%
|
QVT Financial LP(5)
|
|
|
1,268,977
|
|
|
|
6.7
|
%
|
Ninety One SA Proprietary Limited(6)
|
|
|
962,838
|
|
|
|
5.1
|
%
|
(1)
|
Industrial Partnership Investments Proprietary Limited is a 100% held subsidiary of Remgro Limited. Based solely on information included in the report on Schedule 13D by Industrial Partnership Investments Proprietary Limited as of August 2, 2018.
|
(2)
|
Based solely on information included in the report on Schedule 13G by PSG Asset Management Proprietary Limited as of October 4, 2018.
|
(3)
|
Based solely on information included in the report on Schedule 13G by Grindrod Investments Proprietary Limited as of July 20, 2018.
|
(4)
|
Based solely on information included in the report on Schedule 13G by Grindrod Limited as of September 18, 2020.
|
(5)
|
|
Based solely on information included in the report on Schedule 13G/A by QVT Financial LP as of February 16, 2021.
|
(6)
|
Based solely on information included in the report on Schedule 13G/A by Ninety One SA Proprietary Limited as of January 7, 2021.
|
None of the above shareholders hold voting
rights which are different from those that are held by Grindrod Shipping’s other shareholders.
On March 1, 2021, 246,191 new ordinary shares
were issued to fulfill the vesting of the Forfeitable Share Plan awards. The share capital increased by 246,191 shares to 19,310,024
shares since the date of listing on NASDAQ, June 18, 2018, and the date of this annual report.
Register of Members
Grindrod Shipping’s ordinary shares trade
in the United States on NASDAQ under the symbol “GRIN”. The principal non-United States trading market for the ordinary
shares of Grindrod Shipping is the JSE, on which the ordinary shares trade on the main board of the JSE, with a share code of GSH
and under the abbreviated name GRINSHIP. Since Grindrod Shipping is a Singapore company, a principal register of members is maintained
by Grindrod Shipping in Singapore. In addition, Continental Stock Transfer & Trust Company acts as Grindrod Shipping’s
transfer agent and maintains Grindrod Shipping’s branch register of members, which is located in the United States. In South
Africa, Computershare (Pty) Ltd acts as the administrative depository agent and maintains an administrative depository register
reflecting the dematerialised shares trading on the JSE. All Grindrod Shipping ordinary shares reflected on the South African administrative
depository register are held electronically through the Strate System at all times. See “Item 10. Additional Information—General”
for additional information about the Singapore register, branch register and shareholder rights.
As of December 31, 2020, Cede & Co, a nominee
of The Depository Trust Company, is the record holder of 18,933,191 ordinary shares, four recipients of ordinary shares issued
in terms of our 2018 FSP are record holders of an aggregate of 73,667 ordinary shares, and we are the record holder of 56,975 ordinary
shares, being treasury shares. We believe that the ordinary shares held by Cede & Co. and the four aforementioned record holders
(excluding us) include 3,825,813, or 20.1% (based on 19,006,858 ordinary shares outstanding, excluding treasury shares), ordinary
shares held by beneficial owners in the United States.
Related Party Transactions
For a description of our material joint ventures,
see “Item 4. Information on the Company—Business Overview—Our Joint Ventures”.
For a description of our financing arrangements
with certain of our joint ventures, see “Item 4. Information on the Company—Business Overview—Our Joint
Ventures”, “Item 5. Operating and Financial Review and Prospects—Off Balance Sheet Arrangements” and
Notes 10 and 11 to our consolidated and combined financial statements.
For a description of our agreements relating
to the Spin-Off, see “Item 10. Additional Information—Material Contracts” and “Item 4. Information
on the Company—Management of our Business”.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
|
FINANCIAL INFORMATION
|
Reference is made to Item 18 for a list
of all financial statements filed as part of this annual report. For information on legal proceedings, please refer to “Item 4.
Information on the Company—Business Overview—Legal Proceedings”.
Dividend Policy and Dividend Distributions
The declaration and payment of dividends, if
any, are subject to the discretion of our board of directors. The timing and amount of any dividends declared will depend on, among
other things: (i) our earnings, financial condition and cash requirements and available sources of liquidity, (ii) decisions
in relation to our growth and leverage strategies, (iii) provisions of Singapore law governing the payment of dividends, (iv) restrictive
covenants in our existing and future debt instruments and (v) global financial conditions. See “Item 3. Key Information—Risk
Factors—Grindrod Shipping may not have sufficient distributable profits to pay dividends or otherwise distribute cash or
assets to shareholders” and “Item 10. Additional Information—Dividends”.
Significant Changes
Please refer to “Item 5. Operating
and Financial Review and Prospects—Recent Developments”.
ITEM 9.
|
THE OFFER AND LISTING
|
Offer and Listing Details
The ordinary shares of Grindrod Shipping are
listed on NASDAQ under the symbol “GRIN” and on the JSE under the symbol “GSH”.
Plan of Distribution
Not applicable.
Markets
The ordinary shares of Grindrod Shipping are
listed on NASDAQ under the symbol “GRIN” and on the JSE under the symbol “GSH”.
Selling Shareholders
Not applicable.
Dilution
Not applicable.
Expenses of the Issue
Not applicable.
ITEM 10.
|
ADDITIONAL INFORMATION
|
General
For the purposes of this section, references
to “shareholders” mean those shareholders whose names and number of shares are entered in Grindrod Shipping’s
principal or branch register of members. Only persons who are registered in Grindrod Shipping’s principal or branch register
of members are recognized under Singapore law as shareholders of Grindrod Shipping with legal standing to institute shareholder
actions against Grindrod Shipping or otherwise seek to enforce their rights as shareholders. Grindrod Shipping’s branch register
of members is maintained by its transfer agent, Continental Stock Transfer & Trust Company, located in the United States.
In South Africa, Computershare (Pty) Ltd maintains an administrative depository register to facilitate trading on the JSE.
The ordinary shares of Grindrod Shipping are
held through The Depository Trust Company, or DTC. Accordingly, DTC, or its nominee, Cede & Co., is the shareholder
of record registered in Grindrod Shipping’s branch register of members. The beneficial interests in the ordinary shares are
reflected in position listings of the DTC participants for shares held through DTC or its nominee (for shareholders trading on
NASDAQ) and on the administrative depository register located in South Africa (for shareholders trading on the JSE). Non-South
Africa residents (and those South Africa residents complying with applicable exchange control regulations) are able to reposition
their Grindrod Shipping ordinary shares reflected in the administrative depository register located in South Africa to an account
with a U.S. broker-dealer that is a DTC participant. Shareholders who wish to reposition their Grindrod Shipping ordinary shares
to an account with a U.S. broker-dealer should contact their South African broker or CSDP for more information about repositioning
their ordinary shares between the South African administrative depository register and an account with a U.S. broker-dealer that
is a DTC participant.
A holder of dematerialised interests in Grindrod
Shipping’s shares may become a registered shareholder by exchanging its interest in the shares for certificated shares (if
requested) and being registered in Grindrod Shipping’s register of members. The procedures by which a holder of dematerialised
interests may exchange such interests for certificated shares (if requested) are determined by DTC and Continental Stock Transfer &
Trust Company, in accordance with their internal policies and guidelines regulating the withdrawal and exchange of dematerialised
interests for certificated shares (if requested), and following such an exchange Continental Stock Transfer & Trust Company
will perform the procedures to register the shareholder in the branch register.
Shares may only be traded on the JSE in electronic
form as dematerialised shares and trade for electronic settlement in terms of the Strate System (an electronic custody, clearing
and settlement environment, managed by Strate), for all share transactions concluded on the JSE and off-market (and in terms of
which transactions in securities are settled and transfers of beneficial ownership in securities are recorded electronically).
Dematerialised shares are shares that have been dematerialised (the process whereby physical share certificates are replaced with
electronic records evidencing ownership of shares for the purpose of Strate). Accordingly, all beneficial holders of Grindrod Shipping’s
ordinary shares reflected on the South African administrative depository register must appoint a CSDP for shares traded on the
JSE, directly or through a broker, to hold the dematerialised Grindrod Shipping shares on their behalf.
If (a) the name of any person is without
sufficient cause entered in or omitted from the register of members; or (b) default is made or there is unnecessary delay
in entering in the register of members the fact of any person having ceased to be a member, the person aggrieved or any member
of the company or the company, may apply to the Singapore courts for rectification of the register of members. The Singapore courts
may either refuse the application or order rectification of the register of members, and may direct the company to pay any damages
sustained by any party to the application. The Singapore courts will not entertain any application for the rectification of a register
of members in respect of an entry which was made in the register of members more than 30 years before the date of the application.
Share Capital
Not applicable.
Constitution
The description of our constitution under “Item 10.
Additional Information—Constitution” contained in the Registration Statement is incorporated by reference in this
annual report.
Comparison of Shareholder Rights
The comparison of shareholders rights under
“Item 10. Additional Information—Comparison of Shareholder Rights” contained in the
Registration Statement is incorporated by reference in this annual report.
Material Contracts
Contracts Relating to the Spin-Off
The below descriptions are only summaries of
the material provisions of the GSPL and GSSA Share Purchase Agreements and Implementation Agreement and are qualified in their
entirety by reference to a copy of the GSPL Share Purchase Agreement, GSPL Share Purchase Agreement and Implementation Agreement,
which are included as exhibits to this annual report and incorporated by reference.
The GSPL and GSSA Share Purchase Agreements
The Share Purchase Agreement between Grindrod
Limited and Grindrod Shipping, dated March 23, 2018, sets forth the terms by which Grindrod Shipping purchased all of the
shares of GSPL from Former Parent. Under the terms of this agreement, Former Parent sold all of the issued shares in GSPL to Grindrod
Shipping on the Closing Date. The purchase price for such shares was the market value of the GSPL shares, approximately $279.7 million,
and settled by way of Grindrod Shipping issuing 16,626,600 Convertible Notes to Former Parent. Under the terms of this agreement,
Former Parent provided certain warranties in favor of Grindrod Shipping, including (i) that the GSPL shares were unencumbered,
(ii) that GSPL held shares in its specified subsidiaries, and (iii) that Former Parent had no claims against GSPL and
Former Parent waives any such claims that Former Parent may have against GSPL. The terms of this agreement permit Grindrod Shipping
to bring any claims against Former Parent in respect of the breach of such warranties or otherwise in connection with the purchase
of the GSPL shares, to the extent that there is a basis in law to do so, up to an aggregate liability of Former Parent in respect
of such claims in an amount equal to the purchase price for the GSPL shares. Grindrod Shipping must also bring any such claims
within 36 months of the Spin-Off and may only bring claims over a minimum threshold of $100,000. Under the agreement, Former
Parent is not liable to make payment of any claim by Grindrod Shipping, to the extent that making such payment would be contrary
to any law. Notwithstanding the foregoing, Grindrod Shipping and Former Parent have not expressly indemnified one another under
this agreement against any third-party claims. However, this agreement does not preclude the parties from seeking such indemnification
or other remedies in respect of third-party claims under applicable law.
The Share Purchase Agreement between Grindrod
Limited and Grindrod Shipping, dated March 23, 2018, sets forth the terms by which Grindrod Shipping purchased all of the
shares of GSSA from Former Parent. Under the terms of this agreement, Former Parent sold all of the issued shares in GSSA to Grindrod
Shipping on the Closing Date. The purchase price for such shares was the market value of the GSSA shares, approximately $41.0 million,
and settled by way of Grindrod Shipping issuing 2,437,232 Convertible Notes to Former Parent. Under the terms of this agreement,
Former Parent provided certain warranties in favor of Grindrod Shipping, including (i) that the GSSA shares were unencumbered,
(ii) that GSSA held shares in its specified subsidiaries, and (iii) that Former Parent had no claims against GSSA and
Former Parent waived any such claims that Former Parent may have against GSSA. The terms of this agreement permit Grindrod Shipping
to bring any claims against Former Parent in respect of the breach of such warranties or otherwise in connection with the purchase
of the GSSA shares, to the extent that there is a basis in law to do so, up to an aggregate liability of Former Parent in respect
of such claims in an amount equal to the purchase price for the GSSA shares. Grindrod Shipping must also bring any such claims
within 36 months of the Spin-Off and may only bring claims over a minimum threshold of $100,000. Under the agreement, Former
Parent is not liable to make payment of any claim by Grindrod Shipping, to the extent that making such payment would be contrary
to any law. Notwithstanding the foregoing, Grindrod Shipping and Former Parent have not expressly indemnified one another under
this agreement against any third-party claims. However, this agreement does not preclude the parties from seeking such indemnification
or other remedies in respect of third-party claims under applicable law.
The Implementation Agreement
The Implementation Agreement was entered into
on March 23, 2018 between Former Parent, Grindrod Shipping, GSPL and GSSA and governed the mechanics of the Spin-Off. Under
the terms of the Implementation Agreement, the Spin-Off could only occur once the GSPL Share Purchase Agreement and GSSA Share
Purchase Agreement became effective. In addition, the Implementation Agreement was subject to the following conditions precedent
which were fulfilled:
|
•
|
Grindrod Shipping’s board of directors approving the Spin-Off and required shareholder approvals for the Spin-Off being obtained;
|
|
•
|
the regulatory and procedural steps required for the Spin-Off taking place or being obtained; and
|
|
•
|
Grindrod Shipping’s ordinary shares having been approved for listing on NASDAQ subject to official notice and distribution, and the JSE.
|
Joint Venture Agreements
For a description of our material joint ventures,
see “Item 4. Information on the Company—Business Overview—Our Joint Ventures”.
Loan Agreements
For a description of our material loan agreements,
see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Loan Agreements”.
Exchange Controls
South Africa
Exchange controls in South Africa are administered
by the South African Reserve Bank, or SARB, in terms of the Exchange Control Regulations, 1961, and regulate transactions involving
South African residents. The purpose of exchange controls is to mitigate the decline of foreign capital reserves in South Africa.
We expect that South African exchange controls will continue to operate in the foreseeable future. The Government of South Africa
has, however, committed itself to relaxing exchange controls gradually and significant relaxation has occurred in recent years.
See “Item 10. Additional Information—General” in this Annual Report.
Residents of the CMA
Residents in the CMA (comprising South Africa,
the Republic of Namibia, the Kingdom of Lesotho and the Kingdom of Swaziland) or offshore subsidiaries of a resident in the CMA
may not reposition their ordinary shares from the South African administrative depository register to an account with a U.S. broker-dealer
or otherwise beneficially own or hold any Grindrod Shipping ordinary shares whether through a U.S. broker-dealer or directly on
the principal or branch register unless specific approval has been obtained from the SARB by such persons for any subscription,
purchase or beneficial holding or ownership, or as otherwise permitted under the South African Exchange Control Regulations or
the rulings promulgated thereunder.
Singapore
There are no exchange control restrictions
in effect in Singapore.
Taxation
Material U.S. Federal Income Tax Considerations
The following is a discussion of the material
U.S. federal income tax considerations applicable to us and to beneficial owners of our ordinary shares. This discussion is based
upon provisions of the Code, the Treasury regulations promulgated under the Code, as amended, or the Treasury regulations, and
administrative rulings and court decisions, all as in effect or in existence on the date of this annual report and all of which
are subject to change or differing interpretations, possibly with retroactive effect. Any such change could result in U.S. federal
income tax consequences that are materially different from those described below. Moreover, any change after the date of this annual
report in any of the factual matters set forth in this filing or in our or our subsidiaries’ conduct, practices or activities
may affect the considerations discussed below. We are under no obligation to update the discussion to reflect future changes in
law or changes in any of the foregoing factual matters that may later come to our attention.
This discussion is for general information
purposes only, does not purport to be a comprehensive description of all of the U.S. federal income tax considerations applicable
to us or beneficial owners of ordinary shares and does not address any tax laws other than U.S. federal income tax laws. Potential
investors are encouraged to consult their tax advisers concerning the overall tax consequences arising in their own particular
situations under U.S. federal, state, local and non-U.S. laws. The conclusions expressed in this discussion are not binding on
the IRS or any court, and there is no assurance that the IRS or a court would not reach a contrary conclusion. No ruling from the
IRS or opinion of counsel has been obtained or will be requested regarding any matter affecting us or prospective holders of our
ordinary shares.
Treatment as a Corporation
We are treated as a non-U.S. corporation for
U.S. federal income tax purposes. As such, we are subject to U.S. federal income tax on our income to the extent it is from sources
within the United States or is Effectively Connected Income as discussed below. U.S. Holders (as defined below) are not directly
subject to U.S. federal income tax on their shares of our income, but rather will be subject to U.S. federal income tax on distributions
received from us and dispositions of ordinary shares as described below.
Taxation of Operating Income
Under the Code, income derived from, or in
connection with, the use (or hiring or leasing for use) of a vessel, or the performance of services directly related to the use
of a vessel, is treated as “Transportation Income.” Transportation Income that is attributable to transportation that
either begins or ends, but that does not both begin and end, in the United States is considered to be 50% derived from sources
within the United States, or U.S. Source International Transportation Income. Transportation Income attributable to transportation
that both begins and ends in the United States is considered to be 100% derived from sources within the United States, or U.S.
Source Domestic Transportation Income. Transportation Income that is attributable to transportation exclusively between non-U.S.
destinations is considered to be 100% derived from sources outside the United States. Transportation Income derived from sources
outside the United States generally is not subject to U.S. federal income tax.
We expect that we and our subsidiaries will
earn income that will constitute Transportation Income. We do not expect us or our subsidiaries to earn U.S. Source Domestic Transportation
Income. However, certain of our and our subsidiaries’ activities could give rise to U.S. Source International Transportation
Income, and future expansion of or changes in our and our subsidiaries’ operations could result in an increase in the amount
thereof, which generally would be subject to U.S. federal income taxation, unless the Section 883 Exemption applied. Based
on our current plans and expectations regarding our and our subsidiaries’ organization and operations, we expect that only
a relatively small portion of our and our subsidiaries’ gross Transportation Income will likely constitute U.S. Source International
Transportation Income and, if the Section 883 Exemption were not to apply, we expect that the effective rate of U.S. federal
income tax on our and our subsidiaries’ gross Transportation Income would be less than 1%.
The Section 883 Exemption
In general, the Section 883 Exemption
provides that if a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury regulations
thereunder, or the Section 883 Regulations, it will not be subject to the net basis and branch profit taxes or the 4% gross
basis tax described below on its U.S. Source International Transportation Income, including any U.S. Source International Transportation
Income it derives from participation in a pool, partnership or other joint venture arrangement that satisfies the requirements
of the Section 883 Regulations. The Section 883 Exemption applies only to U.S. Source International Transportation Income
and does not apply to U.S. Source Domestic Transportation Income. The Section 883 Exemption applies separately to us and each
of our subsidiaries that is treated as a corporation for U.S. federal income tax purposes and earns U.S. Source International Transportation
Income (which we refer to below as our “applicable subsidiaries”).
We and our applicable subsidiaries will qualify
for the Section 883 Exemption if, among other matters, we and our applicable subsidiaries meet the following three requirements:
|
•
|
We and each of our applicable subsidiaries are organized in a jurisdiction outside the United States that grants an equivalent exemption from tax to corporations organized in the United States with respect to the types of U.S. Source International Transportation Income that we earn, or an Equivalent Exemption;
|
|
•
|
We and each of our applicable subsidiaries satisfy the Publicly Traded Test or the Qualified Shareholder Stock Ownership Test (each as described below); and
|
|
•
|
We and each of our applicable subsidiaries meet certain substantiation, reporting and other requirements.
|
We are organized under the laws of Singapore
and our applicable subsidiaries are organized under the laws of Singapore, South Africa, the Isle of Man and the Marshall Islands.
The U.S. Treasury Department has recognized each of these jurisdictions as a jurisdiction that grants an Equivalent Exemption with
respect to the type of U.S. Source International Transportation Income that we or our applicable subsidiaries generally expect
to earn. Consequently, our and our applicable subsidiaries’ U.S. Source International Transportation Income should be exempt
from U.S. federal income taxation provided we and our applicable subsidiaries meet the Publicly Traded Test or the Qualified Shareholder
Stock Ownership Test and we and our applicable subsidiaries satisfy certain substantiation, reporting and other requirements.
Publicly Traded Test
In order to meet the Publicly Traded Test,
the equity interests in the non-U.S. corporation at issue must be “primarily traded” and “regularly traded”
on an established securities market either in the United States or in a jurisdiction outside the United States that grants an Equivalent
Exemption. The Section 883 Regulations generally provide, in pertinent part, that equity of a non-U.S. corporation will be
considered to be “primarily traded” on one or more established securities markets in a given country if, with respect
to the class or classes of equity relied upon to meet the “regularly traded” requirement described below, the number
of shares of each such class that are traded during any taxable year on all established securities markets in that country exceeds
the number of shares in each such class that are traded during that year on established securities markets in any other single
country. Our ordinary shares, which are our only class of equity interests, are traded on the NASDAQ and the JSE, each of which
is considered to be an established securities market for purposes of these rules. As long as our ordinary shares continue to only
be traded on the NASDAQ and the JSE, our ordinary shares will be “primarily traded” on an established securities market
either in the United States or in South Africa, which is a jurisdiction outside the United States that grants an Equivalent Exemption.
Equity interests in a non-U.S. corporation
will be considered to be “regularly traded” on an established securities market under the Section 883 Regulations
provided one or more classes of such equity interests representing more than 50% of the aggregate vote and value of all of the
outstanding equity interests in the non-U.S. corporation satisfy certain listing and trading volume requirements. These requirements
are satisfied with respect to a class of equity interests listed on an established securities market, provided that either (a) trades
in such class of equity interests are effected, other than in de minimis quantities, on such market on at least 60 days during
the taxable year and the aggregate number of shares in such class that are traded on such market or markets during the taxable
year are at least 10% of the average number of shares outstanding in that class during the taxable year (with special rules for
short taxable years) or (b) such class of equity interests is traded on an established securities market in the United States
and is “regularly quoted by dealers making a market” in such class (within the meaning of the Section 883 Regulations).
Our ordinary shares will represent 100% of the total combined voting power and value of our equity interests. Accordingly, provided
that our ordinary shares (i) satisfy the listing and trading volume requirements described immediately above and (ii) are
not subject to the Closely Held Block Exception described immediately below, our ordinary shares will be considered to be “regularly
traded” on an established securities market. There can be no assurance that our ordinary shares will satisfy the listing
and trading volume requirements described immediately above for any taxable year.
Notwithstanding these rules, a class of equity
that would otherwise be treated as “regularly traded” on an established securities market will not be so treated if,
for more than half of the number of days during the taxable year, one or more “5% shareholders” (i.e., shareholders
owning, actually or constructively, at least 5% of the vote and value of that class) own in the aggregate 50% or more of the vote
and value of that class, or the Closely Held Block Exception, unless the corporation can establish that a sufficient proportion
of such 5% shareholders are Qualified Shareholders (as defined below) so as to preclude other persons who are 5% shareholders from
owning 50% or more of the value of that class for more than half the days during the taxable year.
We expect that one or more 5% shareholders
may own 50% or more of our ordinary shares for more than half of the number of days during our current taxable year and/or future
taxable years. In such case, we will lose eligibility for the Publicly Traded Test with respect to any such taxable year, unless
can establish that a sufficient proportion of such 5% shareholders are Qualified Shareholders (as defined below) so as to preclude
other persons who are 5% shareholders from owning 50% or more of the value of that class for more than half the days during the
taxable year. Under the applicable Treasury regulations, we would also have to satisfy certain substantiation requirements regarding
the identity of our 5% shareholders. These requirements are onerous and there is no assurance that we would be able to satisfy
them. In particular, we would be required to obtain certifications of Qualified Shareholder status from our 5% shareholders, which
our 5% shareholders may not be willing or able to provide. Given the factual nature of the issues involved and the practical uncertainties,
we can give no assurances as to our qualification for the Section 883 Exemption for any taxable year. Furthermore, our board
of directors could determine that it is in our best interests to take an action that would result in our not being able to satisfy
the Publicly Traded Test in the future. We do not expect any of our applicable subsidiaries to satisfy the Publicly Traded Test.
Qualified Shareholder Stock Ownership Test
As an alternative to satisfying the Publicly
Traded Test, a non-U.S. corporation will qualify for the Section 883 Exemption if it is able to satisfy the Qualified Shareholder
Stock Ownership Test. The Qualified Shareholder Stock Ownership Test generally is satisfied if more than 50% of the value of the
outstanding equity interests in the non-U.S. corporation is owned, or treated as owned after applying certain attribution rules,
for at least half of the number of days in the taxable year by:
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individual residents of jurisdictions that grant an Equivalent Exemption;
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non-U.S. corporations organized in jurisdictions that grant an Equivalent Exemption and that meet the Publicly Traded Test; or
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certain other qualified persons described in the Section 883 Regulations, or collectively, the Qualified Shareholders.
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We do not expect to be able to satisfy the
Qualified Shareholder Stock Ownership Test for any taxable year. However, because stock owned by a non-U.S. corporation meeting
the Publicly Traded Test is treated as owned by a Qualified Shareholder for purposes of the Qualified Shareholder Stock Ownership
Test, in the event that we are able to satisfy the Publicly Traded Test described above for a taxable year, we expect that each
of our applicable subsidiaries that is more than 50%-owned (by value) by us for at least half of the number of days in such taxable
year would satisfy the Qualified Shareholder Stock Ownership Test for such taxable year. We do not expect any applicable subsidiary
that is not more than 50%-owned (by value) by us to satisfy the Qualified Shareholder Stock Ownership Test for any taxable year,
unless a sufficient portion of such subsidiary’s other equity interests were owned by Qualified Shareholders to cause such
subsidiary to be more than 50%-owned (by value) by Qualified Shareholders for at least half the number of days in a taxable year
and such other Qualified Shareholders were to provide certifications of their Qualified Shareholder status. There can be no assurance
that these requirements will be satisfied with respect to any of our applicable subsidiaries for any taxable year.
The Net Basis Tax and Branch Profits Tax
If we or our subsidiaries earn U.S. Source
International Transportation Income and the Section 883 Exemption does not apply, the U.S. source portion of such income
may be treated as Effectively Connected Income if we or any of our subsidiaries have a fixed place of business in the United States
and substantially all of our or any such subsidiary’s U.S. Source International Transportation Income is attributable to
regularly scheduled transportation or, in the case of bareboat charter income, is attributable to a fixed place of business in
the United States. Based on our and our subsidiaries’ current operations, none of our or our subsidiaries’ potential
U.S. Source International Transportation Income is attributable to regularly scheduled transportation or is received pursuant to
bareboat charters, nor do we or any of our subsidiaries have a fixed place of business in the United States. As a result, we do
not anticipate that any of our or our subsidiaries’ U.S. Source International Transportation Income will be treated as Effectively
Connected Income. However, there is no assurance that we or any of our subsidiaries will not have a fixed place of business in
the United States or that we or any of our subsidiaries will not earn substantially all of its U.S. Source International Transportation
Income pursuant to regularly scheduled transportation or bareboat charters attributable to a fixed place of business in the United
States in the future, which would result in such income being treated as Effectively Connected Income. In addition, any U.S. Source
Domestic Transportation Income generally will be treated as Effectively Connected Income.
Any income we or our subsidiaries earn that
is treated as Effectively Connected Income would be subject to U.S. federal corporate income tax (imposed at a 21% rate) as well
as 30% branch profits tax imposed under Section 884 of the Code. In addition, a 30% branch interest tax could be imposed on
certain interest paid or deemed paid by us or our subsidiaries.
On the sale of a vessel that has produced Effectively
Connected Income, we or our subsidiaries could be subject to the net basis corporate income tax as well as branch profits tax with
respect to the gain recognized up to the amount of certain prior deductions for depreciation that reduced Effectively Connected
Income. Otherwise, we and our subsidiaries would not be subject to U.S. federal income tax with respect to gain realized on the
sale of a vessel, provided the sale is considered to occur outside of the United States (as determined under U.S. tax principles)
and the gain is not attributable to an office or other fixed place of business maintained by us or our subsidiaries in the United
States under U.S. federal income tax principles.
The 4% Gross Basis Tax
If the Section 883 Exemption does not
apply and the net basis tax does not apply, we and our subsidiaries would be subject to a 4% U.S. federal income tax on our
U.S. Source International Transportation Income, without benefit of deductions.
U.S. Federal Income Taxation of U.S. Holders
The following is a discussion of the material
U.S. federal income tax considerations that may be relevant to beneficial owners of our ordinary shares.
The following discussion applies only to beneficial
owners of our ordinary shares that own the ordinary shares as “capital assets” (generally, property held for investment
purposes). The following discussion does not address all aspects of U.S. federal income taxation which may be important to particular
beneficial owners of our ordinary shares in light of their individual circumstances, such as (i) beneficial owners of our
ordinary shares subject to special tax rules (e.g., banks or other financial institutions, real estate investment trusts,
regulated investment companies, insurance companies, broker-dealers, traders that elect to mark-to-market for U.S. federal
income tax purposes, tax-exempt organizations and retirement plans, individual retirement accounts and tax-deferred accounts, or
former citizens or long-term residents of the United States) or to beneficial owners that will hold the ordinary shares as part
of a straddle, hedge, conversion, constructive sale, or other integrated transaction for U.S. federal income tax purposes, (ii) partnerships
or other entities classified as partnerships for U.S. federal income tax purposes or their partners, (iii) U.S. Holders (as
defined below) that have a functional currency other than the U.S. dollar or that transact in ordinary shares in a currency other
than U.S. dollars, or (iv) beneficial owners of ordinary shares that own 2% or more (by vote or value) of our ordinary shares,
all of whom may be subject to tax rules that differ significantly from those summarized below. This discussion does not contain
information regarding any state or local, estate, gift or alternative minimum tax considerations concerning the ownership or disposition
of our ordinary shares.
If a partnership or other entity classified
as a partnership for U.S. federal income tax purposes holds our ordinary shares, the tax treatment of its partners generally will
depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level.
If you are a partner in a partnership holding our ordinary shares, you should consult your own tax advisor regarding the tax consequences
to you of the partnership’s ownership of our ordinary shares.
U.S. Holders that use an accrual method of
accounting for U.S. federal income tax purposes generally are required to include certain amounts in income no later than the time
such amounts are reflected on certain applicable financial statements. The application of this rule may require the accrual of
income earlier than would be the case under the general U.S. federal income tax rules described below. U.S. Holders that use an
accrual method of accounting for U.S. federal income tax purposes should consult with their tax advisors regarding the potential
applicability of this rule to their particular situation.
Each prospective beneficial owner of our ordinary
shares should consult its own tax advisor regarding the U.S. federal, state, local, and other tax consequences of the ownership
or disposition of our ordinary shares.
As used in this annual report, the term “U.S.
Holder” means a beneficial owner of our ordinary shares that:
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is an individual U.S. citizen or resident (as determined for U.S. federal income tax purposes);
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a corporation (or other entity that is classified as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more “United States persons” (as defined in the Code) have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under current Treasury regulations to be treated as a “United States person.”
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Distributions
Subject to the discussion below of the rules
applicable to a PFIC, any distributions to a U.S. Holder made by us with respect to our ordinary shares generally will constitute
dividends, which will be taxable as ordinary income or “qualified dividend income” as described in more detail below,
to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. We do
not intend to compute (or to provide U.S. Holders with information necessary to compute) earnings and profits under U.S. federal
income tax principles. Accordingly, U.S. Holders generally should expect to treat all distributions on the ordinary shares as taxable
dividends. U.S. Holders that are corporations generally will not be entitled to claim a dividend received deduction with respect
to distributions they receive from us. Dividends received with respect to the ordinary shares will be treated as foreign source
income and generally will be treated as “passive category income” for U.S. foreign tax credit purposes.
Dividends received with respect to our ordinary
shares by a U.S. Holder who is an individual, trust or estate, or a non-corporate U.S. Holder, generally will be treated as
“qualified dividend income” that is taxable to such non-corporate U.S. Holder at preferential long-term capital gain
tax rates, provided that: (i) our ordinary shares are traded on an “established securities market” in the United
States (such as the NASDAQ, where our ordinary shares are traded) and are “readily tradeable” on such an exchange;
(ii) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (which
we do not believe we are, have been or will be, as discussed below); (iii) the non-corporate U.S. Holder has owned the ordinary
shares for more than 60 days during the 121-day period beginning 60 days before the date on which the ordinary shares
become ex-dividend (and has not entered into certain risk limiting transactions with respect to such ordinary shares); and (iv) the
non-corporate U.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar
or related property. It is not currently known whether our ordinary shares will be considered “readily tradeable” on
the NASDAQ for purposes of these rules. If a dividend is treated as qualified dividend income, the amount of the dividend taken
into account for purposes of calculating the foreign tax credit limitation generally will be reduced to appropriately take into
account the tax rate differential between the reduced rate of tax applicable to qualified dividend income and the highest rate
of tax normally applicable to dividends. Any dividends paid on our ordinary shares that are not treated as qualified dividend income
will be taxed as ordinary income to a non-corporate U.S. Holder. In addition, a 3.8% tax may apply to certain investment income.
See “—Medicare Tax” below.
Special rules may apply to any amounts received
in respect of our ordinary shares that are treated as “extraordinary dividends.” In general, an extraordinary dividend
is a dividend with respect to an ordinary share that is equal to or in excess of 10% of a U.S. Holder’s adjusted tax basis
(or fair market value upon the U.S. Holder’s election) in such ordinary share. In addition, extraordinary dividends include
dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a U.S. Holder’s adjusted tax basis
(or fair market value) in an ordinary share. If we pay an “extraordinary dividend” on our ordinary shares that is treated
as “qualified dividend income,” then any loss recognized by a non-corporate U.S. Holder from the sale or exchange of
such ordinary shares will be treated as long-term capital loss to the extent of the amount of such dividend.
Sale, Exchange or Other Disposition of Ordinary
Shares
Subject to the discussion of the PFIC rules
below, a U.S. Holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of our ordinary shares
in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition
and the U.S. Holder’s adjusted tax basis in such ordinary shares. The U.S. Holder’s initial tax basis in the ordinary
shares generally will be the U.S. Holder’s purchase price for the ordinary shares. Such gain or loss will be treated as long-term
capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other
disposition.
A corporate U.S. Holder’s capital gains,
long-term and short-term, are taxed at ordinary income tax rates. If a corporate U.S. Holder recognizes a loss upon the disposition
of our ordinary shares, such U.S. Holder is limited to using the loss to offset other capital gain. If a corporate U.S. Holder
has no other capital gain in the tax year of the loss, it may carry the capital loss back three years and forward five years.
Long-term capital gains of non-corporate U.S.
Holders are subject to the favorable tax rate of a maximum of 20%. In addition, a 3.8% tax may apply to certain investment income.
See “—Medicare Tax” below. A non-corporate U.S. Holder may deduct a capital loss resulting from a disposition
of our ordinary shares to the extent of capital gains plus up to $3,000 ($1,500 for married individuals filing separate tax returns)
annually and may carry forward a capital loss indefinitely.
PFIC Status and Significant Tax Consequences
In general, we will be treated as a PFIC with
respect to a U.S. Holder if, for any taxable year in which the holder holds our ordinary shares, either:
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at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business), or
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at least 50% of the average value of the assets held by us (based on an average of the quarterly values of the assets during a taxable year) produce, or are held for the production of, passive income.
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Income earned, or deemed earned, by us in connection
with the performance of services would not constitute passive income. By contrast, rental income generally would constitute “passive
income” unless we were treated as deriving our rental income in the active conduct of a trade or business under the applicable
rules. The PFIC provisions contain a look-through rule under which we will be treated as earning directly our proportionate share
of any income, and owning directly our proportionate share of any assets, of another corporation if we own at least 25% of the
value of the stock of such other corporation.
Based on our current and projected, income,
assets and methods of operations, we believe that we should not be treated as a PFIC for our current taxable year and we expect
that we should not become a PFIC for the foreseeable future. In this regard, we believe that the income we receive from time and
voyage chartering activities should constitute services income, rather than rental income. Consequently, we believe that such income
should not constitute passive income and the assets engaged in generating such income should not be treated as passive assets and,
so long as our income from time and voyage charters exceeds 25% of our gross income for each taxable year after our initial taxable
year and the value of our vessels contracted under time and voyage charters exceeds 50% of the average value of our assets for
each taxable year after our initial taxable year, we should not be a PFIC.
We expect that substantially all of the vessels
in our fleet will be engaged in time or voyage chartering activities and intend to treat our income from those activities as non-passive
income, and the vessels engaged in those activities as non-passive assets, for PFIC purposes. We believe that there is a significant
amount of legal authority consisting of the Code, legislative history, IRS pronouncements and administrative rulings supporting
our position that the income from time and voyage chartering activities constitutes services income (rather than rental income).
There is, however, no direct legal authority under the PFIC rules addressing whether income from time chartering activities is
services income or rental income. Moreover, in a case not interpreting the PFIC rules, Tidewater Inc. v. United States, 565 F.3d
299 (5th Cir. 2009), the Fifth Circuit held that the vessel time charters at issue generated predominantly rental income rather
than services income. However, the IRS stated in an Action on Decision (AOD 2010-001) that it disagrees with, and will not acquiesce
to, the way that the rental versus services framework was applied to the facts in the Tidewater decision, and in its discussion
stated that the time charters at issue in Tidewater would be treated as producing services income for PFIC purposes. The IRS’s
AOD, however, is an administrative action that cannot be relied upon or otherwise cited as precedent by taxpayers.
The determination of whether we are a PFIC
in any taxable year is fact specific and will depend upon the portion of our assets (including goodwill) and income that are characterized
as passive under the PFIC rules and other factors, some of which may be beyond our control. In particular, because the total value
of our assets for purposes of the asset test described above will generally be calculated using the market price of our ordinary
shares, our PFIC status may depend in large part on the market price of our ordinary shares. Accordingly, fluctuations in the market
price of the ordinary shares may cause us to become a PFIC. In addition, the composition of our income and assets will be affected
by how, and how quickly, we use the cash generated by our business operations and any net proceeds that we receive from any future
financing or capital transactions. The PFIC determination also depends on the application of complex U.S. federal income tax rules
concerning the classification of our assets and income for this purpose, and these rules are uncertain in some respects. Further,
the PFIC determination is made annually and our circumstances or the nature of our operations may change. Accordingly, there can
be no assurance that we will not be classified as a PFIC for the current taxable year or any future taxable year, and no ruling
from the IRS or opinion of counsel has been issued or has been or will be sought with respect to our potential status as a PFIC.
If we were treated as a PFIC for any taxable
year in which a U.S. Holder owned our ordinary shares, the U.S. Holder generally would be subject to special tax rules resulting
in increased tax liability with respect to any “excess distribution” the U.S. Holder receives on, and any gain the
U.S. Holder realizes from a sale or other disposition (including a pledge) of, our ordinary shares, unless a “mark-to-market”
election is available and a U.S. Holder makes such election with respect to the ordinary shares, as discussed below. In addition,
if we were treated as a PFIC for any taxable year in which a U.S. Holder owned our ordinary shares, the U.S. Holder would be required
to file IRS Form 8621 with the U.S. Holder’s U.S. federal income tax return for each year to report the U.S. Holder’s
ownership of such ordinary shares. Substantial penalties apply to any failure to timely file IRS Form 8621, unless the failure
is shown to be due to reasonable cause and not due to willful neglect. In the event a U.S. Holder does not file IRS Form 8621,
the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related tax
year will not close before the date which is three years after the date on which such report is filed. A U.S. Holder would not
be able to make a “qualified electing fund” election as we do not expect to provide the information necessary for U.S.
Holders to make “qualified electing fund” elections.
Taxation of U.S. Holders Making a “Mark-to-Market”
Election
If we were to be treated as a PFIC for any
taxable year and our ordinary shares were treated as “marketable stock” for purposes of these rules, then a U.S. Holder
would be allowed to make a “mark-to-market” election with respect to our ordinary shares, provided the U.S. Holder
completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury regulations. If that election
is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market
value of the U.S. Holder’s ordinary shares at the end of the taxable year over the U.S. Holder’s adjusted tax basis
in the ordinary shares. The U.S. Holder also would be permitted an ordinary loss in respect of the excess, if any, of the U.S.
Holder’s adjusted tax basis in the ordinary shares over the fair market value thereof at the end of the taxable year, but
only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s
tax basis in the U.S. Holder’s ordinary shares would be adjusted to reflect any such income or loss recognized. Gain recognized
on the sale, exchange or other disposition of our ordinary shares would be treated as ordinary income, and any loss recognized
on the sale, exchange or other disposition of the ordinary shares would be treated as ordinary loss to the extent that such loss
does not exceed the net mark-to-market gains previously included in income by the U.S. Holder. A mark-to-market election would
not apply to our ordinary shares owned by a U.S. Holder in any taxable year during which we are not a PFIC, but would remain in
effect with respect to any subsequent taxable year for which we are a PFIC, unless our ordinary shares are no longer treated as
“marketable stock” or the IRS consents to the revocation of the election.
A “mark-to-market” election may
itself have negative tax consequences to a U.S. Holder and would not mitigate any negative tax consequences with respect to PFICs
directly or indirectly owned by us. In addition, even if a U.S. Holder makes a “mark-to-market” election for one of
our taxable years, if we were a PFIC for a prior taxable during which the U.S. Holder owned our ordinary shares and for which the
U.S. Holder did not make a timely mark-to-market election, the U.S. Holder would also be subject to the more adverse rules described
below under “Taxation of U.S. Holders Not Making a Timely Mark-to-Market Election.” U.S. holders should consult with
their tax advisers regarding the availability and advisability making a mark-to-market election with respect to the ordinary shares.
Taxation of U.S. Holders Not Making a Timely Mark-to-Market
Election
If we were to be treated as a PFIC for any
taxable year, a U.S. Holder who does not make a timely “mark-to-market” election for that year (i.e., the taxable
year in which the U.S. Holder’s holding period commences), whom we refer to as a “Non-Electing Holder,” would
be subject to special rules resulting in increased tax liability with respect to (1) any excess distribution (i.e., the
portion of any distributions received by the Non-Electing Holder on our ordinary shares in a taxable year in excess of 125% of
the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the
Non-Electing Holder’s holding period for the ordinary shares), and (2) any gain realized on the sale, exchange or other
disposition of our ordinary shares. Under these special rules:
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the excess distribution and any gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the ordinary shares;
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the amount allocated to the current taxable year and any year prior to the year we were first treated as a PFIC with respect to the Non-Electing Holder would be taxed as ordinary income; and
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the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
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In addition, if we were to be treated as a
PFIC, a U.S. Holder would be treated as owning a proportionate amount of any shares that we own, directly or indirectly by application
of certain attribution rules, in other PFICs (including any of our subsidiaries, if they are PFICs) and would be subject to the
PFIC rules on a separate basis with respect to its indirect interests in any such PFICs. If we were treated as a PFIC for any taxable
year and a Non-Electing Holder who is an individual dies while owning our ordinary shares, such holder’s successor generally
would not receive a step-up in tax basis with respect to such ordinary shares.
Medicare Tax
A U.S. Holder that is an individual or estate,
or a trust that does not fall into a special class of trusts that is exempt from such tax, will generally be subject to a 3.8%
tax on the lesser of (i) the U.S. Holder’s “net investment income” for a taxable year and (ii) the
excess of the U.S. Holder’s modified adjusted gross income for such taxable year over $200,000 ($250,000 in the case of joint
filers). For these purposes, “net investment income” will generally include dividends paid with respect to our ordinary
shares and net gain attributable to the disposition of our ordinary shares not held in connection with certain trades or businesses,
but will be reduced by any deductions properly allocable to such income or net gain.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our ordinary shares (other
than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S.
Holder is a “Non-U.S. Holder.”
Distributions
Distributions we pay to a Non-U.S. Holder will
not be subject to U.S. federal income tax or withholding tax if the Non-U.S. Holder is not engaged in a U.S. trade or business.
If the Non-U.S. Holder is engaged in a U.S. trade or business, our distributions will be subject to U.S. federal income tax
to the extent they constitute income effectively connected with the Non-U.S. Holder’s U.S. trade or business (and a corporate
Non-U.S. Holder may also be subject to U.S. federal branch profits tax). However, distributions paid to a Non-U.S. Holder who is
engaged in a trade or business may be exempt from taxation under an income tax treaty if the income arising from the distribution
is not attributable to a U.S. permanent establishment maintained by the Non-U.S. Holder.
Disposition of Ordinary Shares
In general, a Non-U.S. Holder will not be subject
to U.S. federal income tax or withholding tax on any gain resulting from the disposition of our ordinary shares provided the Non-U.S.
Holder is not engaged in a U.S. trade or business. A Non-U.S. Holder that is engaged in a U.S. trade or business will be subject
to U.S. federal income tax in the event the gain from the disposition of ordinary shares is Effectively Connected Income (provided,
in the case of a Non-U.S. Holder entitled to the benefits of an income tax treaty with the United States, such gain also is attributable
to a U.S. permanent establishment). However, even if not engaged in a U.S. trade or business, individual Non-U.S. Holders
may be subject to tax on gain resulting from the disposition of our ordinary shares if they are present in the United States for
183 days or more during the taxable year in which those ordinary shares are disposed and meet certain other requirements.
Backup Withholding and Information Reporting
In general, payments to a non-corporate U.S.
Holder of distributions or the proceeds of a disposition of ordinary shares may be subject to information reporting. These payments
to a non-corporate U.S. Holder also may be subject to backup withholding, if the non-corporate U.S. Holder:
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fails to provide an accurate taxpayer identification number;
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is notified by the IRS that it has failed to report all interest or corporate distributions required to be reported on his U.S. federal income tax returns; or
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in certain circumstances, fails to comply with applicable certification requirements.
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A U.S. Holder generally is required to certify
its compliance with the backup withholding rules on IRS Form W-9.
Non-U.S. Holders may be required to establish
their exemption from information reporting and backup withholding by certifying their status on IRS Form W-8BEN, W-8BEN-E,
W-8ECI or W-8IMY, as applicable.
Backup withholding is not an additional tax.
Rather, a shareholder generally may obtain a credit for any amount withheld against its liability for U.S. federal income tax (and
obtain a refund of any amounts withheld in excess of such liability) by filing a U.S. federal income tax return with the IRS.
Individual U.S. Holders (and to the extent
specified in applicable Treasury regulations, certain individual Non-U.S. Holders and certain U.S. Holders that are entities) that
hold “specified foreign financial assets,” including our ordinary shares, whose aggregate value exceeds $75,000 at
any time during the taxable year or $50,000 on the last day of the taxable year (or such higher amounts as prescribed by applicable
Treasury regulations) are required to file a report on IRS Form 8938 with information relating to the assets for each
such taxable year. Specified foreign financial assets would include, among other things, our ordinary shares, unless such ordinary
shares are held in an account maintained by a U.S. “financial institution” (as defined). Substantial penalties apply
to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful
neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury regulations,
an individual Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute
of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close
until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders
should consult their own tax advisors regarding their reporting obligations.
South African Tax Considerations
The following is a summary of the material
South African income tax consequences for South African tax resident shareholders who are resident for tax purposes in South Africa
in relation to the acquisition, ownership and disposal of our ordinary shares, based on current South African law and South African
Revenue Service, or SARS, practice as at the date of this document.
This summary is of a general nature only
and is not intended to be legal or tax advice to any particular shareholder. This summary is not exhaustive of all South African
income tax considerations. Accordingly, shareholders should consult their own tax advisors as to the tax consequences under the
tax laws of the country of which they are resident or otherwise subject to tax.
As used in this annual report, the term “SA
Tax Resident Shareholder” means a beneficial owner of Grindrod Shipping ordinary shares that is a “resident”
as defined in the South African Income Tax Act, No. 58 of 1962, or the Income Tax Act.
Consequently, the term “Non SA Tax Resident
Shareholder” means a beneficial owner of Grindrod Shipping ordinary shares that does not meet the requirements to be a “resident”
as defined in terms of the Income Tax Act.
This summary only addresses the South African
tax consequences for SA Tax Resident Shareholders who hold their ordinary shares as capital assets and does not address the tax
consequences which may be relevant to other categories of shareholders such as share dealers. Moreover, certain categories of shareholders,
including those carrying on certain financial activities, those subject to specific tax regimes or benefiting from certain reliefs
or exemptions, those connected with the Company and those for whom the shares are employment related securities, may be subject
to special rules and this summary does not apply to such shareholders.
This summary only addresses the South African
tax consequences for SA Tax Resident Shareholders who are shareholders of our ordinary shares registered on the South African administrative
depository register.
For purposes of this summary it is understood
that Grindrod Shipping is incorporated and tax resident (i.e. has its place of effective management), in Singapore.
Exchange Control
SA Tax Resident Shareholders who choose to
reposition their interest into an account with a U.S. broker dealer will need to apply for approval from the Financial Surveillance
Department of the South African Reserve Bank, or Fin Surv, through their authorised dealer.
SA Tax Resident Shareholders who are individuals
can apply to the extent of their single discretionary allowance and foreign capital allowance. If their investment in our ordinary
shares listed on the NASDAQ will exceed these allowances they will need to apply for a special tax clearance certificate before
applying to Fin Surv for approval.
SA Tax Resident Shareholders that are corporates
will also need to apply for approval to hold our ordinary shares as part of their foreign portfolio investment allowance, provided
they do not hold more than 10% of our ordinary shares.
Controlled Foreign Company, or CFC
Notably, a controlled foreign company is a
non-South African company in which more than 50% of the participation rights / voting rights are held / exercisable by SA
Tax Resident Shareholders who are not headquarter companies.
Based on the disclosure of the major shareholders
in this annual report, the Grindrod Shipping ordinary shares are held more than 50% by SA Tax Resident Shareholders, who each
hold at least 5% of the listed Grindrod Shipping ordinary shares and thus Grindrod Shipping appears to be a CFC. Any non-South
African subsidiaries of Grindrod Shipping in which it can exercise more than 50% of the voting rights will also be CFCs. Certain
profits of CFCs are included in the taxable income of SA Tax Resident Shareholders.
Because the Company is a CFC, SA Tax Resident
Shareholders who, together with connected persons, hold more than 10% of the Grindrod Shipping ordinary shares are advised to obtain
tax advice regarding the South African tax implications, including the tax treatment of foreign dividends, arising from holding
shares in a CFC. The tax implications set out below may not apply to such shareholders.
Taxation of Dividends
The Company is a foreign company as defined
in section 1 of the Income Tax Act. A foreign dividend means an amount that is paid or payable by a foreign company in respect
of a share in that company, where that amount is treated as a dividend or similar payment by that foreign company for purposes
of the laws relating to tax on income on companies of the country in which that foreign company has its place of effective management,
which for purposes of this summary is deemed to be Singapore.
The Company is a dual listed foreign company,
that is, a company listed on the JSE as well as a recognized foreign exchange, for the purposes of the Income Tax Act.
Corporate Income Tax
In terms of Section 10B(2)(d) of the Income
Tax Act, foreign dividends, excluding such dividends that consist of a distribution of an asset in specie, from the Company will
typically be exempt from income tax in the hands of tax residents of South Africa.
In terms of section 10B(2)(e), foreign dividends
that constitute a distribution of and asset in specie will be exempt in the hands of South African tax resident companies. Where
the shareholder is any person other than a South African tax resident company (for example, an individual or trust), a portion,
determined in terms of a formula, of the market value of the distribution in specie would be included in the income of the shareholder.
Non-resident shareholders should not be subject
to South African income tax in respect of such foreign dividends on the basis that these dividends arise from a source outside
South Africa.
Dividends Tax
For purposes of determining a shareholder’s
liability for dividends tax, the definition of a dividend in section 64D of the Income Tax Act includes a foreign dividend declared
by a foreign company listed on the JSE, provided that the foreign dividend does not constitute the distribution of an asset in
specie. Thus a foreign dividend declared by a company listed on the JSE, will not attract dividends tax if it constitutes the distribution
of an asset in specie. Moreover, a foreign dividend received by a SA Tax Resident Shareholder which holds shares in the Company
which are registered on the NASDAQ (and does not hold shares registered on the South African administrative depository register
would not be subject to dividends tax in South Africa.
In terms of Section 64D of the Income Tax Act,
a cash foreign dividend declared by the Company will fall within the definition of a dividend for dividends tax purposes. Such
foreign dividends will attract dividends tax calculated at the rate of 20% of the amount of any foreign dividends paid or becoming
due and payable.
In terms of section 64F of the Income Tax Act
certain foreign dividends are exempt from dividends tax. These include, inter alia, foreign dividends declared to South African
resident companies, provided that the shareholder in question has made the necessary declaration and undertaking prior to the dividend
having been paid.
Taxation of Capital Gains
On a disposal of Shares by a shareholder, a
capital gain or loss will arise, equal to the difference between the disposal proceeds and the base cost of the shares. Such capital
gain or loss will be aggregated with all other capital gains or losses derived by the shareholder in the same tax year.
Any aggregate capital gain will, if applicable,
be reduced by the natural person’s annual exclusion of R40,000 (R300,000 in the year of death) and the relevant percentage
of the capital gain (40% for individuals, special trusts and individual policyholder funds, resulting in a maximum effective tax
rate of 18%, and 80% for companies, ordinary trusts and other taxable insurance portfolios, resulting in an effective tax rate
of 36% for ordinary trusts and 22.4% for companies), will be included in the shareholder’s taxable income. Any aggregate
capital loss will, if applicable, be reduced by the natural person’s annual exclusion as above, and the net amount will be
carried forward for set off against future capital gains.
Securities Transfer Tax, or STT
STT arises on the transfer of a share in a
non-resident company which is listed on the JSE (i.e. registered on the South African administrative depository register), including
any reallocation of securities from a shareholder’s bank restricted stock account or a shareholder’s unrestricted and
security stock account to a shareholder’s general restricted stock account.
Thus the disposal of ordinary shares in the
Company which are listed on the JSE will typically give rise to STT at the rate of 0.25% of the ‘taxable amount’, generally
being the consideration payable for the shares. STT only arises to the extent that a transfer results in a change in beneficial
ownership.
In terms of the STT Act No 25 of 2007, or the
STT Act, the liability to pay STT in relation to the transfer of a share listed on the JSE, rests with-
|
(a)
|
a member (defined as an “authorised user” in section 1 of the Financial Markets Act No 19 of 2012), if the listed security is purchased through the agency of, or from such member;
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|
(b)
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the participant (defined as a person authorised by the central securities depository to hold in custody and administer the listed security), where the listed security is purchased from the participant and the STT has not been settled by a member referred to under (a) above;
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|
(c)
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by the purchaser, if no STT was payable under (a) or (b) above.
|
The STT Act contains a number of specific exemptions
from STT, which may apply to exempt the transfer in question from STT.
Donations Tax
Donations tax is payable on the value of any
property disposed of under any donation made by any SA Tax Resident Shareholder. A donation means any gratuitous disposal of property,
including any gratuitous waiver or renunciation of a right, and is deemed to include the disposal of an asset to the extent that
the consideration is inadequate. Exemptions from donations tax include donations between spouses, donations made in contemplation
of death and an annual exemption of R100,000 for individuals.
Donations tax is payable at a rate of 20% on
the value of aggregate donations not exceeding R30 million and 25% of the aggregate donations exceeding R30 million.
Estate Duty
Inheritance tax in South Africa is referred
to as estate duty. Estate duty will be levied on the worldwide assets of any person who is ordinarily resident in South
Africa at the date of his or her death. Estate duty will also be levied on any person who is not ordinarily resident in South Africa
at the date of his or her death in respect of any assets situated in South Africa or rights which are enforceable in South Africa.
Various allowable deductions are permitted
to determine the net value of the estate, including the value of all property that accrues to a surviving spouse of the deceased.
After deducting a primary abatement of R3.5 million, estate duty is levied at a rate of 20% on the first R30 million of
the dutiable amount of an estate and 25% on the amount exceeding R30 million. Any foreign death duties proved to have been paid
in respect of property situated outside South Africa and included in the estate of any person who at the date of death was ordinarily
resident in South Africa, may be deducted from the estate duty payable.
Shares which are registered on the South African
administrative depository register of the Company in South Africa will be included in the estate of any person who is ordinarily
resident in South Africa at the date of death, and in the South African estate of any person who is not ordinarily resident in
South Africa at the date of death, on the basis that any transfer of ownership in such Ordinary Shares is required to be registered
in South Africa.
Estate duty is subject to the provisions of
any applicable double taxation agreement in relation to estate duty.
Singapore Tax Considerations
Dividends or Other Distributions with Respect to
Ordinary Shares
Under the one-tier corporate tax system which
currently applies to all Singapore tax resident companies, tax on corporate profits is final, and dividends paid by a Singapore
tax resident company will be income tax exempt in the hands of a shareholder, whether or not the shareholder is a company or an
individual and whether or not the shareholder is a Singapore tax resident.
Capital Gains upon Disposition of Ordinary Shares
Under current Singapore tax laws, there is
no tax on capital gains. There are no specific laws or regulations which deal with the characterization of whether a gain is income
or capital in nature. Gains arising from the disposal of Grindrod Shipping’s ordinary shares may be construed to be of an
income nature and subject to Singapore income tax, if they arise from activities which the Inland Revenue Authority of Singapore
regards as the carrying on of a trade or business in Singapore. However, under Singapore tax laws, any gains derived by a divesting
company from its disposal of ordinary shares in an investee company between June 1, 2012 and December 31, 2027 are generally
not taxable if immediately prior to the date of the relevant disposal, the investing company has held at least 20% of the ordinary
shares in the investee company for a period of at least 24 months.
Goods and Services Tax
The issue or transfer of ownership of Grindrod
Shipping’s ordinary shares should be exempt from Singapore Goods and Services Tax. Hence, the holders would not incur any
Goods and Services Tax on the subscription or subsequent transfer of the shares.
Stamp Duty
If Grindrod Shipping’s ordinary shares
evidenced in certificated forms are acquired in Singapore, stamp duty is payable on the instrument of their transfer at the rate
of 0.2% of the consideration for or market value of Grindrod Shipping’s ordinary shares, whichever is higher.
Where an instrument of transfer is executed
outside Singapore or no instrument of transfer is executed, no stamp duty is payable on the acquisition of Grindrod Shipping’s
ordinary shares. However, stamp duty may be payable if the instrument of transfer is executed outside Singapore and is received
in Singapore. The stamp duty is borne by the purchaser unless there is an agreement to the contrary.
On the basis that any transfer instrument in
respect of Grindrod Shipping’s shares traded on the NASDAQ or the JSE are executed outside Singapore through Grindrod Shipping’s
transfer agent and share registrar in the United States for registration in Grindrod Shipping’s branch register of members
maintained in the United States (without any transfer instrument being received in Singapore), no stamp duty should be payable
in Singapore on such transfers.
Tax Treaties Regarding Withholding Taxes
There is no comprehensive avoidance of double
taxation agreement between the United States and Singapore which applies to withholding taxes on dividends or capital gains.
Dividends and Paying Agents
Not applicable.
Statement by Experts
Not applicable.
Documents on Display
Grindrod Shipping files its annual and current
reports and other information with the SEC. The SEC filings are available to the public from commercial document retrieval services.
Grindrod Shipping’s SEC filings may also be obtained electronically via the Electronic Data Gathering, Analysis and Retrieval,
or EDGAR, system on the website maintained by the SEC at http://www.sec.gov.
The above information and certain other documents
may be obtained at the registered office of Grindrod Shipping and are accessible at www.grinshipping.com. The information contained
on our website is not incorporated by reference in this annual report.
Subsidiary Information
Not applicable.
ITEM 11.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Spot Market Rate Risk
We currently employ our vessels primarily in
the spot market or spot market-oriented pools and do not have a significant amount of fixed revenue cover and we are therefore
exposed to the cyclicality and volatility of the spot market. Spot rates may fluctuate significantly based upon the supply of and
demand for seaborne shipping capacity.
Interest Rate Risk
Borrowings under our credit facilities generally
bear interest at rates based on a premium over LIBOR. Therefore, we are exposed to the risk that our interest expense may increase
if interest rates rise. We currently do not have any interest rate swaps in place. We may, in the future use interest rate swaps
to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize
the risks and costs associated with our variable-rate debt and are not for speculative or trading purposes.
For the years ended December 31, 2020,
2019 and 2018, we paid interest on our outstanding debt at a weighted average interest rate of 3.71%, 5.09% and 5.3%, respectively.
A 0.5% increase or decrease in LIBOR would have increased or decreased our interest expense for the years ended December 31,
2020, 2019 and 2018, by $1.1 million, $0.7 million and $0.6 million, respectively.
Foreign Exchange Rate Risk
Our primary economic environment is the international
shipping market. This market utilizes the U.S. dollar as its functional currency. Consequently, virtually all of our revenue and
expenses are in U.S. dollars. Transactions in currencies other than the functional currency are translated at the exchange rate
on the transaction date and the relevant payment is translated on the payment date, with the difference being reported in the income
statement as an exchange gain or loss. In addition a part of our debt obligations were, but no longer are, denominated in currencies
other than the U.S. dollar, being the Japanese Yen. Assets and liabilities denominated in currencies different from the functional
currency are translated into the functional currency for the preparation of the statement of financial position at the exchange
rate prevailing on the statement of financial position date. Differences in exchange rates between statement of financial position
dates may lead to gains or losses being reported in the income statement. Extraordinary transactions and the translation of the
financial statements of the subsidiaries whose functional currencies are not the U.S. dollar for purposes of preparing our consolidated
and combined financial statements, may follow different translation procedures. Depreciation in the value of the U.S. dollar relative
to other currencies will increase the U.S. dollar cost of us paying such expenses. The portion of our business conducted in other
currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations.
There is a risk that currency fluctuations
will have a negative effect on our cash flows. We have not entered into any hedging contracts to protect against currency fluctuations.
We may seek to hedge this currency fluctuation risk in the future.
The following sensitivity analysis includes
only outstanding foreign currency denominated monetary items and adjusts their translation at the respective period end for a 10%
change in foreign currency rates. If the relevant foreign currency strengthens by 10% against our functional currency, relative
to the exchange rate that we used to prepare the respective financial statements, profit or loss will increase/(decrease) by:
|
|
Impact on profit or loss
|
|
(In millions of U.S. dollars)
|
|
2020
|
|
|
2019
|
|
U.S. dollars
|
|
$
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0.2
|
|
|
$
|
0.1
|
|
South African Rand
|
|
|
(0.0
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)
|
|
|
(2.0
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)
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Freight Derivatives Risk
From time to time, we may take positions in
freight derivatives, mainly FFAs. Generally freight derivatives may be used to hedge exposure to charter rate market risk through
the purchase or sale of specified time charter rates for forward positions. Settlement of FFA is in cash, against a daily market
index published by the Baltic Exchange. By taking positions in FFAs or other derivative instruments we could suffer losses in the
settling or termination of these agreements.
There are no outstanding contracts as of
December 31, 2020, December 31, 2019 and December 31, 2018.
Bunker Price Risk
Our operating results are affected by movement
in the price of fuel oil consumed by the vessels—known in the industry as bunkers. The price and supply of fuel is unpredictable
and fluctuates based on events outside our control, including changes in legislation such as the IMO 2020 regulations, geopolitical
developments, supply of and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing
countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in
the future, which may reduce our profitability. We do hedge some of our exposure to bunker price risk.
For the years ended December 31, 2020, 2019
and 2018, we recorded a net gain of $0.5 million, a net gain of $0.2 million and a net loss of $0.9 million on bunker swaps, respectively,
which resulted from fair value loss or gain, in our consolidated and combined financial statements.
A 10% increase or decrease in the bunker price,
would result in a decrease or increase of the hedging reserve for the years ended December 31, 2020, 2019 and 2018, by $0.2
million, $0.2 million and $0.4 million, respectively.
Concentration of Credit Risk
Financial instruments, which potentially subject
us to significant concentrations of credit risk, consist principally of trade accounts receivable and bank balances. We closely
monitor our exposure to customers for credit risk. We have policies in place to ensure that we trade with customers with an appropriate
credit history. We do not take out credit default insurance.
Our maximum exposure to credit risk in the
event that counterparties fail to perform their obligations as at the end of each financial year in relation to each class of recognized
financial assets is the carrying amount of those assets as indicated in our statement of financial position.
Inflation
We do not expect inflation to be a significant
risk to direct expenses in the current and foreseeable economic environment.
ITEM 12.
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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Debt Securities
Not applicable.
Warrants and Rights
Not applicable.
Other Securities
Not applicable.
American Depositary Shares
Not applicable.
The table below details changes in the
Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from
financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated
and combined statement of cash flows as cash flows from financing activities.
As part of the Spin-Off (Note 1), the company
acquired all of the shares of Grindrod Shipping Pte. Ltd. (Singapore) and Grindrod Shipping (South Africa) (Pty) Ltd for a purchase
consideration of $320,683,000 which was satisfied by the issuance of compulsorily convertible notes which were converted to 19,063,832
ordinary shares of the company on the same date. Accordingly, no cash was received on the issuance of the shares.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
General information
The company was incorporated
as a private company on 2 November 2017 and with effect from 25 April 2018, it was converted from a private company to a public
company whereby it changed its name to Grindrod Shipping Holdings Ltd. The company is incorporated in Singapore with its principal
place of business and registered office at #03-01 Southpoint, 200 Cantonment Road, Singapore 089763. On 18 June 2018, the company
became a publicly traded company with its shares primarily listed on the NASDAQ Global Select Market and from the 19 June 2018
secondarily on the Main Board of the Johannesburg Stock Exchange (JSE).
The company was incorporated
with the intention to acquire all of the shares of Grindrod Shipping Pte. Ltd., or GSPL, and Grindrod Shipping (South Africa) Pty
Ltd, or GSSA from Grindrod Limited, a public company incorporated in accordance with the laws of the Republic of South Africa,
or Parent as part of the Parent’s plan to demerge its shipping business (referred to as the ‘Spin-Off’). Before
the Spin-Off, two of GSSA’s businesses, Ocean Africa Container Lines division, or OACL, and Unicorn Bunker Services (Pty)
Ltd, or Unicorn Bunker, were disposed to another Parent subsidiary on 1 January 2018. On 18 June 2018, the Spin-Off was affected
by the company acquiring 100% of the issued and paid up share capital of GSPL and GSSA for a consideration of $320,683,000 (Note
29). The purchase consideration was satisfied by the issuance by the company of compulsorily convertible notes which converted
to 19,063,832 ordinary shares of the company on the same date.
On 11 March 2020, the World Health
Organization declared the recent novel coronavirus (“COVID-19”) outbreak a pandemic. In response to the outbreak, Governments
have implemented measures to combat the spread of virus, including border closures, travel restrictions, limitations on public
gatherings, alteration of supply chain plans and closure of non-essential businesses. This has led to a severe slowdown in global
economic activity levels and caused severe trade disruptions.
The ongoing pandemic resulted
in the deterioration of charter rates, which affected the Group’s revenue and cash flow from operations. The Group has also
incurred additional crew expenses arising from crew travel, COVID-19 testing and procurement of personal protection equipment.
The Group also experienced some delays in drydocking and BWTS installations and higher offhire days due to crew changes due to
quarantine regulations and COVID-19 testing.
Currently, it is not possible
to assess the full extent of COVID-19’s impact on the Group’s operations and financial performance. However, the resurgence
or increase in the severity of the pandemic and speed of vaccination rollout could have materially and adversely affect the Group’s
operations, financial performance, cash flows and the carrying amount of the Group’s assets and fair value of the Group’s
vessels.
The principal activities of the
Group are ship chartering, operating and sales of vessels. Information of the entities within the Group is contained in Note 16.
The consolidated and combined
financial statements of the Group for the year ended 31 December 2020 were authorised for issue by the Board of Directors on 31
March 2021.
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2
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SIGNIFICANT ACCOUNTING POLICIES
|
|
2.1
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Statement of compliance
|
The consolidated and combined
financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued
by the International Accounting Standards Board (“IASB”).
|
2.2
|
Basis of preparation of historical consolidated and combined financial information
|
Grindrod Shipping Holdings Ltd
and its subsidiaries (the “Group”) resulting from the Spin-Off in Note 1 above is regarded as a continuing entity throughout
the period ended 31 December 2018 as the Group was under the management of Grindrod Limited and therefore considered to be under
common management.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
The financial statements presented
herein represent (i) prior to 18 June 2018, the combined financial statements of GSPL and GSSA and (ii) subsequent to 18 June 2018,
the consolidated financial statements of the company as a separate publicly traded company following the Spin-Off of GSPL and GSSA
from Grindrod Limited. Prior to the Spin-Off, equity relating to GSPL and GSSA represents the Parent’s net investment in
the company and accordingly, this has been presented as ‘Parent invested capital’ in the combined financial statements.
Upon the Spin-Off on 18 June 2018, the Parent Invested Capital was adjusted as a result of settlement of assets and liabilities
of GSPL and GSSA with the Parent and formed the company’s share capital with the residual differences recognised as merger
reserve.
The financial statements are
prepared in accordance with the historical cost basis except as disclosed in the accounting policies below. Historical cost is
generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating
the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability which market
participants would take into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or
disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions
that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IFRS 16 Leases,
and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 Inventories
or value in use in IAS 36 Impairment of Assets.
|
2.3
|
Application of new and revised International Financial Reporting Standards (IFRSs)
|
From 1 January 2020, the Group
has applied a number of new IFRS and amendments to IFRSs issued by the IASB that are mandatorily effective for an accounting period
that begins on or after 1 January 2020. The adoption of these new and revised IFRSs has not resulted in significant changes to
the Group’s accounting policies and has no material effect on the amounts reported for the current or prior periods except
as follows:
Amendments to IFRS 3 Business
Combinations: Definition of a Business
The Group has adopted the amendments
to IFRS 3 for the first time in the current year. The amendments clarify that while businesses usually have outputs, outputs are
not required for an integrated set of activities and assets to qualify as a business. To be considered a business an acquired set
of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute
to the ability to create outputs.
The amendments remove the assessment
of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. The
amendments also introduce additional guidance that helps to determine whether a substantive process has been acquired.
The amendments introduce an optional
concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.
Under the optional concentration test, the acquired set of activities and assets is not a business if substantially all of the
fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar assets. The amendments
are applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after 1 January
2020.
In the current financial
year, the Group acquired additional equity interest in IVS Bulk Pte. Ltd. from its joint venture partner which increased its ownership
interest from 33.25% to 68.86% and has applied the optional concentration test as disclosed in Note 41.1. The Group also acquired
additional equity interest in Island Bulk Carriers Pte. Ltd. (“IBC”) from its joint venture partner which increased
its ownership interest from 65% to 100% and accounted for this as business combination as disclosed in Note 41.2.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Impact of the initial application
of Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
In September 2019, the IASB issued
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7). These amendments modify specific hedge accounting
requirements to allow hedge accounting to continue for affected hedges during the period of uncertainty before the hedged items
or hedging instruments affected by the current interest rate benchmarks are amended as a result of the on-going interest rate benchmark
reforms. The amendments have no material impact on the amounts reported for the current or prior periods.
Impact of the initial application
of Covid-19-Related Rent Concessions (Amendment to IFRS 16)
In May 2020, the IASB issued
Covid-19-Related Rent Concessions (Amendment to IFRS 16) that provides practical relief to lessees in accounting for rent
concessions occurring as a direct consequence of COVID-19, by introducing a practical expedient to IFRS 16. The practical expedient
permits a lessee to elect not to assess whether a COVID- 19-related rent concession is a lease modification. A lessee that makes
this election shall account for any change in lease payments resulting from the COVID-19-related rent concession the same way it
would account for the change applying IFRS 16 if the change were not a lease modification. The practical expedient applies only
to rent concessions occurring as a direct consequence of COVID-19 and only if all of the following conditions are met:
a) The change in lease payments
results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease
immediately preceding the change;
b) Any reduction in lease payments
affects only payments originally due on or before 30 June 2021 (a rent concession meets this condition if it results in reduced
lease payments on or before 30 June 2021 and increased lease payments that extend beyond 30 June 2021); and
c) There is no substantive change
to other terms and conditions of the lease.
In the current financial year,
the Group has applied the amendment to IFRS 16 (as issued by the IASB in May 2020) in advance of its effective date. The amendments
have no material impact on the amounts reported for the current period.
Impact on accounting for changes
in lease payments applying the exemption
The Group did not experience
any lease modifications as a result of COVID-19 and have therefore not applied the practical expedients allowed in the amendment
to IFRS 16 (as issued by the IASB in May 2020).
|
2.4
|
New and revised IFRSs in issue but not yet effective
|
The Group has not applied the
following new and revised IFRSs that are relevant to the Group that were issued but are not yet effective:
IFRS 17
|
Insurance Contracts
|
IFRS 10 and IAS 28 (amendments)
|
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
|
Amendments to IAS 1
|
Classification of liabilities as Current or Non-current
|
Amendments to IFRS 3
|
Reference to Conceptual Framework
|
Amendments to IAS 16
|
Property, Plant and Equipment – Proceeds before intended use
|
Amendments to IAS 37
|
Onerous Contracts – Cost of fulfilling a Contract
|
Annual improvements to IFRS Standards 2018-2020
|
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments and IFRS 16 Leases
|
The directors do not expect that
the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
|
2.5
|
Basis of Consolidation
|
The consolidated financial statements
incorporate the financial statements of the Group and entities controlled by the Group (its subsidiaries) made up to 31 December
each year. Control is achieved when the Group has the power over the investee, is exposed; or has rights, to variable returns from
its involvement with the investee; and has the ability to use its power to affects its returns.
The Group reassesses whether
or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements
of control listed above. When the Group has less than a majority of the voting rights of an investee, it considers that it has
power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities
of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group’s
voting rights in an investee are sufficient to give it power, including; the size of the Group’s holding of voting rights
relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Group, other vote
holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate
that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to
be made, including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary
begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically,
the results of subsidiaries acquired or disposed of during the year are included in profit or loss from the date the Group gains
control until the date when the Group ceases to control the subsidiary.
Non-controlling interests in
subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders that
are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be
measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s
identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests
are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount
of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity.
Profit or loss and each component
of other comprehensive income (OCI) are attributed to the owners of the Group and to the non-controlling interests. Total comprehensive
income of the subsidiaries is attributed to the owners of the Group and to the non-controlling interests even if this results in
the non-controlling interests having a deficit balance.
Where necessary, adjustments
are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group’s accounting
policies.
All intragroup assets and liabilities,
equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.
Changes in the Group’s
interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount
of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests
in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of
the consideration paid or received is recognised directly in equity and attributed to the owners of the Group.
|
2.6
|
Business combinations
|
Acquisition of subsidiaries and
businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the
aggregate of the fair values of assets given, liabilities incurred by the Group to the former owners of the acquiree, and equity
interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss
as incurred.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Where applicable, the consideration
for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date
fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement
period adjustments. The subsequent accounting for changes in the fair value of the contingent consideration that do
not qualify as measurement period adjustment depends on how the contingent consideration is classified. Contingent consideration
that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within
equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance
with IAS 39 Financial Instruments, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate,
with the corresponding gain or loss being recognised in profit or loss.
IFRS 3 Business Combinations
has an optional, simplified approach for assessing whether the Group has acquired a business or assets. Under this optional concentration
test, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group
of similar identifiable assets, the Group can conclude that the acquisition is not a business combination. The acquisition would
instead be accounted for as an asset acquisition.
If the Group chooses not to perform
the optional concentration test, or performs the optional concentration test and determines that substantially all of the fair
value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets,
it must assess if the acquired set of activities and assets comprises all of the required elements of a business.
If the fair value of gross assets
acquired in an asset acquisition is in excess of consideration, the excess will be allocated to the single identifiable asset as
identified in the concentration test.
|
2.7
|
Financial instruments
|
Financial assets and financial
liabilities are recognised on the Group’s statement of financial position when the Group becomes a party to the contractual
provisions of the instrument.
Financial assets and financial
liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit
or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition.
Financial assets
The Group classifies its financial
assets in the following measurement categories:
|
•
|
those to be measured subsequently at fair value (either through OCI or through profit or loss),
and
|
|
•
|
those to be measured at amortised cost.
|
All recognised financial assets
are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial
assets.
The classification depends on
the entity’s business model for managing the financial assets and the contractual terms of the cash flows.
Classification of financial
assets
Debt instruments mainly comprise
cash and bank balances, trade and other receivables, loans to joint ventures and amounts due from joint ventures that meet the
following conditions are subsequently measured at amortised cost:
|
•
|
the financial asset is held within a business model whose objective is to hold financial assets
in order to collect contractual cash flows; and
|
|
•
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Debt instruments relating to
derivative financial instruments that meet the following conditions are subsequently measured at fair value through other comprehensive
income (FVTOCI):
|
•
|
the financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling the financial assets; and
|
|
•
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
|
By default, all other financial
assets are subsequently measured at fair value through profit or loss (FVTPL).
Amortised cost and effective
interest method
The effective interest method
is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.
For financial assets other than
purchased or originated credit-impaired financial assets (i.e. assets that are credit-impaired on initial recognition), the effective
interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected
credit losses (ECL), through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying
amount of the debt instrument on initial recognition. For purchased or originated credit-impaired financial assets, a credit-adjusted
effective interest rate is calculated by discounting the estimated future cash flows, including ECL, to the amortised cost of the
debt instrument on initial recognition.
The amortised cost of a financial
asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative
amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted
for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial
asset before adjusting for any loss allowance.
Interest is recognised using
the effective interest method for debt instruments measured subsequently at amortised cost, except for short-term balances when
the effect of discounting is immaterial.
Impairment of financial assets
The Group recognises a loss allowance
for ECL on trade and other receivables, amounts due from joint ventures and contract assets. The amount of ECL is updated at each
reporting date to reflect changes in credit risk since initial recognition of the lifetime financial instrument.
The Group recognises lifetime
ECL for trade receivables and contract assets. The ECLon these financial assets are estimated using a provision matrix based on
the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions
and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value
of money where appropriate.
For all other financial instruments,
the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. If, on the
other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures
the loss allowance for that financial instrument at an amount equal to 12-month ECL.
The assessment of whether lifetime
ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition
instead of on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Lifetime ECL represents the ECL
that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents
the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12
months after the reporting date.
Significant increase in credit
risk
In assessing whether the credit
risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default
occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument
as at the date of initial recognition. In making this assessment, the Group considers historical loss rates for each category of
customers and adjusts to reflect current and forward-looking macroeconomic factors affecting the ability of the customers to settle
the receivables. The Group has identified forecast economic information that relate to international shipping operations in which
it operates to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these
factors.
The following information is
taken into account when assessing whether credit risk has increased significantly since initial recognition:
|
•
|
existing or forecast adverse changes in business, financial or economic conditions that are expected
to cause a significant decrease in the debtor’s ability to meet its debt obligations; or
|
|
•
|
an actual or expected significant deterioration in the operating results of the debtor.
|
Irrespective of the outcome of the above assessment,
the company presumes that the credit risk on a financial asset has increased since initial recognition when contractual payments
are more than 90 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise.
The Group assumes that the credit risk on a financial
instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit
risk at the reporting date. A financial instrument is determined to have low credit risk if:
|
i)
|
the financial instrument has a low risk of default,
|
|
ii)
|
the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and
|
|
iii)
|
adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of
the borrower to fulfil its contractual cash flow obligations.
|
The Group regularly monitors
the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them
as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes
past due.
Definition of default
The Group considers the following
as constituting an event of default for internal credit risk management purposes as historical experience indicates that receivables
that meet either of the following criteria are generally not recoverable:
|
•
|
when there is a breach of financial covenants by the counterparty; or
|
|
•
|
information developed internally or obtained from external sources indicates that the debtor is
unlikely to pay its creditors, including the Group, in full (without taking into account any collaterals held by the Group).
|
Irrespective of the above analysis,
the Group considers that default has occurred when a financial asset is more than 120 days past due unless the Group has reasonable
and supportable information to demonstrate that a more lagging default criterion is more appropriate.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Credit-impaired financial assets
A financial asset is credit-impaired
when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred.
Evidence that a financial asset is credit-impaired includes observable data about the following events:
|
•
|
significant financial difficulty of the issuer or the borrower;
|
|
•
|
a breach of contract, such as a default or past due event;
|
|
•
|
the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having
granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
|
|
•
|
it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
|
|
•
|
the disappearance of an active market for that financial asset because of financial difficulties.
|
Write-off policy
The Group writes off a financial
asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect
of recovery. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures,
taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.
Measurement and recognition of ECL
The measurement of ECL is a function
of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default.
The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information
as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying
amount at the reporting date; for financial guarantee contracts, the exposure includes the amount drawn down as at the reporting
date, together with any additional amounts expected to be drawn down in the future by default date determined based on historical
trend, the Group’s understanding of the specific future financing needs of the debtors, and other relevant forward-looking
information.
For financial assets, the expected
credit loss is estimated as the difference between all contractual cash flows that are due to the company in accordance with the
contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate. If the Group
has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period,
but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss
allowance at an amount equal to 12-month ECL at the current reporting date.
Derecognition of financial
assets
The Group derecognises a financial
asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially
all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially
all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest
in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards
of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised
borrowing for the proceeds received.
On derecognition of a financial
asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received
and receivable is recognised in profit or loss.
Financial liabilities and
equity instruments
Classification as debt or
equity
Debt and equity instruments issued
by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements
and the definitions of a financial liability and an equity instrument.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Equity instruments
An equity instrument is any contract
that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded
at the proceeds received, net of direct issue cost.
Repurchase of the company’s
own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase,
sale, issue or cancellation of the company’s own equity instruments.
Trade and other payables
Trade and other payables are
initially measured at fair value and subsequently measured at amortised cost, using the effective interest method, except for short-term
balances when the effect of discounting is immaterial.
Bank loans
Interest-bearing bank loans are
initially measured at fair value and subsequently measured at amortised cost, using the effective interest method. Interest expense
calculated using the effective interest method is recognised over the term of the borrowing in accordance with the company’s
accounting policy for borrowing costs (see below).
Derecognition of financial
liabilities
The Group derecognises financial
liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between
the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets
transferred or liabilities assumed, is recognised in profit or loss.
Derivative financial instruments
The Group enters into freight
forward agreements and bunker swaps to manage its exposure to freight rate and bunker prices respectively. Further details of derivative
financial instruments are disclosed in Note 12.
Derivatives are initially recognised
at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end
of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated
and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of
the hedge relationship. Group designates the derivatives as hedges of highly probable forecast transactions or hedges of foreign
currency risk of firm commitments (cash flow hedges).
A derivative with a positive
fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability.
Derivatives are not offset in the financial statements unless the Group has both legal right and intention to offset. A derivative
is presented as a non-current asset or a non-current liability if the remaining maturity of the instruments is more than 12 months
and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current
liabilities.
Hedge accounting
The Group designates hedges of
freight rate risk and bunker prices as cash flow hedges.
At the inception of the hedge
relationship, the entity documents the relationship between the hedging instrument and hedged item, along with its risk management
objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing
basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting
changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships
meet all of the following hedge effectiveness requirements:
|
•
|
there is an economic relationship between the hedged item and the hedging instrument;
|
|
•
|
the effect of credit risk does not dominate the value changes that result from that economic relationship;
and
|
|
•
|
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of
the hedged item that the Group actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge
that quantity of hedged item.
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
If a hedging relationship ceases
to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging
relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that
it meets the qualifying criteria again. The Group designates the full change in the fair value of a forward contract (i.e. including
the forward elements) as the hedging instrument for all of its hedging relationships involving forward contracts.
Note 12 contains details of the
fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are also detailed
in the statements of comprehensive income (“OCI”).
Cash flow hedge
The effective portion of changes
in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in OCI and accumulated under
the heading of Hedging Reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge.
The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as part of other operating expense
or other operating income.
Amounts previously recognised
in OCI and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit
or loss in the same line of the statement of profit or loss and OCI as the recognised hedged item. However, when the forecast transaction
that is hedged, results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously
accumulated in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
This transfer does not affect OCI. Furthermore, if the Group expects that some or all of the loss accumulated in OCI will not be
recovered in the future, that amount is immediately reclassified to profit or loss.
The Group discontinues hedge
accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if
applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation
is accounted for prospectively. Any gain or loss recognised in OCI and accumulated in equity at that time remains in equity and
is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer
expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
|
2.8
|
Offsetting Arrangements
|
Financial assets and financial
liabilities are offset and the net amount presented in the statement of financial position when the Group has a legally enforceable
right to set off the recognised amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability
simultaneously. A right to set-off must be available today rather than being contingent on a future event and must be exercisable
by any of the counterparties, both in the normal course of business and in the event of default, insolvency or bankruptcy.
Inventories are assets held for
sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to
be consumed in the production process or in the rendering of services. Inventories which include bunkers on board ships and other
consumable stores are valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling
price for inventories less all estimated costs of completion and costs necessary to make the sale. Cost is determined on a first-in
first-out basis. Spares on board ships are charged against income when issued to the ships.
When inventories are sold, the
carrying amount is recognised as part of cost of sales. Any write-down of inventories to net realisable value and all losses of
inventories or reversals of previous write-downs or losses are recognised in cost of sales in the period the write-down, loss or
reversal occurs.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
|
2.10
|
Ships, Property, Plant and Equipment
|
Ships, property, plant and equipment
are stated at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is charged so as
to write off the cost of assets other than freehold land and buildings and ships under construction over their estimated useful
lives, using the straight-line method, on the following bases:
Office equipment and furniture and fittings
|
-
|
3 years
|
Plant and equipment
|
-
|
3 to 5 years
|
Motor vehicles
|
-
|
5 years
|
Ships
|
-
|
15 years
|
Drydocking
|
-
|
2.5 to 5 years
|
The estimated useful lives, residual
values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective
basis.
Ships and properties in the course
of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less
any recognised impairment loss. Depreciation of these assets, on the same bases as other assets, commences when the assets are
available for use.
Ships are measured at cost less
accumulated depreciation and any accumulated impairment losses. Cost comprises acquisition cost and costs directly related to the
acquisition up until the time when the asset is ready for use, including interest expense incurred during the period. The market
average useful life of a ship is estimated to range from 25 to 30 years at which point it would usually be scrapped. The Group
policy is to maintain a young fleet compared to the market average and estimates useful life as 15 years from date of delivery
for new ships. Ships are depreciated on a straight-line basis to an estimated residual value over their useful life.
From time to time, the Group’s
ships are required to be drydocked for inspection and re-licensing at which time major repairs and maintenance that cannot be performed
while the ships are in operation are generally performed. The Group capitalises the costs associated with drydocking as they occur
and depreciates these costs on a straight-line basis over 2.5 to 5 years, which is generally the period until the next scheduled
drydocking. A portion of the cost of acquiring a new ship is estimated and allocated to the components expected to be
replaced or refurbished at the next scheduled drydocking. If the ship is disposed before the next drydocking, the carrying amount
of drydocking expenses is included in determining the gain or loss on disposal of the ship and taken to the profit or loss. If
the period to the next drydocking is shorter than expected, the undepreciated balance of the deferred drydocking cost is charged
immediately as an expense before the next drydocking.
Fully depreciated ships, plant
and equipment still in use are retained in the financial statements.
Assets that are held for rental
are initially classified as ships, property, plant and equipment. When these assets cease to be rented and a decision is made to
sell these assets, the carrying amount is transferred to inventories. Upon sale of these assets, the sales value is recorded in
gross revenue and the related carrying value of these assets (held as inventories) is recorded in cost of sales. In relation to
these assets that are held for rental, the cash payments to acquire such assets and subsequently cash proceeds from the sale of
such assets are classified as cash flows from operating activities.
Intangible assets acquired in a business combination
are identified and recognised separately from goodwill. The cost of such tangible assets is their fair value at the acquisition
date. Subsequent to initial recognition, they are stated on the same basis as intangible assets acquired separately.
Intangible assets acquired separately
are reported at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with finite useful lives
are amortised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation
method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for
on a prospective basis. Intangible assets with indefinite useful lives are not amortised. Each period, the useful lives of such
assets are reviewed to determine whether events and circumstances continue to support an indefinite useful life assessment for
the asset, such events are tested for impairment in accordance with the policy below.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
|
2.12
|
Impairment of Tangible and Intangible Assets Excluding Goodwill
|
At the end of each reporting period, the Group
reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher
of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk
specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of
an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating
unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently
reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent
that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been
recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit
or loss.
Intangible assets with indefinite
useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is indication
that the asset may be impaired.
Goodwill arising in a business
combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the
excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value
of the acquirer’s previously held equity interest (if any) in the entity over net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed.
If, after reassessment, the Group’s
interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the
amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest
in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
Goodwill is not amortised but
is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s
cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been
allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If
the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis
of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or
the relevant cash generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on
disposal.
Other investments relates to
pension fund surplus from a defined benefit pension plan where the accounting policy is included in Note 2.21. Other investments
are measured at fair value.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Before 1 January 2019
Leases are classified as finance
leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases
are classified as operating leases.
The Group as lessee
Rentals payable under operating
leases are charged to profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis
is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising
under operating leases are recognised as an expense in the year in which they are incurred.
In the event that lease incentives
are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives
is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative
of the time pattern in which economic benefits from the leased asset are consumed.
The Group as lessor
Rental income from operating
leases is recognised on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative
of the time pattern in which use benefit derived from the leased asset is diminished. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease
term on the same basis as the lease income.
From 1 January 2019
The Group as lessee
The Group assesses whether a
contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease
liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with
a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as
an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative
of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially
measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit
in the lease. If this rate cannot be readily determined, the Group uses the incremental borrowing rate specific to the lessee.
Lease payments included in the
measurement of the lease liability comprise:
|
·
|
fixed lease payments (including in-substance fixed payments), less any lease incentives;
|
|
·
|
variable lease payments that depend on an index or rate, initially measured using the index or
rate at the commencement date;
|
|
·
|
the amount expected to be payable by the lessee under residual value guarantees;
|
|
·
|
the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;
and
|
|
·
|
payments of penalties for terminating the lease, if the lease term reflects the exercise of an
option to terminate the lease.
|
The
lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is subsequently
measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and
by reducing the carrying amount to reflect the lease payments made.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
The
Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
|
·
|
the lease term has changed or there is a change in the assessment of exercise of a purchase option,
in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
|
|
·
|
the lease payments change due to changes in an index or rate or a change in expected payment under
a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the
initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised
discount rate is used); or
|
|
·
|
a lease contract is modified and the lease modification is not accounted for as a separate lease,
in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
|
The Group did not make any such
adjustments during the periods presented.
The right-of-use assets comprise
the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial
direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Whenever the Group incurs an
obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying
asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37.
The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.
Right-of-use assets are depreciated
over the shorter period of lease term and useful life of the right-of-use asset. If a lease transfers ownership of the underlying
asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use
asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented
as a separate line in the consolidated statement of financial position.
The Group applies IAS 36 to determine
whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Ships, property,
plant and equipment’ policy.
The Group has identified that
the contracts between the pools and vessels owners described in Note 2.18 below, meet the definition of leases under IFRS 16 and
the share of third party vessel owners’ net earnings of the pool represents variable lease payments. Variable payments that
do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related
payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are
included in the line ‘Voyage expenses’ for expenses relating to ships and ‘Administrative expense’ for
all other expenses in the consolidated and combined statement of profit or loss.
As a practical expedient, IFRS
16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components
as a single arrangement. The Group has used this practical expedient.
The Group as lessor
The Group enters into lease agreements
as a lessor with respect to its vessels and these are classified as operating leases.
When the Group is an intermediate
lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a finance or operating
lease by reference to the right-of-use asset arising from the head lease.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Charter hire revenue (rental income
from operating leases) is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred
in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line
basis over the lease term.
|
2.16
|
Interests in Joint Ventures
|
A joint venture is a joint arrangement
whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control
is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities
require unanimous consent of the parties sharing control.
The results and assets and liabilities
of joint ventures are incorporated in these consolidated and combined financial statements using the equity method of accounting,
except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance
with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in a joint
venture is initially recognised in the consolidated and combined statement of financial position at cost and adjusted thereafter
to recognise the Group’s share of the profit or loss and OCI of the joint venture. When the Group’s share of losses
of a joint venture exceeds the Group’s interest in that joint venture (which includes any long-term interests that, in substance,
form part of the Group’s net investment in the joint venture), the Group discontinues recognising its share of further losses.
Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments
on behalf of the joint venture.
An investment in a joint venture
is accounted for using the equity method from the date on which the investee becomes a joint venture. On acquisition of the investment
in a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable
assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment.
Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment,
after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.
The requirements of IAS 36 Impairment
of Assets applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment
in a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment
in accordance with IAS 36 a single asset by comparing its recoverable amount (higher of value in use and fair value less costs
to sell) with its carrying amount, any impairment loss recognised forms part of the carrying amount of the investment. Any reversal
of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently
increases.
The Group discontinues the use
of the equity method from the date when the investment ceases to be a joint venture, or when the investment is classified as held
for sale. When the Group retains an interest in the former joint venture and the retained interest is a financial asset, the Group
measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition
in accordance with IFRS 9 Financial Instruments. The difference between the carrying amount of the joint venture at the
date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part
interest in the joint venture is included in the determination of the gain or loss on disposal of the joint venture. In addition,
the Group accounts for all amounts previously recognised in OCI in relation to that joint venture on the same basis as would be
required if that joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously
recognised in OCI by that joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities,
the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method
is discontinued.
The Group continues to use the
equity method when the investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value
upon such changes in ownership interests.
When the Group reduces its ownership
interest in a joint venture but the Group continues to use the equity method, the Group reclassifies to profit or loss, the proportion
of the gain or loss that had previously been recognised in OCI relating to that reduction in ownership interest if that gain or
loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
When a Group entity transacts
with a joint venture of the Group, profits and losses resulting from the transactions with the joint venture are recognised in
the Group’s consolidated and combined financial statements only to the extent of interests in the joint venture that are
not related to the Group.
|
2.17
|
Non-current assets and disposal groups held for sale
|
Non-current assets (and disposal
groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current
assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the
asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which
should be expected to qualify for recognition as a completed sale within one year from the date of classification.
When the Group is committed to
a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held
for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its
former subsidiary after the sale. Non-current assets (and disposal groups) classified as held for sale are measured at the lower
of their previous carrying amount and fair value less costs to sell.
|
2.18
|
Revenue recognition and voyage expenses
|
Vessel revenue
The primary source of revenue
for the Group is vessel revenue; comprising of charter hire of ships and freight revenue.
Charter hire - The Group
earns hire revenue by placing its vessels on time charter, bareboat charter and in pool arrangements. The performance obligations
within pool and time-charter contracts include the bareboat charter and the operation of the vessel. Hire revenue is recognised
over time as the Group satisfies its obligation based on time elapsed between the delivery of a vessel to a charterer and the redelivery
of a vessel from the charterer.
For time and bareboat charter
contracts, hire is typically invoiced bi-monthly or monthly in advance and hire revenue is accrued based on the daily hire rates.
Other variable hire components of the contract, such as off-hire and speed claims, are recognised only to the extent that it is
highly probable that a significant reversal will not occur when the uncertainty is subsequently resolved. In a small number of
charters, the Group may earn profit share consideration, which occurs when actual spot tanker rates earned by the vessel exceed
certain thresholds for a period of time.
For pool arrangements, the Group
has two types of such arrangements: 1) pool arrangements that are controlled and managed by the Group namely, IVS Handysize Pool
and IVS Supramax Pool; and 2) Pool arrangements operated by third parties in which the Group’s owned vessels are placed.
An assessment is performed to determine who is the principal and agent in such arrangements. Indicators that the Group as the pool
manager is a principal in a pool arrangement are:
|
•
|
The contract with the end charterer specifically names the pool, rather than the shipowner;
|
|
•
|
The pool manager is responsible for managing issues that may arise during the end charterer’s
use of the vessel;
|
|
•
|
The pool manager has the power to decide which vessel in the pool it will use to fulfill the contract
with the end charterer; and
|
|
•
|
The pool manager sets the prices that the end charterer will pay to use the vessel.
|
The Group has evaluated that
it has the exclusive rights as the pool manager and hence it is a principal in the IVS Handysize and IVS Supramax Pool arrangements.
In such arrangements, the Group recognizes total amount of the gross revenue earned by the pools as the revenue which it expects
to be entitled for the satisfaction of the performance obligation and correspondingly, it also recognizes the share of third party
vessel owners’ net earnings of the pool in the voyage expenses in the period incurred. The Group has identified that the
contracts between the pools and vessels owners to contain a lease in accordance with IFRS 16. Refer to Note 2.15 Leases for further
discussion.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
On the other hand, for third
party pool arrangements that the Group’s vessels participate in, the Group recognizes revenue from these pool arrangements
based on its portion of the net distributions reported by the relevant pool, which represents the net voyage revenue of the pool
after voyage expenses and pool manager fees. The net distribution is computed based on pool index and the participation days of
the Group’s vessels in these third party pool arrangements. The pool index is variable and dependent on the participating
vessels within the pool.
Freight revenue –
The Group recognises freight revenue for each specific voyage which is usually priced on a current or "spot" market
rate and then adjusted for predetermined criteria. The performance obligations for freight revenue commence from the time the
ship is ready at the load port until the cargo has been delivered at the discharge port. The revenue will be recognised over the
duration of the voyage between the two points, as measured using the time that has elapsed from commencement of performance at
the load port. Management assesses the stage of completion as determined by the proportion of the total time expected for the
voyage that has elapsed at the end of the reporting period as an appropriate measure of progress towards complete satisfaction
of these performance obligations and the revenue is recognised in accordance with the calculated stage of completion. The duration
of a single voyage will typically be less than three months. Demurrage and despatch are considered at contract inception and estimates
are updated throughout the contract period. The consideration for demurrage and despatch will be recognised in the period within
which such consideration was incurred. A contract asset is recognised over the period in which the freight services are performed
representing the entity’s right to consideration for the services performed as at the end of the reporting period.
Sale of ships, bunkers and
other consumables
The Group generates revenue from
the sale of ships, bunkers and other consumables. Revenue is recognised when control of the ships, bunkers and other consumables
have been delivered to the buyer. The Group only has the right to the consideration at the point of transfer of the asset.
Management fees
The Group also generates revenue
from the management and operation of vessels owned by third parties and by equity-accounted investees as well as providing corporate
management services to such entities. The performance obligations within these contracts will typically consist of crewing, technical
management, insurance and potentially commercial management. The performance obligations are satisfied concurrently and consecutively
rendered over the duration of the management contract, as measured using the time that has elapsed from commencement of performance.
Consideration for such contracts will generally consist of a fixed monthly management fee, plus the reimbursement of crewing and
other costs for vessels being managed. Management fees are typically invoiced monthly.
Voyage expenses
Voyage expenses that relate directly
to a contract include charter hire expenses, fuel expenses and port expenses. Contract costs are deferred and amortised over the
course of the voyage on a percentage completion basis that is consistent with the revenue recognition. This percentage of completion
is derived from time elapsed between the tender of readiness to load a cargo or delivery of a vessel to a charterer, and the completion
of discharging a cargo or redelivery of a vessel from a charterer. Contract costs are recognised as an asset if they represent
incremental costs of obtaining a contract or fulfilment costs that (i) relate directly a contract or to an anticipated contract,
(ii) generate or enhance resources to be used in meeting obligations under the contract and (iii) are expected to be recovered.
Borrowing costs directly attributable
to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period
of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially
ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are
recognised in profit or loss in the period in which they are incurred.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
|
2.20
|
Share-Based Payments
|
Equity-settled share options
– Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of
the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding
the determination of the fair value of equity-settled share-based transactions are set out in Note 30.
The fair value determined at
the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on
the Group’s estimate of the number of equity instruments that will eventually vest. At each reporting date, the Group revises
its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions.
The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to reserves.
|
2.21
|
Retirement Benefit Costs
|
Payments to defined contribution
retirement benefit plans are charged as an expense when employees have rendered the services entitling them to the contributions.
Payments made to state-managed retirement benefit schemes, such as the Singapore Central Provident Fund, and South African defined
contribution provident funds, are dealt with as payments to defined contribution plans where the Group’s obligations under
the plans are equivalent to those arising in a defined contribution retirement benefit plan.
Current contributions to the
defined contribution funds are charged against income when incurred. The cost of providing benefits to the defined benefit plan
are determined and expensed using the projected unit credit actuarial valuation method. Contribution rates to the defined benefit
plan are adjusted for any unfavourable experience adjustments. Favourable experience adjustments are retained within the fund.
For defined benefit retirement
benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being
carried out at the end of each annual reporting period.
Actuarial surpluses are brought
to account in the annual financial statements only when it is clear that economic benefits will be available to the Group. These
surpluses are recognised immediately in the statement of financial position with a charge or credit to the statement of comprehensive
income in the period in which they occur.
Remeasurement, comprising actuarial
gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest),
is reflected immediately in the statement of financial position with a charge or credit recognised in OCI in the period in which
they occur. Remeasurement recognised in OCI is reflected immediately in retained earnings and will not be reclassified to profit
or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying
the discount rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorised
as follows:
|
·
|
service cost (including current service cost, past service cost, as well as gains and losses on
curtailments and settlements);
|
|
·
|
net interest expense or income; and
|
The Group presents the first
two components of defined benefit costs in profit or loss in the line item ‘Administrative expense’. Curtailment gains
and losses are accounted for as past service costs.
The retirement benefit obligation
recognised in the consolidated and combined statement of financial position represents the actual deficit or surplus in the Group’s
defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available
in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination
benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the
entity recognises any related restructuring costs.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
|
2.22
|
Employee Leave Entitlement
|
Employee entitlements to annual
leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result
of services rendered by employees up to the end of the reporting period.
Provisions are recognised when
the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required
to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision
is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking
into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated
to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic
benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset
if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Onerous contracts
Present obligations arising under
onerous contracts are recognised and measured as a provision. An onerous contract is considered to exist where the Group has a
contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected
to be received under it.
Income tax expense or income
in profit or loss represents the sum of the tax currently payable and deferred tax.
The tax currently payable is
based on taxable profit for the year. Taxable profit differs from profit as reported in statement of profit or loss and OCI because
it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not
taxable or tax deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted in countries where the company and subsidiaries operate by the end of the reporting period.
Deferred tax is recognised on
the differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases
used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference
arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in
a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are
recognised on taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except where
the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments
and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which
to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred
tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at
the tax rates that are expected to apply in the year when the liability is settled or the asset realised based on the tax rates
(and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end
of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
Deferred tax assets and liabilities
are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities
on a net basis.
Current and deferred tax are
recognised as an expense or income in profit or loss, except when they relate to items credited or debited outside profit or loss
(either in OCI or directly in equity), in which case the tax is also recognised outside profit or loss (either in OCI or directly
in equity, respectively), or where they arise from the initial accounting for a business combination. In the case of a business
combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest
in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost.
|
2.25
|
Foreign Currency Transactions and Translation
|
The individual financial statements
of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates
(its functional currency which is either United States dollars or South African Rands). The consolidated and combined financial
statements of the Group are presented in United States Dollars and are rounded to the nearest thousands.
In preparing the financial statements
of the individual entities, transactions in currencies other than the entity’s functional currency are recorded at the rates
of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing on the end of the reporting period. Non-monetary items carried at fair value
that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising
on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the year. Exchange
differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the year
except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly
in OCI. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in OCI.
Exchange differences on foreign
currency borrowings relating to assets under construction for future productive use, are included in the cost of those assets when
they are regarded as an adjustment to interest costs on those foreign currency borrowings.
For the purpose of presenting
consolidated and combined financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives)
are expressed in United States Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items
are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period,
in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised
in OCI and accumulated in a separate component of equity under the header of translation reserve.
On the disposal of a foreign
operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control
over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign
operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange
differences in respect of that operation attributable to the Group are reclassified to profit or loss. Any exchange differences
that have previously been attributed to non-controlling interests are derecognised, but they are not reclassified to profit or
loss.
In the case of a partial disposal
(i.e. no loss of control) of a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences
are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e.
of associates or jointly controlled entities not involving a change of accounting basis), the proportionate share of the accumulated
exchange differences is reclassified to profit or loss.
Goodwill and fair value adjustments
arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated
at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in OCI.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
2
|
SIGNIFICANT ACCOUNTING POLICIES (cont’d)
|
|
2.26
|
Cash and Cash Equivalents in the statement of Cash Flows
|
Cash and cash equivalents in
the statement of cash flows comprise cash on hand and demand deposits that are readily convertible to a known amount of cash and
are subject to an insignificant risk of changes in value.
|
2.27
|
Financial Guarantee Contracts
|
Financial guarantee contracts
are accounted for in terms of IFRS 4 Insurance Contracts and are measured initially at cost and thereafter, in accordance
with IAS 37 Provisions, contingent liabilities and contingent assets.
|
3
|
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
|
In the application of the Group’s
accounting policies, which are described in Note 2, management is required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate
is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects
both current and future periods. Management have considered the impact of COVID-19 on Group’s critical and significant accounting
estimates. There have been no significant changes in the basis upon which judgements and accounting estimates have been determined.
|
(i)
|
Critical judgements in applying the Group’s accounting policies
|
The following are the critical
judgements, apart from those involving estimations (see below), that management has made in the process of applying the Group’s
accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Classification of certain investments
as a joint venture
Note 17 describes that Tri-view
Shipping Pte. Ltd., is a joint venture of the Group even though the Group has 51%, of ownership interest and voting rights in
this entity. Island Bulk Carriers Pte. Ltd. and IVS Bulk Pte. Ltd. were reported as joint ventures of the Group for part of the
year when the Group owned 65% and 33.5% respectively and had voting rights in these entities. Management has assessed that the
interests in these entities would be considered as joint ventures given that the contractual agreement between the parties in
undertaking the economic activities of these entities would be subject to joint control. Joint control is the contractually
agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating
to the activity require the unanimous consent of all the parties sharing control.
Ships classified as inventories
The Group regularly engaged in
trading of ships. When a ship ceased to be rented and a decision is made for the ship to be sold, the ship would be classified
as inventories (Note 13). The proceeds from the sale of such assets shall be recognised as revenue in accordance with IFRS 15 Revenue
from Contracts with Customers. The corresponding cost shall be accounted for as cost of sales.
|
(ii)
|
Key sources of estimation uncertainty
|
The key assumptions concerning
the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
3
|
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (cont’d)
|
Calculation of loss allowance on trade and other receivables,
contract assets and amount due from joint ventures and loans to joint ventures
When measuring expected credit
loss in relation to the trade and other receivables, contract assets and amount due from joint ventures and loans to joint ventures,
the Group uses reasonable and supportable forward-looking information, which is based on assumptions for the future movement of
different economic drivers and how these drivers will affect each other. Loss given default is an estimate of the loss arising
on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive,
taking into account cash flows from collateral and integral credit enhancements. Probability of default constitutes a key input
in measuring the expected credit loss.
Probability of default is an estimate
of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations
of future conditions. Details of the loss allowance on trade receivables, contract assets, amount due from joint ventures and loans
to joint ventures are provided in Notes 7, 8, 9, 10 and 11.
Impairment of interest in joint
ventures
The recoverable amount of the investments
has been determined based on the estimated net asset value of the joint ventures which approximates their fair value less cost
to sell.
The carrying amounts of interest
in joint ventures are disclosed in Note 17.
Percentage of completion of
voyages recognised as revenue
The stage of completion of a voyage
is determined by calculating the total number of actual days from the loading of the cargo at the commencement of a voyage to the
period end, divided by the total estimated number of days from loading to discharging the cargo.
The duration of a voyage depends
on the size of the ship being loaded, cargo type and quantity, ship speed as well as delays occasioned by weather or due congestion
at load or discharge ports.
Ship life, residual value and
impairment
In the shipping industry, the use
of the 25 to 30 year ship life has become the prevailing standard for the type of ship owned by the Group. However, management
depreciates the ships on a straight-line basis after deduction for residual values over the ship’s estimated useful life
of 15 years, from the date the ship was originally delivered from the shipyard as the Group maintains a young fleet compared to
the market average and generally aims to replace ships that are 15 years or older. As a result, ships are depreciated over 15 years
to the expected residual market value of a ship of a similar age and specification. Management reassesses the depreciation period
of ships that surpass this limit with special consideration of the ships and the purpose for which the ship was retained in the
fleet.
Residual values of the ships are
reassessed by management at the end of each reporting period based on the current shipping markets, the movement of the markets
over the previous five years and the age, specification and condition of the respective ships.
Considerations for useful life
of the ships also include maintenance and repair cost, technical or commercial obsolescence and legal or similar limits to the
use of ships.
Management also reviews the ships
(owned and right-of-use) for impairment whenever there is an indication that the carrying amount of the ships may not be recoverable.
Management measures the recoverability of an asset by comparing its carrying amount against its recoverable amount. Recoverable
amount is the higher of the fair value less cost to sell and value in use. If the ship is considered to be impaired, an impairment
loss is recognised to an amount to the excess of the carrying value of the asset over its recoverable amount.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
3
|
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (cont’d)
|
Value
in use is the future cash flows that the ships are expected to generate from charter hire of the ships and the expected running
costs thereof over their remaining useful lives, with a cash inflow in the final year equal to the residual value of the ships.
Management determined the value-in-use based on past performance of the ships and their expectations of the market development.
The future cash flows are determined based on the combination of the following assumptions:
|
1)
|
Forecast earnings are based on internal estimates having considered: fixed future earnings from
existing contracts of affreightment and charter contracts, allowing for dry dock and commercial off hire days, internal forecasts,
as well as third party information and historical earnings averages.
|
|
2)
|
Pre-tax discount rate of 6.86% (2019: 7.61%) rate is used to discount future cash flows from deployment
of the ships to their net present values.
|
|
3)
|
Vessel operating expenses and drydock costs are based on management’s best estimates.
|
Accordingly, based on the carrying
amounts of the owned ships and right-of-use ships as at end of each reporting periods, the Group has recognised an impairment loss
of approximately $16,282,000 for the year ended 31 December 2020 (2019: $19,245,000 and 2018: $Nil) recorded in profit or loss
in the line item ‘Other operating (expense) income’.
As at 31 December 2020 and 2019,
a possible change to the following estimate used in management’s assessment will result in the recoverable amount to be below
the total carrying amount of the owned and right-of-use ships (on the basis that each of the other key assumptions remain unchanged):
Drybulk Carriers
|
·
|
0.0% to 21.91% decrease to the charter rate (2019: 0.0% to 19.63% decrease to the charter rate);
or
|
|
·
|
0.0% to 72.25% increase to the discount rate (2019: 0.0% to 56.6%% increase to the discount rate).
|
Tankers
|
·
|
22.87% decrease to the charter rate (2019: 13.9% to 34.2% decrease to the charter rate); or
|
|
·
|
13.15% increase to the discount rate (2019: 14.3% to 45.2% increase to the discount rate).
|
Based on the key assumptions and
taking into account the sensitivity analysis above, management has determined that the estimated recoverable amount of the ships
are appropriate.
The recoverable amounts of
ships classified as inventories were determined based on estimated selling price less cost to sell, which were determined based
on the market comparable approach that reflects recent transaction prices for similar ships, with similar age and specifications.
In valuing the ships, the appraisers have taken into consideration the prevailing market conditions and have made adjustments
for differences where necessary before arriving at the most appropriate value for the ships. The carrying amounts of the ships
are disclosed in Notes 13, 14 and 15.
Estimation of lease term of
charters with extension options
When estimating the lease term
of the respective lease arrangement, management considers all facts and circumstances that create an economic incentive to exercise
an extension option, including any expected changes in facts and circumstances from the commencement date until the exercise date
of the option. This is assessed on an ongoing basis and the extension options are only included in the lease term if the lease
is reasonably certain to be exercised.
$90,644,489
(2019:$53,954,000) have not been included in the lease liability
because it is not reasonably certain that the leases will be extended.
If a significant event or a significant
change in circumstances occurs which affects this assessment and that is within the control of the lessee, the above assessment
will be reviewed further. During the financial year 2020 and 2019, the Group did not exercise any extension and termination options.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
3
|
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (cont’d)
|
Estimation uncertainty arising
from variable lease payments
During the financial year 2020
and 2019, one of the charter contracts requiring the recognition of a right-of-use assets and a lease liability contains variable
payment terms that is linked to an index and such variable lease payments are recognised in charter hire cost in the profit or
loss in the period in which the condition that triggers those payments occurs. A 5% increase in the index will result in such variable
lease contracts to increase its total lease payments by approximately $24,000 (2019:$185,000).
Tax liabilities
The Group acquired a wholly-owned
subsidiary, Unicorn Tankers International Ltd (“UTI”), in 2013. UTI and its subsidiary are tax residents in United
Kingdom (“UK”). In recent years, the UK tax authorities have revised their interpretations of certain areas of tonnage
tax legislation. If certain legislation is interpreted in an alternative manner, additional taxation of up to $5,657,000 (2019:
$5,657,000) could arise. A tax provision of $2,400,000 (2019: $2,400,000) has been provided.
In 2013, there were queries
raised by the UK tax authorities on a subsidiary of UTI. The case went to a Tribunal in July 2019 and on 13 November 2019 the
Tribunal ruled in favour of the Group. Her-Majesty’s Revenue & Customs, UK Government Tax Department (“HMRC”)
made an application to the First-Tier Tribunal to appeal its decision and on 6 February 2020 the First-Tier Tribunal released
its decision refusing HMRC’s application to appeal to it. On 5 March 2020, HMRC applied to the Upper Tribunal for permission
to appeal the decision of the First-Tier Tribunal, and on 11 March 2020, the Upper Tribunal issued its decision granting the permission
sought and the Group have opposed the appeal. The Upper Tribunal hearing took place on 17 March 2021 and the Group is currently
waiting for the Upper Tribunal to make their final decision.
At the date of authorisation of
these financial statements, in view of the uncertainty of whether the judgement would be overruled, the provision has been retained.
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT
|
|
(i)
|
Categories of financial instruments
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Financial assets
|
|
|
|
|
|
|
Financial assets at amortised cost
|
|
|
74,598
|
|
|
|
81,021
|
|
Less: Transferred to asset of disposal group classified as held for sale
(Note 40)(i)
|
|
|
(76
|
)
|
|
|
(937
|
)
|
|
|
|
74,522
|
|
|
|
80,084
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments designated in hedge accounting relationships
|
|
|
458
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,980
|
|
|
|
80,257
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Financial liabilities at amortised cost
|
|
|
356,736
|
|
|
|
256,140
|
|
Less: Transferred to asset of disposal group classified as held for sale
(Note 40)(i)
|
|
|
(360
|
)
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
356,376
|
|
|
|
255,602
|
|
(i) For 2020, the
amount represents only the assets relating to Training school that has been classified as held for sale in 2020. Amounts relating
to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT
(cont’d)
|
|
(ii)
|
Financial risk management policies and objectives
|
The management of the Group
monitors and manages the financial risks relating to the operations of the Group to ensure appropriate measures are implemented
in a timely and effective manner. These risks include market risk (foreign currency risk, interest rate risk), credit risk and
liquidity risk.
The Group does not hold or issue
derivative financial instruments for speculative purpose.
Other than liquidity risk, there
has been no change to the Group’s exposure to these financial risks. There have been no significant changes to the manner
in which it manages and measures the risk. Market risk exposures are measured using sensitivity analysis indicated below.
|
(a)
|
Credit risk management
|
Credit risk refers to the risk
that a counterparty will default on its contractual obligations resulting in financial loss to the Group. As at 31 December 2020
and 31 December 2019, the Group’s maximum exposure to credit risk without taking into account any collateral held or other
credit enhancements, which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties
and financial guarantees provided by the Group arises from:
|
•
|
the carrying amount of the respective recognised financial assets as stated in the consolidated
statement of financial position; and
|
|
•
|
the maximum amount the Group would have to pay if the financial guarantee is called upon, irrespective
of the likelihood of the guarantee being exercised as disclosed in Note 38.
|
In order to minimise credit
risk, the Group has categorised exposures according to their degree of risk of default. The Group uses its own trading records
to rate its major customers and other debtors and the Group’s exposure and the credit ratings of its counterparties are continuously
monitored. The aggregate value of transactions concluded is spread amongst approved counterparties.
The Group’s
current credit risk grading framework comprises the following categories:
Category
|
|
Description
|
|
Basis for recognising ECL
|
Performing
|
|
The counterparty has a low risk of default and does not have any past-due amounts.
|
|
12-month ECL
|
Doubtful
|
|
Amount is >90 days past due or there has been a significant increase in credit risk since initial recognition.
|
|
Lifetime ECL – not credit-impaired
|
In
default
|
|
Amount
is >120 days past due or there is evidence indicating the asset is credit-impaired.
|
|
Lifetime
ECL – credit-impaired
|
Write-off
|
|
There is evidence indicating that the debtor is in severe financial difficulty and the Group has no realistic prospect of recovery.
|
|
Amount is written off
|
The tables below detail the
credit quality of the Group’s financial assets and other items, as well as maximum exposure to credit risk by credit risk
rating grades:
|
|
Note
|
|
Internal
credit rating
|
|
12-month or
lifetime ECL
|
|
Gross
carrying
amount
|
|
|
Loss
allowance
|
|
|
Net
carrying
amount
|
|
|
|
|
|
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
7
|
|
(i)
|
|
Lifetime ECL (Simplified approach)
|
|
|
7,928
|
|
|
|
-
|
|
|
|
7,928
|
|
Contract assets
|
|
8
|
|
(i)
|
|
Lifetime ECL (Simplified approach)
|
|
|
900
|
|
|
|
-
|
|
|
|
900
|
|
Other receivables
|
|
9
|
|
Performing
|
|
12-month ECL
|
|
|
15,269
|
|
|
|
-
|
|
|
|
15,269
|
|
Due from joint ventures
|
|
10
|
|
Performing
|
|
12-month ECL
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Loans to joint ventures
|
|
11
|
|
Doubtful
|
|
Lifetime ECL
|
|
|
798
|
|
|
|
-
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
24,896
|
|
|
|
-
|
|
|
|
24,896
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT
(cont’d)
|
|
|
Note
|
|
Internal
credit rating
|
|
12-month or
lifetime ECL
|
|
Gross
carrying
amount
|
|
|
Loss
allowance
|
|
|
Net
carrying
amount
|
|
|
|
|
|
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
31 December 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
7
|
|
(i)
|
|
Lifetime ECL (Simplified approach)
|
|
|
13,173
|
|
|
|
-
|
|
|
|
13,173
|
|
Contract assets
|
|
8
|
|
(i)
|
|
Lifetime ECL (Simplified approach)
|
|
|
3,844
|
|
|
|
-
|
|
|
|
3,844
|
|
Other receivables
|
|
9
|
|
Performing
|
|
12-month ECL
|
|
|
14,258
|
|
|
|
-
|
|
|
|
14,258
|
|
Due from joint ventures
|
|
10
|
|
Performing
|
|
12-month ECL
|
|
|
3,855
|
|
|
|
-
|
|
|
|
3,855
|
|
Loans to joint ventures
|
|
11
|
|
Doubtful
|
|
Lifetime ECL
|
|
|
5,216
|
|
|
|
(1,552
|
)
|
|
|
3,664
|
|
|
|
|
|
|
|
|
|
|
40,346
|
|
|
|
(1,552
|
)
|
|
|
38,794
|
|
(i) For trade receivables
and contract assets, the Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime ECL. The
Group determines the ECL on these items by using a provision matrix, estimated based on historical credit loss experience based
on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions.
Accordingly, the credit risk profile of these assets is presented based on their past due status in terms of the provision matrix.
Further details on the loss allowance
are disclosed in the respective notes. In order to minimise credit risk, the Group has adopted a policy of only dealing with creditworthy
counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from
defaults. The Group uses its own trading records to rate its major customers. The Group's exposure and the credit ratings of its
counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
In addition, in response to the COVID-19 pandemic, the Group has increased reviews of counterparties and potential customers to
ensure that contractual obligations will be met.
Before accepting any new customer,
the Group assesses the potential customer's credit quality and defines credit limits by customer. There are ongoing reviews on
the limits attributed to customers.
Credit approvals and other monitoring
procedures are also in place to ensure that follow-up action is taken to recover overdue debts. Furthermore, the Group reviews
the recoverable amount of each trade debt on an individual basis at the end of the reporting period to ensure that adequate loss
allowance is made for irrecoverable amounts. In this regard, management considers that the Group’s credit risk is significantly
reduced.
Trade receivables consist of a large
number of customers, spread across diverse geographical areas. Ongoing credit evaluation is performed on the financial condition
of accounts receivable.
At the end of the reporting period,
the Group does not have significant credit risk exposure to any single counterparty or any Group of counterparties having similar
characteristics. The Group defines counterparties as having similar characteristics if they are related entities. The concentration
of credit risk is limited due to the fact that the customer base is large and unrelated.
The credit risk on liquid funds
and derivative financial instruments is limited because the counterparties are third parties and banks with high internal and external
credit ratings. In addition, the Group is exposed to credit risk in relation to financial guarantees given to banks. The Group's
maximum exposure in this respect is the maximum amount the Group could have to pay if the guarantee is called on.
|
(b)
|
Interest rate risk management
|
The Group is exposed to interest
rate risk through the impact of bank loans and other borrowings and loans granted from/to joint ventures at variable interest rates.
The Group monitors its exposure to fluctuating interest rates and generally enters into contracts that are linked to market rates
relative to the currency of the asset or liability.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT
(cont’d)
|
Interest rate sensitivity
The sensitivity analyses below have
been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting
period and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting
period in the case of instruments that have floating rates. A 50 basis point increase or decrease is used when reporting
interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible
change in interest rates. Following the COVID-19 outbreak, market interest rates have declined significantly from an opening rate
of 1.9% in January 2020 to a closing rate of 0.2% in December 2020.
If interest rates had been 50 basis
points higher or lower and all other variables were held constant, the Group’s loss for the year ended 31 December 2020 would
increase/decrease by $1,103,000 (2019: increase/decrease by $691,000 and 2018: increase/decrease by $603,000). This
is mainly attributable to the Group’s exposure to interest rates on its variable rate bank loans and loans from/to joint
ventures.
|
(c)
|
Foreign currency exchange risk management
|
The Group’s main operational
activities are carried out in United States dollars and South African rands, which is the functional currency of the respective
financial statements of each Group entity. The risk arising from movements in foreign exchange rates is limited as the
Group has minimal transactions in foreign currencies which mainly relates to administrative expenses in Singapore dollars, amounts
due to related companies in South African rands as well as bank balances in South African rands.
The Group has access to a foreign
exchange facility which enables it to enter into forward foreign exchange contracts. Management reviews and monitors currency risk
exposure and determines whether any hedging is considered necessary. Overall market declines and market volatility due to the COVID-19
pandemic resulting in fluctuations in the foreign currencies are not expected to have a material effect on the Group’s financial
position and results of the operations.
The objective of the foreign exchange
exposure management policy is to ensure that all foreign exchange exposures are identified as early as possible and that the
identified exposures are actively managed to reduce risk. All exposures are to reflect the underlying foreign currency commitments
arising from trade and/or foreign currency finance. Under no circumstances are speculative positions, not supported by normal trade
flows, permitted.
At the end of the reporting period,
the significant carrying amounts of monetary liabilities and monetary assets denominated in currencies other than the respective
Group entities’ functional currencies are as follows:
|
|
Liabilities
|
|
|
Assets
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
|
|
(576
|
)
|
|
|
(657
|
)
|
|
|
2,176
|
|
|
|
1,893
|
|
South African rands
|
|
|
(6,171
|
)
|
|
|
(26,880
|
)
|
|
|
5,767
|
|
|
|
6,903
|
|
Foreign currency
sensitivity
The following
table details the sensitivity to a 10% increase and decrease in the relevant foreign currencies against the functional currency
of each Group entity. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management
personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity
analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end
for a 10% change in foreign currency rates.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT
(cont’d)
|
If the relevant foreign currency
strengthens/weakens by 10% against the functional currency of the entity, profit or loss will increase/(decrease) or, vice versa
by:
|
|
Impact on profit or loss
|
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
|
|
160
|
|
|
|
124
|
|
South African rands
|
|
|
(40
|
)
|
|
|
(1,998
|
)
|
|
(d)
|
Liquidity risk management
|
Liquidity risk refers to the risk
that the Group is unable to pay its creditors due to insufficient funds. The Group maintains and monitors a level of
cash deemed adequate by management at all times to finance its obligations as and when they fall due.
The shipping environment has
been challenging and volatile over the last several years due to an oversupply of vessels allied to a lower growth rate of the
world economy. The outbreak of COVID-19 has resulted in Governments implementing measures to mitigate the spread of the virus.
These measures have resulted in a significant reduction in global economic activity and deterioration in the charter rates in
2020, which has a significant impact on operations and cash flows and the Group’s ability to comply with covenants and other
conditions in the loan agreements. Although there have been a recent rebound in charter rates, the COVID-19 situation is still
fluid and any deterioration could lead to unfavourable market conditions and impact the Group’s operations and cash flows.
The Group manages liquidity
risk by monitoring forecast and actual cash flows and ensuring that adequate borrowing facilities are maintained. The management
may, from time to time, at their discretion raise or borrow monies for the purposes of the Group as they deem fit. There are measures
in place to preserve cash, maintain adequate financing to meet Group’s obligations and protect existing loan covenants imposed
by the banks. The covenant levels are monitored continuously to identify any potential covenant issues so that solutions such
as waivers or modifications to the loan covenants to obtain more favourable terms can be implemented in advance. The Group may
seek to accomplish any of these independently or in conjunction with one or more of these actions. If the market conditions
become unfavourable, the Group may be unable to accomplish any of the foregoing on acceptable terms or at all.
Based on the 12 months cash
flow forecast prepared by management from the date of the authorisation of financial statements, the Board of Directors has no
reason to believe that the Group will not continue as a going concern and has assessed that there is no material uncertainty related
to these conditions and there is no substantial doubt about the Group’s ability to continue as a going concern. Management
has plans in place to sell certain vessels, repay certain loans, protect or amend existing covenants on term loans and maintain
adequate liquidity. Subsequent to the end of the financial reporting period, management contracted to sell two medium range tankers
and one small tanker which will provide sufficient funds to settle the mortgage on the vessels and non-bank loan (Note 26) which
matures on 13 June 2021. These transactions together with the improvement in the estimated dry bulk spot market will
provide sufficient liquidity to repay the maturing obligations and meet the covenants at the next reporting dates.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT (cont’d)
|
Non-derivative financial liabilities
The following tables detail the
remaining contractual maturity for non-derivative financial liabilities. The tables have been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table
includes both interest and principal cash flows. The adjustment column represents the possible future cash flows attributable to
the instrument included in the maturity analysis which is not included in the carrying amount of the financial liability on the
consolidated statements of financial position.
|
|
Weighted
average
effective
interest
rate
|
|
|
On
demand
or within
1 year
|
|
|
Within
2 to
5 years
|
|
|
After
5 years
|
|
|
Adjustment
|
|
|
Total
|
|
|
|
% p.a.
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
|
-
|
|
|
|
26,714
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,714
|
|
Fixed interest rate instruments
|
|
|
7.50
|
|
|
|
27,411
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,879
|
)
|
|
|
25,532
|
|
Lease liabilities
|
|
|
4.63
|
|
|
|
29,862
|
|
|
|
24,146
|
|
|
|
-
|
|
|
|
(2,418
|
)
|
|
|
51,590
|
|
Variable interest rate instruments
|
|
|
3.71
|
|
|
|
35,002
|
|
|
|
192,229
|
|
|
|
58,435
|
|
|
|
(32,766
|
)
|
|
|
252,900
|
|
|
|
|
|
|
|
|
118,989
|
|
|
|
216,375
|
|
|
|
58,435
|
|
|
|
(37,063
|
)
|
|
|
356,736
|
|
Included in assets of a disposal
group held for sale (Note 40)(i)
|
|
|
|
|
|
|
(83
|
)
|
|
|
(277
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
118,906
|
|
|
|
216,098
|
|
|
|
58,435
|
|
|
|
(37,063
|
)
|
|
|
356,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
|
-
|
|
|
|
32,691
|
|
|
|
221
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,912
|
|
Lease liabilities
|
|
|
5.41
|
|
|
|
26,728
|
|
|
|
35,637
|
|
|
|
-
|
|
|
|
(4,381
|
)
|
|
|
57,984
|
|
Variable interest rate instruments
|
|
|
5.09
|
|
|
|
27,747
|
|
|
|
123,030
|
|
|
|
44,423
|
|
|
|
(29,956
|
)
|
|
|
165,244
|
|
|
|
|
|
|
|
|
87,166
|
|
|
|
158,888
|
|
|
|
44,423
|
|
|
|
(34,337
|
)
|
|
|
256,140
|
|
Included in assets of a disposal
group held for sale (Note 40)(i)
|
|
|
|
|
|
|
(539
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
86,627
|
|
|
|
158,888
|
|
|
|
44,423
|
|
|
|
(34,336
|
)
|
|
|
255,602
|
|
(i) For 2020, the
amount represents only the assets relating to Training school that has been classified as held for sale in 2020. Amounts relating
to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
The
maximum amount that the Group could be forced to settle under the financial guarantee if the full guaranteed amount is claimed
by the counterparty to the guarantee is disclosed in Note 38. The Group considers that it is more than likely that no amount
will be payable under the arrangement.
Derivative
financial instruments
The
following table details the liquidity analysis for derivative financial instruments. The table has been drawn up based
on the undiscounted gross inflows and (outflows) on those derivatives that require gross settlement. When the amount
payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated
by the yield curves existing at the end of reporting period.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT (cont’d)
|
|
|
On demand or
within 1 year
|
|
|
Within
2 to 5 years
|
|
|
Adjustment
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross settled:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bunker swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross inflow
|
|
|
458
|
|
|
|
-
|
|
|
|
-
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross settled:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bunker swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross outflow
|
|
|
173
|
|
|
|
-
|
|
|
|
-
|
|
|
|
173
|
|
|
(e)
|
Shipping market price risk management
|
The Group is exposed to the fluctuations
in market conditions in the shipping industry which in turn affects the Group’s profitability. Management continually
assess shipping markets using their experience and detailed research. Risks are managed by fixing tonnage on longer
term time charters, contracts of affreightment and entering into forward freight agreements. There are no outstanding
contracts at 31 December 2020 and 31 December 2019. Accordingly, no sensitivity analysis is prepared.
|
(f)
|
Commodity price risk management
|
The Group uses bunker swaps to manage
exposure to commodity price risk where the positions are not naturally economically hedged through the combination of holding inventory,
forward sales contracts and forward purchase contracts. Management continually assess commodity price through their experience
and detailed research. The carrying amount of the derivative financial instruments is disclosed in Note 12.
Commodity
price sensitivity
The sensitivity analyses below have
been determined based on the exposure to commodity price risk at the end of the reporting period.
In respect of derivative financial
instruments, if the commodity prices had been 10% higher/lower while other variables were held constant:
|
·
|
loss for the year ended 31 December 2020 would decrease/increase by $Nil (2019: decrease/increase
by $Nil and 2018: decrease/increase by $Nil).
|
|
·
|
hedging reserve for the year ended 31 December 2020 would decrease/increase by $206,000 (2019:
decrease/increase by $209,000 and 2018: decrease/increase by $355,000).
|
|
(g)
|
Fair value measurement of financial assets and financial
liabilities
|
The carrying amounts of cash and
cash equivalents, trade and other current receivables and payables, and other liabilities approximate their respective fair values
due to the relatively short-term maturity of these financial instruments. The fair values of other classes of financial
assets and liabilities are disclosed in the respective notes to financial statements.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT
(cont’d)
|
Financial
instruments measured at fair value on a recurring basis
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
Bunker swaps
|
|
|
458
|
|
|
|
173
|
|
All the financial instruments relate
to the forward freight agreements and bunker swap agreements and have been classified as Level 2 financial instruments, which indicates
that the fair value of the instruments were determined based on discounted cash flow with reference to observable inputs for equivalent
instruments, discounted at a rate that reflects the credit risk of various counterparties. Further details are disclosed
in Note 12.
There were no transfers between
Level 1 and 2 in the period.
Fair Value
of Financial Instruments
The following table provides an
analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3
based on the degree to which the fair value is observable:
Level 1 - quoted prices (unadjusted)
in active markets for identical assets or liabilities
Level 2 - inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices)
Level 3 - inputs for the asset or
liability that are not based on observable market data (unobservable inputs)
Level 2 and 3 fair values were determined
by applying either a combination of, or one of the following valuation techniques:
|
•
|
market related interest rate yield curves to discount expected future cash flows; and/or
|
|
•
|
projected unit method; and/or
|
|
•
|
the net asset value of the underlying investments; and/or
|
|
•
|
a price earnings multiple or a discounted projected income/present value approach
|
The fair value
measurement for income approach valuation is based on significant inputs that are not observable in the market. Key inputs used
in the valuation include discount rates and future profit assumptions based on historical performance but adjusted for expected
growth. Management reassess the earnings or yield multiples at least annually based on their assessment of the macro- and micro-economic
environment.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
4
|
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENT (cont’d)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
458
|
|
|
|
-
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
173
|
|
|
|
-
|
|
|
|
173
|
|
|
(iii)
|
Capital management policies and objectives
|
The Group manages its capital to
ensure that the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation
of the debt to equity balance. The capital structure of the Group consists of debt and equity, which comprises of share
capital and reserves.
The Group also reviews the capital
structure on a semi-annual basis. As a part of this review, the management considers the cost of capital and the risks associated
with each class of capital. The management also ensures that the Group maintains gearing ratios within a set range to comply with
the loan covenant imposed by a bank.
The Group’s overall strategy
remains unchanged from prior year.
|
5
|
RELATED PARTIES TRANSACTIONS
|
Transactions
between the Group and Grindrod Limited group of companies prior to the Spin-Off (Note 1) are disclosed as transactions with related
parties under Group companies below. With effective from 18 June 2018, arising from the Spin-Off, Grindrod Limited group of companies
no longer meet the definition of related parties and hence balances and transactions after this date are not disclosed as balances
and transactions with related parties.
Many
of the Group’s transactions and arrangements are with related parties and the effect of these on the basis determined between
the parties is reflected in these financial statements. The balances are unsecured, interest-free and repayable on demand unless
otherwise stated.
During
the year, Group entities entered into the following transactions with related parties:
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
5
|
RELATED PARTIES TRANSACTIONS (cont’d)
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel and port expenses to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,910
|
)
|
Bunker swaps from related companies
|
|
|
-
|
|
|
|
-
|
|
|
|
111
|
|
Guarantee fees to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(54
|
)
|
Management fees to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,135
|
)
|
Net gain on disposal of businesses
|
|
|
-
|
|
|
|
-
|
|
|
|
3,255
|
|
Overhead recovery from (to) related party (included in administrative expense)
|
|
|
-
|
|
|
|
-
|
|
|
|
134
|
|
Other expenses to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(187
|
)
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
157
|
|
|
|
983
|
|
|
|
2,573
|
|
Technical management fee income
|
|
|
354
|
|
|
|
1,625
|
|
|
|
1,625
|
|
Agency Fees from joint ventures
|
|
|
83
|
|
|
|
573
|
|
|
|
574
|
|
Charter hire and other related revenue
|
|
|
679
|
|
|
|
5,345
|
|
|
|
13,445
|
|
Charter hire and other related expenses
|
|
|
(6,025
|
)
|
|
|
(44,206
|
)
|
|
|
(52,050
|
)
|
Payments on behalf of a joint venture
|
|
|
(7,987
|
)
|
|
|
(2,199
|
)
|
|
|
(1,217
|
)
|
Repayment of preference shares by a joint venture
|
|
|
2,569
|
|
|
|
-
|
|
|
|
-
|
|
Settlement of interest bearing loan
|
|
|
5,382
|
|
|
|
-
|
|
|
|
-
|
|
Purchase of ships from a joint venture
|
|
|
-
|
|
|
|
54,000
|
|
|
|
10,250
|
|
Dividend income
|
|
|
536
|
|
|
|
5,000
|
|
|
|
-
|
|
Management fee income
|
|
|
-
|
|
|
|
86
|
|
|
|
217
|
|
Refer
to Note 38 for information on the guarantees provided by the Group for loans within joint venture structures.
|
(iii)
|
Compensation of directors and key management personnel
|
The remuneration
of the directors and other members of key management is set out below in aggregate for each of the categories specified in IAS
24 Related Party Disclosures.
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
Short-term benefits
|
|
|
4,073
|
|
|
|
4,166
|
|
|
|
4,839
|
|
Share-based payments (1)
|
|
|
769
|
|
|
|
-
|
|
|
|
84
|
|
|
|
|
4,842
|
|
|
|
4,166
|
|
|
|
4,923
|
|
(1) Represents
vesting of ordinary shares in terms of the Forfeitable Share Plan.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
5
|
RELATED PARTIES TRANSACTIONS (cont’d)
|
The remuneration
of directors and key management is determined by the remuneration committee of Grindrod Shipping Holdings Limited (prior to 18
June 2018 by the remuneration committee of Grindrod Limited) having regard to the performance of individuals and market trends.
|
6
|
CASH AND BANK BALANCES INCLUDING RESTRICTED CASH
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Restricted cash, current portion
|
|
|
3,319
|
|
|
|
3,167
|
|
Cash on hand
|
|
|
566
|
|
|
|
357
|
|
Cash at bank
|
|
|
37,376
|
|
|
|
32,029
|
|
Cash and bank balances
|
|
|
41,261
|
|
|
|
35,553
|
|
|
|
|
|
|
|
|
|
|
Less: Restricted cash, current portion
|
|
|
(3,319
|
)
|
|
|
(3,167
|
)
|
|
|
|
37,942
|
|
|
|
32,386
|
|
Add: Cash and cash equivalents included in the disposal group held for
sale (Note 40)(i)
|
|
|
-
|
|
|
|
141
|
|
Cash and cash equivalents in the statements of cash flows
|
|
|
37,942
|
|
|
|
32,527
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
Current
|
|
|
3,319
|
|
|
|
3,167
|
|
Non-current
|
|
|
9,304
|
|
|
|
9,611
|
|
|
|
|
12,623
|
|
|
|
12,778
|
|
(i)
For 2020, the amount represents only the assets relating to Training school that has been classified as held for sale in 2020.
Amount relating to Unicorn Tanker division disclosed as asset held for sale in 2019 has been included in the respective lines
in 2020 in Note 40.
The current portion
of the restricted cash represents amounts placed in retention accounts can only be used to fund loan repayments or interest payments.
The non-current portion of restricted cash represents debt reserves security deposit required due to the conditions of certain
banking facilities and these deposits are not available to finance the Group’s day to day operations.
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
6,617
|
|
|
|
10,171
|
|
Trade receivables due from the pools
|
|
|
1,380
|
|
|
|
3,706
|
|
|
|
|
7,997
|
|
|
|
13,877
|
|
Included in assets of a disposal group held for sale (Note 40)(i)
|
|
|
(69
|
)
|
|
|
(704
|
)
|
|
|
|
7,928
|
|
|
|
13,173
|
|
(i)
For 2020, the amount represents only the assets relating to Training school that has been classified as held for
sale in 2020. Amounts relating to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note
40.
The credit period
is 1 to 30 days (2019: 1 to 30 days). No interest is charged on the outstanding invoice.
Loss allowance for
trade receivables has been measured at an amount equal to lifetime ECL. The ECL on trade receivables are estimated using a provision
matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position,
adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate
and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
7
|
TRADE RECEIVABLES (cont’d)
|
There has been
no significant change in the estimation techniques or significant assumptions made during the current reporting period in assessing
the allowance for the amounts due from customers.
A
trade receivable is written off when there is information indicating that the debtor is in severe financial difficulty and there
is no realistic prospect of recovery.
The
following table details the risk profile of trade receivables based on the Group’s provision matrix. The expected credit
loss rate is considered immaterial for trade receivables outstanding for less than 120 days. For trade receivables past due for
more than 120 days, the Group would recognise a loss allowance of 100% except for the adjustment to factors that are specific
to the debtors, because historical experience has indicated that these receivables are generally not recoverable. As the Group’s
historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision
for loss allowance based on past due status is not further distinguished between the Group’s different customer base.
|
|
Trade receivables past due
|
|
2020
|
|
Not past
due
|
|
|
< 30
|
|
|
31-60
|
|
|
61-90
|
|
|
91-120
|
|
|
>120
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Estimated total gross carrying amount at default, representing net carrying amount of default
|
|
|
5,544
|
|
|
|
249
|
|
|
|
139
|
|
|
|
551
|
|
|
|
859
|
|
|
|
655
|
|
|
|
7,997
|
|
Less: assets of a disposal group held for sale
|
|
|
(26
|
)
|
|
|
(15
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
(69
|
)
|
|
|
|
5,518
|
|
|
|
234
|
|
|
|
136
|
|
|
|
548
|
|
|
|
837
|
|
|
|
655
|
|
|
|
7,928
|
|
|
|
Trade receivables past due
|
|
2019
|
|
Not past
due
|
|
|
< 30
|
|
|
31-60
|
|
|
61-90
|
|
|
91-120
|
|
|
>120
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Estimated total gross carrying amount at default, representing net carrying amount of default
|
|
|
9,955
|
|
|
|
1,233
|
|
|
|
1,244
|
|
|
|
280
|
|
|
|
1,165
|
|
|
|
-
|
|
|
|
13,877
|
|
Less: assets of a disposal group held for sale
|
|
|
(699
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(704
|
)
|
|
|
|
9,256
|
|
|
|
1,232
|
|
|
|
1,240
|
|
|
|
280
|
|
|
|
1,165
|
|
|
|
-
|
|
|
|
13,173
|
|
This
relates to unbilled revenue, recognised over the period in which the freight services are performed representing the entity’s
right to consideration for the services performed as at the end of the reporting period which shall be recognised as revenue in
the subsequent year.
Management
estimates the loss allowance on amounts due from customers at an amount equal to lifetime ECL, taking into account the historical
default experience and the future prospects of the industry.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
9
|
OTHER RECEIVABLES AND PREPAYMENTS
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Deposits
|
|
|
291
|
|
|
|
346
|
|
Prepayments
|
|
|
3,471
|
|
|
|
2,693
|
|
Voyages in progress
|
|
|
9,126
|
|
|
|
10,377
|
|
Loan receivables
|
|
|
1,229
|
|
|
|
-
|
|
Other receivables
|
|
|
4,630
|
|
|
|
3,627
|
|
|
|
|
18,747
|
|
|
|
17,043
|
|
Included in assets of a disposal group held for sale (Note 40)(i)
|
|
|
(7
|
)
|
|
|
(92
|
)
|
|
|
|
18,740
|
|
|
|
16,951
|
|
(i)
For 2020, the amount represents only the assets relating to Training school that has been classified as held for sale in
2020. Amounts relating to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
On
26 May 2020, the Group entered into a loan agreement with third party with respect to the sale of vessel Inyala. The loan
receivable of $1,229,000 accrues interest at LIBOR plus 3.5% per annum and is repayable by December 2021. Any sums payable
which are not paid when due, shall attract an additional 2% per annum over and above the rate of interest.
For
purpose of impairment assessment, other receivables and loan receivables are considered to have low credit risk as they are not
due for payment at the end of the reporting period and there has been no significant increase in the risk of default on the receivables
since initial recognition. Accordingly, for the purpose of impairment assessment for these receivables, the loss allowance is
measured at an amount equal to 12-month ECL. In determining the ECL, management has taken into account the historical default
experience and the financial position of the counterparties, adjusted for factors that are specific to the debtors and general
economic conditions of the industry in which the debtors operate. No provision for loss allowance was made during 2020 and 2019.
|
10
|
DUE FROM JOINT VENTURES
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Due from joint ventures (Note 5)
|
|
|
|
|
|
|
|
|
- non-interest bearing - trade
|
|
|
-
|
|
|
|
815
|
|
- non-interest bearing - non-trade
|
|
|
1
|
|
|
|
345
|
|
- interest bearing - non-trade
|
|
|
-
|
|
|
|
2,695
|
|
|
|
|
1
|
|
|
|
3,855
|
|
Amounts due from
joint ventures are unsecured and repayable on demand and their carrying value approximate fair value.
In 2020 and 2019,
interest was charged on the amounts due from joint ventures of $2,695,000 at 15.0% per annum. These loans were settled in 2020.
For purpose
of impairment assessment, amounts due from joint ventures are considered to have low credit risk as they are not due for payment
at the end of the reporting period and there has been no significant increase in the risk of default on the receivables since initial
recognition. Accordingly, for the purpose of impairment assessment for these receivables, the loss allowance is measured at an
amount equal to 12-month ECL.
In determining the
ECL, management has taken into account the historical default experience and the financial position of the counterparties, adjusted
for factors that are specific to the related parties.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
11
|
LOANS TO JOINT VENTURES
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Loans to joint ventures analysed between:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
798
|
|
|
|
2,589
|
|
Provision for losses on joint ventures
|
|
|
-
|
|
|
|
(1,552
|
)
|
|
|
|
798
|
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
-
|
|
|
|
2,627
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
798
|
|
|
|
3,664
|
|
|
(1)
|
The loan to a joint venture which relates to payments made for instalments due for a ship under
construction in accordance with the terms of ship building contract was settled during the year following the sale of the vessel
(2019: $2,627,000). The loan was unsecured and incurred interest at rates ranging from 1.96% to 3.6% (2019: 3.60% to
4.34%) per annum during the year. The loan approximated the fair value as the loan was arranged at floating rates.
|
|
(2)
|
$798,000 (2019: $2,579,000) of loans to a joint venture is unsecured and did not bear interest
in 2020 and 2019. The loan is expected to be repaid within 12 months from the end of the reporting period. The carrying value of
the loans at year end approximates the fair value.
|
For
the purpose of impairment assessment for these receivables, the loss allowance is measured at lifetime ECL. In determining the
ECL, management has taken into account the provision of losses that arose from the Group’s share of losses in joint venture
that were in excess of the Group’s cost of investment in joint ventures (Note 17) and any additional loss allowance required
based on the expected recovery from the loan.
The
following table shows the movement in lifetime ECL – credit impaired lifetime ECL that has been recognised for loans to
joint venture:
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Balance as at 1 January
|
|
|
1,552
|
|
|
|
1,680
|
|
Loss allowance recognised (reversed) in profit or loss on changes in credit risk
|
|
|
271
|
|
|
|
(128
|
)
|
Amount written off
|
|
|
(1,823
|
)
|
|
|
-
|
|
Balance as at 31 December
|
|
|
-
|
|
|
|
1,552
|
|
As
the last remaining joint venture is in the process of being liquidated following the sale of the assets in 2019, management do
not believe the balance of the outstanding loan in excess of the available cash in the joint venture is recoverable. The loss
allowance was increased to US$1,823,000 and the full amount was written off in anticipation of the distribution of the final dividend.
|
12
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
Bunker swaps - analysed between:
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
458
|
|
|
|
173
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
12
|
DERIVATIVE FINANCIAL INSTRUMENTS (cont’d)
|
The Group has
entered into a number of bunker swaps, as follows:
2020
Current assets
Derivative instruments
in designated hedge accounting relationships:
Settlement periods
|
|
|
|
Strike price
|
|
|
Quantity
|
|
|
Notional
value
|
|
|
Fair value
gain
|
|
|
|
|
|
US$
|
|
|
MT
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2021 to February 2021
|
|
0.5% FOB Singapore
|
|
|
276.0
|
|
|
|
1,400
|
|
|
|
386
|
|
|
|
160
|
|
January 2021 to May 2021
|
|
0.5% FOB Singapore
|
|
|
311.3
|
|
|
|
1,500
|
|
|
|
467
|
|
|
|
118
|
|
January 2021 to May 2021
|
|
0.5% FOB Rotterdam
|
|
|
298.5
|
|
|
|
2,500
|
|
|
|
746
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,599
|
|
|
|
458
|
|
2019
Current assets
Derivative instruments
in designated hedge accounting relationships:
Settlement periods
|
|
|
|
Strike price
|
|
|
Quantity
|
|
|
Notional
value
|
|
|
Fair value
gain
|
|
|
|
|
|
US$
|
|
|
MT
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2020
|
|
Rott 0.5% Brg
|
|
|
471.3
|
|
|
|
600
|
|
|
|
283
|
|
|
|
40
|
|
January 2020 to February 2020
|
|
GO 10ppm
|
|
|
75.7
|
|
|
|
505
|
|
|
|
38
|
|
|
|
22
|
|
January 2020 to June 2020
|
|
ICE LS GasOil
|
|
|
566.5
|
|
|
|
2,400
|
|
|
|
1,360
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,681
|
|
|
|
173
|
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Bunkers and other consumables at cost
|
|
|
8,700
|
|
|
|
12,491
|
|
|
|
|
-
|
|
|
|
-
|
|
Ships reclassified from ships, property, plant
and equipment as inventories (Note 14) (a)
|
|
|
42,353
|
|
|
|
15,932
|
|
Sale of ships recognised
as inventories (a)
|
|
|
(42,353
|
)
|
|
|
(15,932
|
)
|
|
|
|
|
|
|
|
|
|
Included in assets of a disposal
group held for sale (Note 40)(i)
|
|
|
-
|
|
|
|
(255
|
)
|
|
|
|
8,700
|
|
|
|
12,236
|
|
(i)
For 2020, the amount represents only the assets relating to Training school that has been classified as held for sale in
2020. Amounts relating to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
(a) Ships reclassified
from Ships, property, plant and equipment as inventories is reconciled as follows:
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Cost
|
|
|
109,501
|
|
|
|
40,871
|
|
Accumulated depreciation
|
|
|
(45,026
|
)
|
|
|
(11,659
|
)
|
Impairment
|
|
|
(22,122
|
)
|
|
|
(13,280
|
)
|
Carrying amount
|
|
|
42,353
|
|
|
|
15,932
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
On 29 January 2020, 8 April
2020, 4 May 2020 and 16 July 2020, the Group entered into memoranda of agreement with third parties for the sale of a ship at
purchase consideration of $9,150,000, $14,100,000, $15,300,000 and $5,090,000 respectively. The ships were delivered to third
parties on 28 February 2020, 4 June 2020, 25 June 2020 and the 2 September 2020.
On 2 April 2019 and 23 April 2019,
the Group entered into memoranda of agreement with third parties for the sale of a ship at purchase consideration of $7,800,000
and $8,875,000 respectively. The ships were delivered to third parties on 30 April 2019 and the 28 June 2019.
|
14
|
SHIPS, PROPERTY, PLANT AND EQUIPMENT
|
|
|
Office
equipment,
furniture and
fittings and
motor vehicles
|
|
|
Plant and
equipment
|
|
|
Ships
|
|
|
Drydocking
|
|
|
Construction
in progress
|
|
|
Freehold
land and
buildings
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2019
|
|
|
5,020
|
|
|
|
5,371
|
|
|
|
427,838
|
|
|
|
12,914
|
|
|
|
6,384
|
|
|
|
263
|
|
|
|
457,790
|
|
Additions
|
|
|
70
|
|
|
|
24
|
|
|
|
54,000
|
|
|
|
2,517
|
|
|
|
49,590
|
|
|
|
-
|
|
|
|
106,201
|
|
Disposals
|
|
|
(26
|
)
|
|
|
(593
|
)
|
|
|
(70
|
)
|
|
|
(2,527
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,216
|
)
|
Reclassification from construction in progress
|
|
|
-
|
|
|
|
-
|
|
|
|
54,648
|
|
|
|
552
|
|
|
|
(55,200
|
)
|
|
|
-
|
|
|
|
-
|
|
Reclassification to inventories (Note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
(38,847
|
)
|
|
|
(2,024
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(40,871
|
)
|
Reclassification to disposal group held for sale (Note 40)(ii)
|
|
|
(144
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(144
|
)
|
Effect of foreign currency exchange differences
|
|
|
74
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
79
|
|
Balance at 31 December 2019
|
|
|
4,994
|
|
|
|
4,802
|
|
|
|
497,569
|
|
|
|
11,432
|
|
|
|
774
|
|
|
|
268
|
|
|
|
519,839
|
|
Additions
|
|
|
67
|
|
|
|
-
|
|
|
|
1,716
|
|
|
|
7,307
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,090
|
|
Disposals
|
|
|
(118
|
)
|
|
|
(738
|
)
|
|
|
(24
|
)
|
|
|
(3,602
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,482
|
)
|
Acquisition of subsidiary (Note 41.1 and Note 41.2)(i)
|
|
|
-
|
|
|
|
287
|
|
|
|
239,773
|
|
|
|
3,823
|
|
|
|
-
|
|
|
|
-
|
|
|
|
243,883
|
|
Reclassification to inventories (Note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
(105,966
|
)
|
|
|
(3,535
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(109,501
|
)
|
Reclassification to disposal group held for sale (Note 40)(ii)
|
|
|
(659
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(659
|
)
|
Effect of foreign currency exchange differences
|
|
|
55
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
52
|
|
Balance at 31 December 2020
|
|
|
4,339
|
|
|
|
4,357
|
|
|
|
633,068
|
|
|
|
15,425
|
|
|
|
774
|
|
|
|
259
|
|
|
|
658,222
|
|
(i) Ships of $239,773,000 and drydocking of
$3,823,000 were assets acquired as part of the IVS Bulk transaction (Note 41.1) and plant and equipment of $287,000 was
acquired as part of the IBC transaction (Note 41.2).
(ii) For 2020, the amount represents only the assets
relating to Training school that has been classified as held for sale in 2020. Amounts relating to Unicorn Tankers division disclosed
as asset held for sale in 2019 and 2020 are included in Note 40.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
14
|
SHIPS, PROPERTY, PLANT AND EQUIPMENT (cont’d)
|
|
|
Office
equipment,
furniture and
fittings and
motor vehicles
|
|
|
Plant and
equipment
|
|
|
Ships
|
|
|
Drydocking
|
|
|
Construction
in progress
|
|
|
Freehold
land and
buildings
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2019
|
|
|
4,548
|
|
|
|
4,102
|
|
|
|
111,311
|
|
|
|
4,320
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,281
|
|
Depreciation
|
|
|
155
|
|
|
|
798
|
|
|
|
13,562
|
|
|
|
3,169
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,684
|
|
Disposals
|
|
|
(25
|
)
|
|
|
(593
|
)
|
|
|
(70
|
)
|
|
|
(2,008
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,696
|
)
|
Reclassification to disposal group held for
sale (Note 40)(i)
|
|
|
(142
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(142
|
)
|
Reclassification to inventories (Note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,785
|
)
|
|
|
(874
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,659
|
)
|
Effect of foreign currency
exchange differences
|
|
|
71
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
Balance at 31 December 2019
|
|
|
4,607
|
|
|
|
4,307
|
|
|
|
114,018
|
|
|
|
4,607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,539
|
|
Depreciation
|
|
|
122
|
|
|
|
378
|
|
|
|
18,263
|
|
|
|
5,208
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,971
|
|
Disposals
|
|
|
(117
|
)
|
|
|
(738
|
)
|
|
|
-
|
|
|
|
(1,600
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,455
|
)
|
Reclassification
|
|
|
-
|
|
|
|
-
|
|
|
|
1,013
|
|
|
|
(1,013
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Reclassification to inventories (Note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,921
|
)
|
|
|
(1,105
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,026
|
)
|
Reclassification to disposal group held for
sale (Note 40)(i)
|
|
|
(451
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(451
|
)
|
Effect of foreign currency
exchange differences
|
|
|
76
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
Balance at 31 December 2020
|
|
|
4,237
|
|
|
|
3,950
|
|
|
|
89,373
|
|
|
|
6,097
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
80,732
|
|
|
|
2,865
|
|
|
|
310
|
|
|
|
-
|
|
|
|
83,907
|
|
Impairment losses recognised in profit and loss
|
|
|
-
|
|
|
|
-
|
|
|
|
14,877
|
|
|
|
2,118
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,995
|
|
Reclassification to inventories (Note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,130
|
)
|
|
|
(1,150
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,280
|
)
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(519
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(519
|
)
|
Balance at 31 December 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
83,479
|
|
|
|
3,314
|
|
|
|
310
|
|
|
|
-
|
|
|
|
87,103
|
|
Impairment losses recognised in profit and loss
|
|
|
138
|
|
|
|
-
|
|
|
|
15,099
|
|
|
|
1,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,420
|
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,109
|
)
|
|
|
(892
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,001
|
)
|
Reclassification to inventories (Note 13)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,700
|
)
|
|
|
(2,422
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(22,122
|
)
|
Reclassification to disposal group held
for sale (Note 40)(i)
|
|
|
(138
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(138
|
)
|
Balance at 31 December 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
77,769
|
|
|
|
1,183
|
|
|
|
310
|
|
|
|
-
|
|
|
|
79,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2020
|
|
|
102
|
|
|
|
407
|
|
|
|
465,926
|
|
|
|
8,145
|
|
|
|
464
|
|
|
|
259
|
|
|
|
475,303
|
|
At 31 December 2019
|
|
|
387
|
|
|
|
495
|
|
|
|
300,072
|
|
|
|
3,511
|
|
|
|
464
|
|
|
|
268
|
|
|
|
305,197
|
|
(i)
For 2020, the amount represents only the assets relating to Training school that has been classified as held for sale in
2020. Amounts relating to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
Certain ships are pledged to secure bank borrowings
as disclosed in Note 26.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
The Group leases several assets including office and residential
property, ships and ship equipment which are disclosed as right-of-use assets.
|
|
Office and
residential
property
|
|
|
Ships
|
|
|
Ship
equipment
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2019
|
|
|
596
|
|
|
|
68,588
|
|
|
|
211
|
|
|
|
69,395
|
|
Additions
|
|
|
2,161
|
|
|
|
16,946
|
|
|
|
82
|
|
|
|
19,189
|
|
Cancellation of leases during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
(22
|
)
|
|
|
(22
|
)
|
Reclassification to disposal group held for sale (Note 40)(i)
|
|
|
(35
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(35
|
)
|
Effect of foreign currency exchange differences
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
Balance at 31 December 2019
|
|
|
2,733
|
|
|
|
85,534
|
|
|
|
271
|
|
|
|
88,538
|
|
Additions
|
|
|
539
|
|
|
|
20,833
|
|
|
|
83
|
|
|
|
21,455
|
|
Derecognition of right of use asset
|
|
|
(80
|
)
|
|
|
(18,449
|
)
|
|
|
(167
|
)
|
|
|
(18,696
|
)
|
Acquisitions of subsidiary (Note 41.1)
|
|
|
-
|
|
|
|
-
|
|
|
|
87
|
|
|
|
87
|
|
Adjustment(1)
|
|
|
(80
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(80
|
)
|
Reclassification to disposal group held for sale
(Note 40)(i)
|
|
|
(399
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(399
|
)
|
Effect of foreign currency
exchange differences
|
|
|
34
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34
|
|
Balance at 31 December 2020
|
|
|
2,747
|
|
|
|
87,918
|
|
|
|
274
|
|
|
|
90,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, representing balance at 31 December 2019
|
|
|
601
|
|
|
|
30,307
|
|
|
|
142
|
|
|
|
31,050
|
|
Depreciation
|
|
|
1,019
|
|
|
|
26,246
|
|
|
|
167
|
|
|
|
27,432
|
|
Derecognition of right of use asset
|
|
|
(80
|
)
|
|
|
(18,449
|
)
|
|
|
(167
|
)
|
|
|
(18,696
|
)
|
Adjustment(1)
|
|
|
(80
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(80
|
)
|
Reclassification to disposal group held for sale
(Note 40)(i)
|
|
|
(82
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(82
|
)
|
Effect of foreign currency exchange
differences
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Balance at 31 December 2020
|
|
|
1,381
|
|
|
|
38,104
|
|
|
|
142
|
|
|
|
39,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses recognised in profit and loss,
representing balance at 31 December 2019 and 31 December 2020
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2020
|
|
|
1,366
|
|
|
|
47,564
|
|
|
|
132
|
|
|
|
49,062
|
|
As at 31 December 2019
|
|
|
2,132
|
|
|
|
52,977
|
|
|
|
129
|
|
|
|
55,238
|
|
(i) For 2020, the
amount represents only the assets relating to Training school that has been classified as held for sale in 2020. Amounts relating
to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
(1) Refers to lease modification during the period.
Right-of-use assets are depreciated
over the remaining period of the lease. The average lease term is between 1 and 4 years for property, between 1 and 5 years for
ships, and between 1 and 3 years for ship equipment.
Depreciation expense of $26,413,000
(2019: $30,449,000) for ships and ship equipment are recognised in cost of sales and the depreciation expense of $1,019,000 (2019:
$601,000) for property is recognised separately in administrative expense.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
15
|
RIGHT-OF-USE ASSETS (Cont’d)
|
The Group has options to purchase
certain ships at set prices at certain dates within the contracts. The exercise price is not included in the right-of-use assets
for these ships because it is not reasonably certain that the options will be exercised.
For the year ended 31 December 2020,
the Group recognised expense of $42,946,000 (2019: $63,113,000) for short term leases (i.e. a lease period of 12 months or less),
US$84,000 (2019: $73,000) for leases of low value assets and US$42,946,000 (2019: $55,952,000) for variable lease payments in connection
with pool arrangements not included in the measurement of the lease liability.
Corresponding lease liabilities are
disclosed in Note 25.
Details of the Group’s
subsidiaries at the end of the reporting period are as follows:
Name of subsidiary
|
|
Principal activity
|
|
Country of
incorporation
|
|
Proportion of ownership
interest and voting
power held by the
Group
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
Grindrod Shipping Pte. Ltd.
|
|
Ship operating and management
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Grindrod Shipping (South Africa) Pty Ltd
|
|
Ship operating and management
|
|
South Africa
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held
by Grindrod Shipping Pte. Ltd
|
|
|
|
|
|
|
|
|
|
|
|
|
IVS Bulk Owning Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk Carriers Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 430 Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 462 Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 475 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 511 Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 512 Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 603 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 609 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 611 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 612 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 707 Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 3708 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS Bulk 3720 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
IVS
Bulk Pte. Ltd.(i)
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IM Shipping Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Island
Bulk Carriers Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
(iii)
|
|
Grindrod Shipping Services UK Limited
|
|
To provide shipping and shipping related services
|
|
United Kingdom
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Atlantic Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
Name of subsidiary
|
|
Principal activity
|
|
Country of
incorporation
|
|
Proportion of
ownership interest and
voting power held by
the Group
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Unicorn Baltic Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Ionia Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Tanker Operations (434) Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Ross Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Nyathi Limited(iv)
|
|
Dormant
|
|
Isle of Man
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Caspian Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Marmara Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Scotia Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Malacca Pte. Ltd.
|
|
Dormant
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Bulk Carriers Ltd
|
|
Dormant
|
|
British Virgin Islands
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Tankers International Ltd
|
|
Dormant
|
|
British Virgin Islands
|
|
|
100
|
%
|
|
|
100
|
%
|
Grindrod Maritime LLC
|
|
Ship Owning and Operating
|
|
Marshall Islands
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Sun Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
Unicorn Moon Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held by Grindrod Shipping (South Africa) Pty Ltd
|
|
|
|
|
|
Comshipco Schiffahrts Agentur GmbH
|
|
Ship agents and operators
|
|
Germany
|
|
|
100
|
%
|
|
|
100
|
%
|
K2019570755 (South Africa) (Pty) Ltd (ii)
|
|
Dormant
|
|
South Africa
|
|
|
100
|
%
|
|
|
-
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
Name of subsidiary
|
|
Principal activity
|
|
Country of
incorporation
|
|
Proportion of
ownership interest and
voting power held by
the Group
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Held by IVS Bulk Pte. Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
IVS
Bulk 541 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 543 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 545 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 554 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 5855 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 5858 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 709 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 712 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 7297 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 1345 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 3693 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
IVS
Bulk 10824 Pte. Ltd.
|
|
Ship Owning and Operating
|
|
Singapore
|
|
|
68.86
|
%
|
|
|
(i)
|
|
|
(i)
|
On 14 February 2020, the Group acquired additional equity
interest in IVS Bulk Pte. Ltd. (“IVS Bulk”) from its joint venture partner which increased its ownership interest
from 33.5% to 66.75%. Subsequent to the purchase of these shares, IVS Bulk became a subsidiary of the Group (Note 41.1). On 1
December 2020, a loan of $4,000,000 million provided by the Group to IVS Bulk was converted to equity in the form of “A
Class” shares in line with the shareholders agreement dated 14 February 2020. The loan was initially provided on 30 September
2020 with interest calculated at LIBOR plus 3.1%. The transaction increased Group’s shareholding by 2.11% in IVS Bulk from
66.75% to 68.86%.
|
|
(ii)
|
This company was incorporated in 2019.
|
|
(iii)
|
On 3 July 2020, the Group acquired the remaining 35%
issued shares in the joint venture, Island Bulk Carriers Pte. Ltd. (“IBC”). Subsequent to the purchase of these shares,
IBC became a wholly-owned subsidiary of the Group (Note 41.2).
|
|
(iv)
|
This company was deregistered in 2021.
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
17
|
INTEREST IN JOINT VENTURES
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Cost of investment in joint ventures
|
|
|
11,534
|
|
|
|
77,974
|
|
Share of post-acquisition loss, net of dividends received
|
|
|
(11,305
|
)
|
|
|
(25,416
|
)
|
Reclassification to assets classified as held for sale(b)
|
|
|
(63
|
)
|
|
|
(83
|
)
|
Carrying amount
|
|
|
166
|
|
|
|
52,475
|
|
The
Group’s share of losses in joint ventures that are in excess of the Group’s cost of investment of $Nil (2019: $2,106,000)
are accounted for as provision for losses on joint ventures (Note 11 and Note 27). Details of the joint ventures are as follows:
Name of joint venture
|
|
Principal activity
|
|
Country of
incorporation
|
|
Proportion of
ownership
interest and
voting power held
by the Group
|
|
|
Cost of
investment
in joint ventures
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Tri-View Shipping Pte. Ltd.
(a)
|
|
Ship owning and operating
|
|
Singapore
|
|
|
51
|
%
|
|
|
51
|
%
|
|
|
132
|
|
|
|
132
|
|
Island Bulk Carriers Pte. Ltd.
|
|
Ship operating
|
|
Singapore
|
|
|
|
(c)
|
|
|
65
|
%
|
|
|
-
|
|
|
|
*
|
|
IVS Bulk Pte. Ltd.
|
|
Ship owning and operating
|
|
Singapore
|
|
|
|
|
|
|
33.50
|
%
|
|
|
-
|
|
|
|
66,440
|
|
Petrochemical
Shipping Limited (d)
|
|
Dormant
|
|
Isle of Man
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
11,402
|
|
|
|
11,402
|
|
Leopard Tankers Pte.
Ltd. (b)
|
|
Dormant
|
|
Singapore
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,534
|
|
|
|
77,974
|
|
|
*
|
Amount is less than US$1,000.
|
|
(a)
|
The Group has joint control over these entities by virtue of the contractual arrangement with its
joint venture partner(s) requiring resolutions on the relevant activities to be passed based on unanimous approval.
|
|
(b)
|
These joint venture companies are expected to be dissolved in 2021. Accordingly, the carrying amount
of the interest in joint ventures has been reclassified to assets classified as held for sale (Note 40).
|
|
(c)
|
The group acquired a controlling interest in these joint ventures during 2020 and the investment
was subsequently reported as a subsidiary (Note 16).
|
|
(d)
|
Petrochemical Shipping Limited was dissolved on 19 March 2021.
|
The
above joint ventures are accounted for using the equity method in these consolidated and combined financial statements.
In
2020, the total share of joint venture companies' loss after taxation amounts to $945,000 (2019: $1,420,000; 2018: $454,000).
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
17
|
INTEREST IN JOINT VENTURES (cont’d)
|
Summarised financial information in
respect of the Group's material joint ventures are set out below. The summarised financial information below represents amounts
shown in the joint venture's financial statements prepared in accordance with IFRSs, adjusted by the Group for equity accounting
purposes.
Tri-View Shipping Pte. Ltd.
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
410
|
|
|
|
897
|
|
Non-current assets
|
|
|
-
|
|
|
|
10,180
|
|
Current liabilities
|
|
|
(21
|
)
|
|
|
(805
|
)
|
Non-current liabilities
|
|
|
-
|
|
|
|
(6,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above amounts of assets and liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
334
|
|
|
|
757
|
|
Current financial liabilities (excluding trade and other payable and provisions)
|
|
|
(1
|
)
|
|
|
(726
|
)
|
Non-current financial liabilities (excluding trade and other payables
and provisions)
|
|
|
-
|
|
|
|
(6,300
|
)
|
|
|
|
|
|
|
|
|
|
Revenue(i)
|
|
|
9,484
|
|
|
|
2,488
|
|
Gross loss
|
|
|
(376
|
)
|
|
|
(1,290
|
)
|
Loss for the year, representing total comprehensive loss for the year
|
|
|
(2,535
|
)
|
|
|
(1,615
|
)
|
Dividend income from joint venture during the year
|
|
|
536
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
The above loss for the year include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(711
|
)
|
|
|
(2,102
|
)
|
Impairment loss
|
|
|
(1,985
|
)
|
|
|
-
|
|
Interest expense
|
|
|
(154
|
)
|
|
|
(307
|
)
|
Reconciliation
of the above summarised financial information to the carrying amount of the interest in the joint venture recognised in the consolidated
and combined financial statements:
Net assets of the joint venture
|
|
|
389
|
|
|
|
3,972
|
|
Proportion of the Group's ownership interest in the joint venture
|
|
|
51
|
%
|
|
|
51
|
%
|
Other adjustments
|
|
|
(31
|
)
|
|
|
(31
|
)
|
Carrying amount of the Group's interest in the joint venture
|
|
|
166
|
|
|
|
1,995
|
|
(i) The revenue in 2020 comprise of income
received from the sale of the vessel of $7.9 million.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
17
|
INTEREST IN JOINT VENTURES (cont’d)
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
IVS Bulk Pte. Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
-
|
|
|
|
25,941
|
|
Non-current assets
|
|
|
-
|
|
|
|
263,670
|
|
Current liabilities
|
|
|
-
|
|
|
|
(81,118
|
)
|
Non-current liabilities
|
|
|
-
|
|
|
|
(49,358
|
)
|
|
|
|
|
|
|
|
|
|
The above amounts of assets and liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
-
|
|
|
|
25,650
|
|
Current financial liabilities (excluding trade and other payables and provisions)
|
|
|
-
|
|
|
|
(78,507
|
)
|
Non-current financial liabilities (excluding trade and other payables and provisions)
|
|
|
-
|
|
|
|
(49,358
|
)
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
4,388
|
|
|
|
40,929
|
|
Gross (loss) profit
|
|
|
(1,993
|
)
|
|
|
6,103
|
|
Loss for the year, representing total comprehensive loss for the year
|
|
|
(3,782
|
)
|
|
|
(3,764
|
)
|
|
|
|
|
|
|
|
|
|
The above loss for the year include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(2,477
|
)
|
|
|
(14,020
|
)
|
Interest income
|
|
|
7
|
|
|
|
33
|
|
Interest expense
|
|
|
(1,674
|
)
|
|
|
(9,029
|
)
|
Income tax
|
|
|
-
|
|
|
|
(1
|
)
|
Reconciliation of the above summarised financial information
to the carrying amount of the interest in the joint venture recognised in the consolidated and combined financial statements:
|
|
2019
|
|
|
|
US$’000
|
|
|
|
|
|
Net assets of the joint venture
|
|
|
159,135
|
|
Proportion of the Group's ownership interest in the joint venture
|
|
|
33.5
|
%
|
Goodwill
|
|
|
3,575
|
|
Other adjustments
|
|
|
(6,405
|
)
|
Carrying amount of the Group's interest in the joint venture
|
|
|
50,480
|
|
The IVS Bulk
joint venture was restructured effective 14 February 2020 when GSPL acquired an additional 33.25% interest in IVS Bulk increasing
its shareholding to 66.75% resulting in IVS Bulk becoming a subsidiary of the Group. The new shareholders’ agreement with
the other remaining shareholder granted GSPL control of key aspects of the corporate governance of IVS Bulk, as a result of which
the financials of IVS Bulk were consolidated into the financial statements rather than being accounted for under the equity accounting
method.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
|
Total
|
|
|
|
US$’000
|
|
Cost:
|
|
|
|
Balance at 1 January 2019
|
|
|
6,770
|
|
Additions
|
|
|
161
|
|
Effect of foreign currency exchange differences
|
|
|
126
|
|
Balance at 31 December 2019
|
|
|
7,057
|
|
Additions
|
|
|
352
|
|
Reclassification to disposal group held for sale (Note 40)(i)
|
|
|
(10
|
)
|
Effect of foreign currency exchange differences
|
|
|
270
|
|
Balance at 31 December 2020
|
|
|
7,669
|
|
|
|
|
|
|
Accumulated amortisation:
|
|
|
|
|
Balance at 1 January 2019
|
|
|
3,093
|
|
Amortisation
|
|
|
29
|
|
Effect of foreign currency exchange differences
|
|
|
122
|
|
Balance at 31 December 2019
|
|
|
3,244
|
|
Amortisation
|
|
|
146
|
|
Reclassification to disposal group held for sale (Note 40)(i)
|
|
|
(10
|
)
|
Effect of foreign currency exchange differences
|
|
|
562
|
|
Balance at 31 December 2020
|
|
|
3,942
|
|
|
|
|
|
|
Impairment:
|
|
|
|
|
Balance at 1 January 2019, 31 December 2019
|
|
|
3,636
|
|
Effect of foreign currency exchange differences
|
|
|
(314
|
)
|
Balance at 31 December 2020
|
|
|
3,322
|
|
|
|
|
|
|
Carrying Amount:
|
|
|
|
|
At 31 December 2020
|
|
|
405
|
|
At 31 December 2019
|
|
|
177
|
|
(i) For 2020, the
amount represents only the assets relating to Training school that has been classified as held for sale in 2020. Amounts relating
to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
Intangible assets include club memberships,
customer relationships and software and licences. Club memberships are lifetime memberships and are not amortised. Customer relationships
arose from the acquisition of business and are amortised over 7 years. Software and licenses arose from the installation of major
information systems (including packaged software) and are amortised over 3 years, the period over which the benefit is expected
to accrue.
The key assumptions for the value
in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs
during the period. Management estimated pre-tax discount rates to be 15% which they believed reflect the current market
assessments of the time value of money and the risks specific to the cash generating units (CGUs). The growth rates
were based on industry growth forecasts and are estimated to be 5.5%. Changes in selling prices and direct costs were
based on past practices and expectations of future changes in the market. No impairment allowance was recognised in 2019 and 2020.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Balance at 1 January
|
|
|
3,912
|
|
|
|
16,004
|
|
Acquired on acquisition of subsidiary
|
|
|
25
|
|
|
|
-
|
|
Reclassification to disposal group held for sale (Note 40)(i)
|
|
|
-
|
|
|
|
(12,317
|
)
|
Effect of foreign currency exchange differences
|
|
|
(9
|
)
|
|
|
225
|
|
At 31 December
|
|
|
3,928
|
|
|
|
3,912
|
|
|
|
|
|
|
|
|
|
|
Accumulated impairment losses:
|
|
|
|
|
|
|
|
|
Balance at 1 January
|
|
|
2,968
|
|
|
|
8,653
|
|
Impairment
|
|
|
-
|
|
|
|
3,179
|
|
Reclassification to disposal group held for sale (Note 40)(i)
|
|
|
-
|
|
|
|
(8,968
|
)
|
Effect of foreign currency exchange differences
|
|
|
-
|
|
|
|
104
|
|
Balance at 31 December
|
|
|
2,968
|
|
|
|
2,968
|
|
|
|
|
|
|
|
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
At 31 December
|
|
|
960
|
|
|
|
944
|
|
(i)
For 2020, the amount represents only the assets relating to Training school that has been classified as held for sale in
2020. Amounts relating to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
Goodwill acquired in a business combination
is allocated, at acquisition, to the CGUs that are expected to benefit from that business combination. Before recognition
of impairment losses, the cost of goodwill had been allocated as follows:
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Cost:
|
|
|
|
|
|
|
|
|
Island Trading and Shipping
|
|
|
3,089
|
|
|
|
3,064
|
|
Parcel Service
|
|
|
235
|
|
|
|
244
|
|
Unicorn Tankers International
|
|
|
604
|
|
|
|
604
|
|
|
|
|
3,928
|
|
|
|
3,912
|
|
The Group tests
goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The
recoverable amounts of the CGUs are determined based on value in use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during
the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the
time value of money and the risks specific to the CGUs. The growth rates are based on industry growth forecasts. Changes
in selling prices and direct costs are based on past practices and expectations of future changes in the market.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
In
connection with the Spin-off (Note 1), Grindrod Limited (former Parent), GSSA and the trustees to the Grindrod Pension Fund (Fund),
a defined benefit pension plan operated by Grindrod Limited, resolved that GSSA should be included as a second participating employer
of this fund and GSSA will be allocated 40% of the pension surplus which was subject to regulatory approval before this could
be enacted.
On
7 October 2020, the relevant regulatory approval was obtained and accordingly effective on the 31 December 2020, GSSA was included
in the Fund as the second employer. $3,150,000 (Rands 46,054,000) was transferred from Grindrod Limited’s employer surplus
account to the GSSA employer surplus account established within the Fund. As of 31 December 2020, the fund has 1 existing employee
and GSSA will not contribute to the fund in respect of this employee. The employer surplus account is only available for use in
accordance with the Rules of the Fund.
The
employer surplus was valued at $3,150,000 based on the quoted market prices in the active markets. Subsequent fair value change
in respect of the allocated fund assets will be recorded as a component of other comprehensive income.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
The following are the major deferred
tax liabilities and assets recognised by the Group and the movements thereon, during the current and prior reporting periods:
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Deferred taxation analysed by major category:
|
|
|
|
|
|
|
|
|
Capital allowances
|
|
|
-
|
|
|
|
(54
|
)
|
Other timing differences
|
|
|
1,138
|
|
|
|
1,353
|
|
|
|
|
1,138
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of deferred taxation:
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
1,299
|
|
|
|
1,497
|
|
Credit to profit or loss for the year (Note 37)
|
|
|
(90
|
)
|
|
|
(108
|
)
|
Deferred tax on the actuarial gain
|
|
|
(13
|
)
|
|
|
(113
|
)
|
Exchange differences
|
|
|
(58
|
)
|
|
|
23
|
|
Closing balance
|
|
|
1,138
|
|
|
|
1,299
|
|
At the end of the reporting period,
the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities
have not been recognised is $1,797,000 (2019: $1,315,000). No liability has been recognised in respect of these differences because
the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences
will not reverse in the foreseeable future. Subject to the agreement by the tax authorities, at the end of the reporting period,
the Group has unabsorbed tax losses of $580,000 (2019: $580,000) available for offset against future non-exempt profits. No deferred
tax assets have been recognised on such losses due to the unpredictability of future profit streams.
|
22
|
TRADE AND OTHER PAYABLES
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
9,049
|
|
|
|
7,776
|
|
Accrued expenses
|
|
|
17,124
|
|
|
|
19,682
|
|
Others
|
|
|
1,397
|
|
|
|
1,588
|
|
Less: included in liabilities of a disposal group held for sale (Note
40)(i)
|
|
|
(17
|
)
|
|
|
(498
|
)
|
|
|
|
27,553
|
|
|
|
28,548
|
|
Non-current trade and other payables
|
|
|
(198
|
)
|
|
|
(221
|
)
|
Current trade and other payables
|
|
|
27,355
|
|
|
|
28,327
|
|
(i)
For 2020, the amount represents only the assets relating to Training school that has been classified as held for sale in
2020. Amounts relating to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
Trade and other
payables are recognised at amortised cost and their carrying value approximates fair value. Charter hire is paid in advance in
terms of the charter contracts. The remaining payment terms are predominately 30 days.
The Group’s
trade and other payables are predominantly non-interest bearing and unsecured.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
Advances
received are classified as contract liabilities in accordance with IFRS 15 Revenue from Contracts with Customers. These
arise when the customers’ make payments in advance and the amounts received exceeds the revenue recognised at the end of
the reporting period and it shall be recognised as revenue in the subsequent year.
There were no
significant changes in the contract liability balances during the reporting period.
|
24
|
DUE TO RELATED PARTIES
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
Due to joint ventures - non-trade (Note 5)
|
|
|
-
|
|
|
|
4,796
|
|
|
|
Property
|
|
|
Ships
|
|
|
Ship equipment
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1 January 2019
|
|
|
592
|
|
|
|
67,863
|
|
|
|
211
|
|
|
|
68,666
|
|
Additions
|
|
|
2,161
|
|
|
|
16,946
|
|
|
|
82
|
|
|
|
19,189
|
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
|
|
(22
|
)
|
|
|
(22
|
)
|
Interest expense
|
|
|
69
|
|
|
|
3,365
|
|
|
|
8
|
|
|
|
3,442
|
|
Lease payments
|
|
|
(665
|
)
|
|
|
(32,538
|
)
|
|
|
(144
|
)
|
|
|
(33,347
|
)
|
- Principal
|
|
|
(596
|
)
|
|
|
(29,173
|
)
|
|
|
(136
|
)
|
|
|
(29,905
|
)
|
- Interest
|
|
|
(69
|
)
|
|
|
(3,365
|
)
|
|
|
(8
|
)
|
|
|
(3,442
|
)
|
Transferred to liabilities of a disposal group held for sale (Note 40)(i)
|
|
|
(38
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(38
|
)
|
Effect of foreign currency exchange differences
|
|
|
56
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
Lease liabilities as at 31 December 2019
|
|
|
2,175
|
|
|
|
55,636
|
|
|
|
135
|
|
|
|
57,946
|
|
Additions
|
|
|
539
|
|
|
|
20,833
|
|
|
|
85
|
|
|
|
21,457
|
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Interest expense
|
|
|
125
|
|
|
|
2,387
|
|
|
|
5
|
|
|
|
2,517
|
|
Lease payments
|
|
|
(1,104
|
)
|
|
|
(29,183
|
)
|
|
|
(178
|
)
|
|
|
(30,465
|
)
|
- Principal
|
|
|
(979
|
)
|
|
|
(26,796
|
)
|
|
|
(173
|
)
|
|
|
(27,948
|
)
|
- Interest
|
|
|
(125
|
)
|
|
|
(2,387
|
)
|
|
|
(5
|
)
|
|
|
(2,517
|
)
|
Transferred to liabilities of a disposal group held for sale (Note 40)(i)
|
|
|
(346
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(346
|
)
|
Acquired on acquisition of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
90
|
|
|
|
90
|
|
Effect of foreign currency exchange differences
|
|
|
48
|
|
|
|
|
|
|
|
-
|
|
|
|
48
|
|
Lease liabilities as at 31 December 2020
|
|
|
1,437
|
|
|
|
49,673
|
|
|
|
134
|
|
|
|
51,244
|
|
(i) For 2020, the
amount represents only the assets relating to Training school that has been classified as held for sale in 2020. Amounts relating
to Unicorn Tankers division disclosed as asset held for sale in 2019 and 2020 are included in Note 40.
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Analysed between:
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
28,120
|
|
|
|
24,300
|
|
Non-current portion
|
|
|
23,124
|
|
|
|
33,646
|
|
|
|
|
51,244
|
|
|
|
57,946
|
|
Maturity analysis of lease liabilities
is disclosed in Note 4. The Group does not face a significant liquidity risk with regard to its lease liabilities. Lease liabilities
are monitored within the Group’s treasury function.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
26
|
BANK LOANS AND OTHER BORROWINGS
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Secured – at amortised cost:
|
|
|
|
|
|
|
|
|
Bank loans
|
|
|
195,886
|
|
|
|
131,231
|
|
Other borrowings
|
|
|
57,014
|
|
|
|
34,013
|
|
Non-bank loans
|
|
|
25,532
|
|
|
|
-
|
|
|
|
|
278,432
|
|
|
|
165,244
|
|
|
|
|
|
|
|
|
|
|
Analysed between:
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
53,394
|
|
|
|
20,696
|
|
Non-current portion
|
|
|
225,038
|
|
|
|
144,548
|
|
|
|
|
278,432
|
|
|
|
165,244
|
|
|
|
|
|
|
|
|
|
|
Interest payable (included in bank loans)
|
|
|
920
|
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
Non-current bank loans and other borrowings are estimated to be payable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 2 to 5 years
|
|
|
172,150
|
|
|
|
144,548
|
|
After 5 years
|
|
|
52,888
|
|
|
|
-
|
|
|
|
|
225,038
|
|
|
|
144,548
|
|
Bank loans
|
i.
|
$100.0 million senior secured credit facility
|
The
facility bears interest at London Interbank Offered Rate (“LIBOR”) plus 2.95% per annum and is made up of two tranches.
Tranche A and B are repayable quarterly commencing 16 August 2018 and mature on 15 May 2022 and 15 May 2023 respectively, with
the option to extend for a further two years. Facility fees of $1,750,000 were payable to the lender upon signing the new loan
agreement. These were recorded as transaction costs to the loan account to the extent the loan was drawn down. As at 31 December
2020, the outstanding balance in relation to this facility is $21,821,000, net of $829,000 facility fees (2019: $49,088,000, net
of $1,180,000 facility fees).
|
ii.
|
$27.0 million senior secured credit facility
|
The
facility bears interest at LIBOR plus 2.65% per annum, was fully drawn down in 2016 and is repayable quarterly, commencing 11
April 2017 and matures on January 11, 2021, with the option to extend for a further two years. As at 31 December 2019, the outstanding
balance in relation to this facility was $19,067,000. The loan was fully settled in 2020.
|
iii.
|
$6.3 million senior secured credit facility
|
The facility bears interest at LIBOR
plus 2% per annum and is repayable quarterly, commencing on 6 September 2018 and matures on 6 June 2023. Facility fees of $32,000
were payable to the lender upon signing the new loan agreement. These were recorded as transaction costs to the loan account to
the extent the loan was drawn down. As at 31 December 2020, the outstanding balance in relation to this facility is $3,154,000,
net of $15,000 facility fees (2019: $4,421,000, net of $22,000 facility fees).
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
26
|
BANK LOANS AND OTHER BORROWINGS (cont’d)
|
|
iv.
|
$29.9 million senior secured credit facility
|
The facility bears interest at LIBOR
plus 3.2% per annum and is repayable quarterly, commencing on 24 April 2019 and matures on 21 December 2023. Facility fees of $373,000
were payable to the lender upon drawdown of the loan agreement. These were recorded as transaction costs to the loan account to
the extent the loan was drawn down. As at 31 December 2020, the outstanding balance in relation to this facility is $25,223,000,
net of $227,000 facility fees (2019: $27,776,000, net of $304,000 facility fees).
|
v.
|
Combined $31.4 million senior secured credit facility
|
On 29 July 2019, the Group entered
into two term facilities, each for an amount up to $15,720,000 to finance the acquisition of two supramax newbuildings. The facilities
bear interest at LIBOR plus 2% per annum and is repayable quarterly, commencing on 5 November 2019 and 20 December 2019 and matures
on 5 August 2026 and 24 September 2026. Facility fees of $78,600 were payable to the lender upon drawdown of each loan agreement.
These were recorded as transaction costs to the loan account to the extent the loan was drawn down. As at 31 December 2020, the
outstanding balances in relation to these facilities are $28,752,000, net of $127,000 facility fees (2019: $30,879,000, net of
$149,000 facility fees).
|
vi.
|
Combined $114.1 million senior secured credit facility
|
On 10 February 2020, the Group entered
into a senior secured term loan facility for 11 drybulk vessels for the purpose of refinancing the existing indebtedness. The facility
bears interest at LIBOR plus 3.10% per annum and is repayable quarterly, commencing on 13 May 2020 and matures on 13 February 2025.
Facility fees of $1,634,137 were payable to the lender upon drawdown of the loan agreement. These were recorded as transaction
costs to the loan account to the extent the loan was drawn down. As at 31 December 2020, the outstanding balances in relation to
these facilities are $104,687,000, net of $1,346,000 facility fees.
|
vii.
|
Combined $13.1 million senior secured credit facility
|
On 31 January 2020, the Group entered
into a senior secured term loan facility for 1 drybulk vessel for the purpose of refinancing the existing indebtedness. The facility
bears interest at LIBOR plus 2.75% per annum and is repayable quarterly, commencing on 13 May 2020 and matures on 13 February 2025.
Facility fees of $131,300 were payable to the lender upon drawdown of the loan agreement. This was recorded as a transaction cost
to the loan account to the extent the loan was drawn down. As at 31 December 2020, the outstanding balance in relation to this
facility is $12,249,000, net of $108,000 facility fees.
The bank loans are secured on
cash and certain ships owned by the Group. The cash pledged and the carrying value of the ships under security charge as at 31
December 2020 is $12,623,000 (2019: $12,778,000) and $406,805,000 (2018: $265,874,000) respectively. In addition, there are charges
over the relevant subsidiaries’ earnings, insurances, charter and charter guarantees and any requisition compensation. Certain
of the bank loans are guaranteed by Grindrod Shipping Pte. Ltd. and/or Grindrod Shipping Holdings Ltd.
The
bank loans are arranged at LIBOR plus the respective margins. These bear a weighted average effective interest rate of 3.71% (2019:
5.09%) per annum.
These
bank loan facilities contain financial covenants where the most stringent of which require the Group to maintain the following:
|
•
|
book
value net worth of the lower of (a) the aggregate of $240 million (except as at 31 December
2020 it shall be $225 million) (2019: $240 million) plus 25% of the amount of positive
retained earnings plus 50% of each capital raise; and (b) $275 million;
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
26
|
BANK LOANS AND OTHER BORROWINGS (cont’d)
|
|
•
|
cash and cash equivalent
(including restricted cash held in the debt service reserve account) as at 30 June 2020
and 30 September 2020, shall not be less than $20 million and, at all other times, not
less than $30 million (2019: $30 million);
|
|
•
|
a ratio of debt to market
adjusted tangible fixed assets of not more than 80% as at 31 December 2020 and from 1
January 2021 not be more than 75 per cent (2019: 75%) and
|
|
•
|
positive working capital, such that consolidated current
assets must exceed the consolidated current liabilities excluding any adjustments made
for IFRS as of 30 June and 31 December excluding any liabilities owed to Sankaty European
Investments III S.à.r.l, or Sankaty and disclosed as non-bank loan below as at
30 June 2020, 30 September 2020 and 31 December 2020.
|
The Group was in compliance with
its financial covenants as of 31 December 2020 and 31 December 2019.
Other borrowings
Other borrowings relate to $62,550,000
(2019: $35,750,000) in financing arrangements entered into with third parties with respect to four (2019: three) of the vessels
in the Group we regard as owned. The arrangements commenced on 26 June 2019, 20 September 2019, 20 November 2019 and 22 December
2020, respectively, are payable monthly in advance and bear interest at 3 month LIBOR plus 1.7% per annum. The loans mature on
26 May 2030, 20 August 2031, 20 October 2031 and 30 November 2035. As at 31 December 2020, the outstanding balances in relation
to these borrowings is $57,014,000 (2019: $34,013,000). The carrying value of the ships under security charge as at 31 December
2020 is $67,265,000 (2019: $37,980,000).
Non-bank loan
On 13 February 2020, the Group
entered into a $35,833,000 senior secured term loan facility with Sankaty to partly finance the acquisition of the subsidiary;
IVS Bulk Pte. Ltd (Note 41.1). The facility bears interest at a fixed rate of 7.5% per annum, payable or compounded quarterly
and matures on 13 June 2021. All prepayments are subject to a premium calculated at 4.00%. The facility is secured by among other
things a first fixed charge over all the shares held by Grindrod Shipping Pte. Ltd. in IVS Bulk. The value of the security (tested
on a quarterly basis) must be at least 1.30 times the amount of the outstanding principal of the loan. As at 31 December 2020,
the outstanding balance in relation to this facility is $25,532,000, net of $339,000 facility fees.
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Provision for losses on investment in joint ventures (i)
|
|
|
-
|
|
|
|
554
|
|
Provision for onerous contracts (ii)
|
|
|
80
|
|
|
|
405
|
|
|
|
|
80
|
|
|
|
959
|
|
|
(i)
|
The joint venture, Island Bulk Carriers, generated profits during 2020 and the Group has reversed
provisions of $554,000 representing the reduction of the Group’s share of the joint venture losses.
|
|
(ii)
|
Provision for onerous contracts represents the present value of the future charter payments of
short-term leases that the Group is presently obligated to make under non-cancellable onerous operating charter agreements and
contracts of affreightment, less charter revenue expected to be earned on the charter. The estimate may vary as a result
of changes to ship running costs and charter and freight revenue. Except for short-term onerous contracts when the effect of discounting
is immaterial, the rate used to discount the future charter payments is 6.86% (2019: 7.61%).
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
Analysis of provision for onerous contracts:
|
|
|
|
|
|
|
Balance at 1 January
|
|
|
405
|
|
|
|
813
|
|
Released to profit or loss
|
|
|
(325
|
)
|
|
|
(408
|
)
|
Balance at 31 December
|
|
|
80
|
|
|
|
405
|
|
|
28
|
RETIREMENT BENEFIT OBLIGATION
|
The Group subsidises the medical
aid contributions of certain retired employees and has an obligation to subsidise contributions of certain current employees when
they reach retirement. In prior periods, the Group undertook to offer pensioners a voluntary benefit in lieu of their current medical
subsidy in order to close out the liability on the statement of financial position. The proposed offer had three options, namely
an annuity offer, a cash offer or to remain in the scheme. A number of employees chose the annuity and cash offer. The provision
has been calculated on the remaining individuals in the scheme.
The risks typically faced by the
Group as a result of the post-retirement medical aid are risks relating to inflation, longevity, future changes in legislation,
future changes in tax environment, perceived inequality by non-eligible employees, administration of fund and enforcement of eligibility
criteria and rules.
During November 2020, a valuation
was performed by Alexander Forbes. Apart from paying costs of entitlement, the Group is not liable to pay additional contributions
in the case the fund does not hold sufficient assets. In that case, the fund would take other measures to restore solvency.
The amounts recognised in the annual
financial statements in this respect are as follows:
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Recognised liability at beginning of the year
|
|
|
1,922
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
Recognised in profit or loss in the current year
|
|
|
152
|
|
|
|
183
|
|
Interest on obligation
|
|
|
152
|
|
|
|
183
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Recognised in other comprehensive income in the current year
|
|
|
|
|
|
|
|
|
Actuarial losses
|
|
|
(48
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
(70
|
)
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Employer payments
|
|
|
(137
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
Present value of unfunded obligation recognised as a liability at end
of year
|
|
|
1,819
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
The principal actuarial assumptions applied
in the determination of fair values include:
|
|
|
|
|
|
|
|
|
Health care cost inflation rate (p.a.)
|
|
|
7.1
|
%
|
|
|
7.6
|
%
|
Discount rate (p.a.)
|
|
|
10.3
|
%
|
|
|
10.0
|
%
|
CPI inflation
|
|
|
5.1
|
%
|
|
|
5.6
|
%
|
Continuation at retirement
|
|
|
75.0
|
%
|
|
|
75.0
|
%
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
28
|
RETIREMENT
BENEFIT OBLIGATION (cont’d)
|
The effect of an increase or decrease
of 1% in the assumed medical cost trend rates are as follows:
|
2020
|
|
2019
|
|
Increase
(Decrease)
|
|
Increase
(Decrease)
|
|
|
|
|
Aggregate of the current service cost and interest cost
|
9.0% (7.9%)
|
|
10.4% (8.9%)
|
Accrued liability at year-end
|
8.5% (7.5%)
|
|
9.9% (8.6%)
|
The sensitivity analysis presented
above may not be representative of the actual change in the obligation as it is unlikely that the above change in assumptions would
occur in isolation of one another.
There was no change in the methods
and assumptions used in preparing the sensitivity analysis from the prior year. The average duration of the benefit obligation
as at 31 December 2020 is 9.8 years (2019: 11 years and 2018: 11 years).
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Present value of unfunded obligations
|
|
|
1,819
|
|
|
|
1,922
|
|
Present value of obligations in excess of plan assets
|
|
|
1,819
|
|
|
|
1,922
|
|
|
|
Number of
shares
|
|
|
Share
capital
|
|
|
|
|
|
|
US$’000
|
|
Issued and paid up:
|
|
|
|
|
|
|
|
|
On 2 November 2017 (date of incorporation) and at 31 December 2017
|
|
|
1
|
|
|
|
*
|
|
Issue of ordinary shares in connection with the Spin-Off (Note 1)
|
|
|
19,063,832
|
|
|
|
320,683
|
|
At 31 December 2019 and 2020
|
|
|
19,063,833
|
|
|
|
320,683
|
|
|
*
|
Amount is less than US$1,000.
|
Except for treasury
shares, fully paid ordinary shares, which have no par value, carry one vote per share and a right to dividends as and when declared
by the company.
|
30
|
OTHER EQUITY AND RESERVES
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Treasury shares
|
|
|
(387
|
)
|
|
|
(1,993
|
)
|
Share compensation reserve
|
|
|
3,954
|
|
|
|
4,520
|
|
Hedging reserve
|
|
|
458
|
|
|
|
173
|
|
Translation reserve
|
|
|
(8,749
|
)
|
|
|
(2,522
|
)
|
Merger reserve
|
|
|
(18,354
|
)
|
|
|
(18,354
|
)
|
|
|
|
(23,078
|
)
|
|
|
(18,176
|
)
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
30
|
OTHER EQUITY AND RESERVES (Cont’d)
|
Treasury
shares
|
|
Number of
shares
|
|
|
Treasury
Share
|
|
|
|
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Balance at 1 January 2019
|
|
|
-
|
|
|
|
-
|
|
Acquisition of shares
|
|
|
299,641
|
|
|
|
1,993
|
|
Balance at 31 December 2019
|
|
|
299,641
|
|
|
|
1,993
|
|
Reissued to employees under the Forfeitable Share Plan
|
|
|
(242,666
|
)
|
|
|
(1,606
|
)
|
Balance at 31 December 2020
|
|
|
56,975
|
|
|
|
387
|
|
On 29 May 2019,
shareholders granted the board of directors’ with the authority to repurchase shares of the company. The repurchase authority
expired at the next Annual General Meeting, unless renewed, and may be suspended or terminated by the company at any time without
prior notice. The company acquired ordinary shares in the open market on NASDAQ and the JSE over the period from the end of the
second fiscal quarter of 2019 through to end of 31 December 2019. A portion of these shares were re-issued, under the Group’s
forfeitable share plan in the first fiscal quarter of 2020 and the balance continue to be held by the Group. See share compensation
reserve for further information. Shares issued out of treasury shares are accounted for on a first in first out basis.
Share compensation
reserve
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Balance at 1 January
|
|
|
4,520
|
|
|
|
1,364
|
|
Share-based payments expenses
|
|
|
1,847
|
|
|
|
3,156
|
|
Treasury shares issued to employees under the Forfeitable Share Plan
|
|
|
(2,413
|
)
|
|
|
-
|
|
Balance at 31 December
|
|
|
3,954
|
|
|
|
4,520
|
|
The
Group operates the 2018 FSP, in which certain employees of the company and its subsidiaries participate. On 31 July 2018, the
Group granted the participating employees entitlements to be settled with a specified number of ordinary shares in the company
(‘Awards”) which shares will be allotted and issued in 3 equal tranches over a period of 3 years commencing on 1 March
2020. On 9 June 2020, the Group granted additional Awards in which the shares will be allotted and issued in 3 equal tranches
over a period of 3 years commencing on 1 March 2021, save for the Awards granted to the Chief Executive Officer which will be
alloted and issued in 2 equal tranches over a period of 2 years commencing on 1 March 2021. This is subject to the condition
that the participating employee remains employed during the vesting period relevant to each tranche.
A participant
has no ownership rights (such as rights to dividends and voting) in the ordinary shares subject to the Award until such right has
vested and the ordinary shares have been registered in the participant’s name. The Award is subject to the risk of forfeiture
until the vesting date should the participating employee no longer be employed for the period ending on the vesting date. However,
the participating employee may be settled with all or a portion of the Award as determined by the rules of the 2018 FSP depending
on the reasons for termination of his employment prior to the vesting date, and, in the case of retirement or termination for a
reason not specifically set out in the 2018 FSP prior to the vesting date, subject to the discretion of the Compensation and Nomination
Committee. The vesting of the ordinary shares is not subject to any performance-related conditions. The Group may utilise treasury
shares or issue new ordinary shares when settling shares upon a participating employee. The employee is not required to make any
payment for the ordinary shares settled upon him or her but is liable for taxation thereon.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
30
|
OTHER EQUITY AND RESERVES (Cont’d)
|
At any time,
the aggregate number of ordinary shares of the company may be granted under Awards that have not vested shall not exceed 5% of
the ordinary shares in issue (excluding treasury shares) on the day preceding the Award. The 2018 FSP was adopted on 4 May 2018.
On the date of adoption of the 2018 FSP, the company’s issued share capital comprised 1 ordinary share and accordingly no
Awards could be granted thereunder. On 18 June 2018 the company’s share capital increased from 1 ordinary share to 19,063,833
ordinary shares, and from the following day the maximum number of ordinary shares that could have been granted was 953,191. Since
18 June 2018 there has been no change to the company’s share capital and as accordingly at 31 December 2020, the issued share
capital of the company comprised 19,063,833 ordinary shares. As at 31 December 2020, 650,333 (2019:728,000) ordinary shares were
subject to Awards that had not been forfeited or vested and the maximum number of ordinary shares in respect of which further Awards
could have been granted under the 2018 FSP was 302,858 (2019: 225,191).
Details of the
share awards outstanding during the year are as follows:
Number of share awards:
|
|
2018 Award
|
|
|
2020 Award
|
|
|
Total
|
|
Granted during 2018, representing outstanding at 1 January 2019
|
|
|
743,000
|
|
|
|
-
|
|
|
|
743,000
|
|
Forfeited during the year
|
|
|
(15,000
|
)
|
|
|
-
|
|
|
|
(15,000
|
)
|
Outstanding at 31 December 2019
|
|
|
728,000
|
|
|
|
-
|
|
|
|
728,000
|
|
Issued during the year
|
|
|
-
|
|
|
|
225,000
|
|
|
|
225,000
|
|
Forfeited during the year
|
|
|
(40,000
|
)
|
|
|
(20,000
|
)
|
|
|
(60,000
|
)
|
Awards vested to employees under the Forfeitable Share Plan
|
|
|
(242,667
|
)
|
|
|
-
|
|
|
|
(242,667
|
)
|
Outstanding at 31 December 2020
|
|
|
445,333
|
|
|
|
205,000
|
|
|
|
650,333
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
Fair value at grant date
|
|
|
10.18
|
|
|
|
2.90
|
|
|
|
|
|
The fair value
at grant date is determined based on the share price on the date of the grant. The Group recognised total expenses during the year
of $1,847,000 relating to the 2018 FSP (2019: $3,156,000).
Hedging
reserve
The hedging
reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain
or loss on the hedge recognised in OCI and accumulated in hedging reserve is reclassified to profit or loss when the hedged transaction
impacts the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable
accounting policy.
Translation
reserve
Exchange
differences relating to the translation from the functional currencies of the Group’s foreign subsidiaries into United States
dollars are brought to account by recognising those exchange differences in OCI and accumulating them in a separate component of
equity under the header of translation reserve. Gains and losses on hedging instruments that are designated as hedges of net investments
in foreign operations are also recognised in OCI and accumulated in a separate component of equity under the header of translation
reserve.
Merger
reserve
This
represents the residual differences between the ‘Parent invested capital’ and the Company’s ‘share capital’
as a result of the Spin-off (Note 2.2).
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
A
disaggregation of the Group’s revenue for the year based on timing of revenue recognition is as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
Over time:
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter hire
|
|
|
104,986
|
|
|
|
129,761
|
|
|
|
135,027
|
|
Freight revenue
|
|
|
129,051
|
|
|
|
178,750
|
|
|
|
168,828
|
|
Vessel revenue
|
|
|
234,037
|
|
|
|
308,511
|
|
|
|
303,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
1,526
|
|
|
|
5,105
|
|
|
|
5,676
|
|
Miscellaneous
|
|
|
579
|
|
|
|
884
|
|
|
|
820
|
|
Other
|
|
|
2,105
|
|
|
|
5,989
|
|
|
|
6,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At a point in time:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of ships
|
|
|
42,468
|
|
|
|
15,986
|
|
|
|
8,477
|
|
Sale of bunkers and other consumables
|
|
|
607
|
|
|
|
560
|
|
|
|
190
|
|
Ship sales
|
|
|
43,075
|
|
|
|
16,546
|
|
|
|
8,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279,217
|
|
|
|
331,046
|
|
|
|
319,018
|
|
Management
expects that 100% of the transaction price allocated to the unsatisfied contracts as of 31 December 2020 will be recognised as
revenue during the next reporting period. The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose
information about remaining performance obligations that have original expected durations of one year or less.
The information reported to the Group’s
chief operating decision maker, who are directors of the Group, for the purpose of resource allocation and assessment of segment
performance is provided based on the six operating segments within the two businesses of the Group, which are also reportable segments
of the Group:
|
a.
|
In the drybulk carrier business, the Group operates a diversified fleet of owned, long-term chartered and joint-venture dry-bulk vessels across the world. The Group operates this business with a focus on the categories of vessels – namely Handysize and Supramax, with all others businesses within this business categorized as Others. Accordingly, the reportable segments of the drybulk business are: Handysize; Supramax and Others.
|
|
b.
|
In the tanker business, the Group operates a diversified fleet of owned, long-term chartered and joint-venture liquid-bulk vessels across the world. The Group operates this business with a focus on the categories of vessels – namely MR Tankers and Small Tankers, with all other businesses within this business categorized as Others. Accordingly, the reportable segments of the tanker business are: MR Tankers; Small Tankers and Others.
|
The reportable segments of the Group have been
identified on a primary basis by the business segment which is representative of the internal reporting used for management purposes,
including the chief operating decision maker, as well as the source and nature of business risks and returns.
Joint-ventures financial information are included
within the segment information on a proportionate consolidation basis as the Group’s chief operating decision maker reviews
them together with the entities of the Group. Accordingly, joint-ventures’ proportionate financial information are adjusted
out to reconcile to the consolidated and combined financial statements in the ‘Adjustments’ column.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
32
|
SEGMENT
INFORMATION (cont’d)
|
Segment profit (i.e. Gross profit (loss) )
represents the profit earned by each segment without allocation of central administration costs and directors’ salaries.
This is the measure reported to the Group’s chief operating decision maker for the purposes of resource allocation and assessment
of segment performance.
Group activities that do not relate to the
above two segments are accumulated in the ‘Unallocated’ segment financial information. Revenue reported in the segments
represents revenue generated from external customers. There were no inter-segment sales in 2020, 2019 and 2018.
For the purpose of monitoring segment performance
and allocating resources between segments, the chief operating decision maker monitors the tangible, intangible and financial assets
at the consolidated and combined Group level.
It is not practical to report revenue or non-current
assets on a geographical basis due to the international nature of the shipping market.
For the years ended 31 December 2020, 2019
and 2018 no customers accounted for 10% or more of the Group’s drybulk business revenue. For the year ended 31 December 2020,
four customers accounted for 10% or more of the Group’s tankers business revenue in amounts of approximately $17.5 million,
$14.9 million, $13.9 million and $9.1 million. For the year ended 31 December 2019, five customers accounted for 10% or more of
the Group’s tankers business revenue in amounts of approximately $21.2 million, $15.5 million, $8.5 million, $7.9 million
and $7.4 million and for the year ended 31 December 2018, three customers accounted for 10% or more of the Group’s tankers
business revenue in amounts of approximately $17.3 million, $14.3 million and $6.3 million. Each of the foregoing with respect
to the drybulk carrier business and tankers business has been calculated excluding revenue attributable to the OACL and Unicorn
Bunker businesses, respectively, which were sold in the first quarter of 2018.
The accounting policies of the segments are
the same as the Group’s accounting policies as described in Note 2.
The following is an analysis of the Group’s
revenue, results and additions and impairments to non-current assets by segment:
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
32
|
SEGMENT INFORMATION (cont’d)
|
2020
|
|
Drybulk
Carrier Business
|
|
|
Tanker
Business
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Handysize
|
|
|
Supramax
|
|
|
Others
|
|
|
Total
|
|
|
MR
Tanker
|
|
|
Small
Tanker
|
|
|
Others
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Vessel revenue
|
|
|
74,641
|
|
|
|
124,352
|
|
|
|
222
|
|
|
|
199,215
|
|
|
|
23,412
|
|
|
|
6,647
|
|
|
|
5,241
|
|
|
|
35,300
|
|
|
|
-
|
|
|
|
234,515
|
|
|
|
(478
|
)
|
|
|
234,037
|
|
Ship sale revenue
|
|
|
9,181
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,181
|
|
|
|
28,814
|
|
|
|
9,083
|
|
|
|
-
|
|
|
|
37,897
|
|
|
|
-
|
|
|
|
47,078
|
|
|
|
(4,003
|
)
|
|
|
43,075
|
|
Other
|
|
|
697
|
|
|
|
320
|
|
|
|
217
|
|
|
|
1,234
|
|
|
|
-
|
|
|
|
-
|
|
|
|
579
|
|
|
|
579
|
|
|
|
-
|
|
|
|
1,813
|
|
|
|
292
|
|
|
|
2,105
|
|
Total revenue
|
|
|
84,519
|
|
|
|
124,672
|
|
|
|
439
|
|
|
|
209,630
|
|
|
|
52,226
|
|
|
|
15,730
|
|
|
|
5,820
|
|
|
|
73,776
|
|
|
|
-
|
|
|
|
283,406
|
|
|
|
(4,189
|
)
|
|
|
279,217
|
|
Voyage expenses
|
|
|
(30,995
|
)
|
|
|
(48,547
|
)
|
|
|
(208
|
)
|
|
|
(79,750
|
)
|
|
|
(15
|
)
|
|
|
(1,586
|
)
|
|
|
-
|
|
|
|
(1,601
|
)
|
|
|
-
|
|
|
|
(81,351
|
)
|
|
|
(2,090
|
)
|
|
|
(83,441
|
)
|
Vessel operating costs
|
|
|
(28,417
|
)
|
|
|
(13,640
|
)
|
|
|
2,262
|
|
|
|
(39,795
|
)
|
|
|
(7,160
|
)
|
|
|
(2,713
|
)
|
|
|
357
|
|
|
|
(9,516
|
)
|
|
|
-
|
|
|
|
(49,311
|
)
|
|
|
1,834
|
|
|
|
(47,477
|
)
|
Charter hire costs
|
|
|
(8,827
|
)
|
|
|
(25,542
|
)
|
|
|
-
|
|
|
|
(34,369
|
)
|
|
|
(3,851
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,851
|
)
|
|
|
-
|
|
|
|
(38,220
|
)
|
|
|
-
|
|
|
|
(38,220
|
)
|
Depreciation of ships, drydocking and plant and equipment–
owned assets
|
|
|
(12,235
|
)
|
|
|
(9,087
|
)
|
|
|
-
|
|
|
|
(21,322
|
)
|
|
|
(1,375
|
)
|
|
|
(471
|
)
|
|
|
(1,889
|
)
|
|
|
(3,735
|
)
|
|
|
-
|
|
|
|
(25,057
|
)
|
|
|
1,208
|
|
|
|
(23,849
|
)
|
Depreciation of ships and ship equipment – right-of-use
assets
|
|
|
(89
|
)
|
|
|
(24,597
|
)
|
|
|
-
|
|
|
|
(24,686
|
)
|
|
|
(1,739
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,739
|
)
|
|
|
-
|
|
|
|
(26,425
|
)
|
|
|
12
|
|
|
|
(26,413
|
)
|
Cost of ship sale
|
|
|
(9,351
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,351
|
)
|
|
|
(29,408
|
)
|
|
|
(9,079
|
)
|
|
|
131
|
|
|
|
(38,356
|
)
|
|
|
-
|
|
|
|
(47,707
|
)
|
|
|
3,976
|
|
|
|
(43,731
|
)
|
Other
|
|
|
(539
|
)
|
|
|
129
|
|
|
|
-
|
|
|
|
(410
|
)
|
|
|
(345
|
)
|
|
|
(239
|
)
|
|
|
-
|
|
|
|
(584
|
)
|
|
|
-
|
|
|
|
(994
|
)
|
|
|
14
|
|
|
|
(980
|
)
|
Costs of sales
|
|
|
(90,453
|
)
|
|
|
(121,284
|
)
|
|
|
2,054
|
|
|
|
(209,683
|
)
|
|
|
(43,893
|
)
|
|
|
(14,088
|
)
|
|
|
(1,401
|
)
|
|
|
(59,382
|
)
|
|
|
-
|
|
|
|
(269,065
|
)
|
|
|
4,954
|
|
|
|
(264,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
(5,934
|
)
|
|
|
3,388
|
|
|
|
2,493
|
|
|
|
(53
|
)
|
|
|
8,333
|
|
|
|
1,642
|
|
|
|
4,419
|
|
|
|
14,394
|
|
|
|
-
|
|
|
|
14,341
|
|
|
|
765
|
|
|
|
15,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
|
(17,
302)
|
|
|
|
(2,224
|
)
|
|
|
234
|
|
|
|
(19,292
|
)
|
|
|
(1,082
|
)
|
|
|
(3,021
|
)
|
|
|
2,367
|
|
|
|
(1,736
|
)
|
|
|
(2,109
|
)
|
|
|
(23,137
|
)
|
|
|
1,901
|
|
|
|
(21,236
|
)
|
Interest income
|
|
|
90
|
|
|
|
96
|
|
|
|
-
|
|
|
|
186
|
|
|
|
158
|
|
|
|
88
|
|
|
|
30
|
|
|
|
276
|
|
|
|
-
|
|
|
|
462
|
|
|
|
103
|
|
|
|
565
|
|
Interest expense
|
|
|
(6,414
|
)
|
|
|
(8,542
|
)
|
|
|
-
|
|
|
|
(14,956
|
)
|
|
|
(1,585
|
)
|
|
|
(240
|
)
|
|
|
(695
|
)
|
|
|
(2,520
|
)
|
|
|
(50
|
)
|
|
|
(17,526
|
)
|
|
|
588
|
|
|
|
(16,938
|
)
|
Share of losses of joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(945
|
)
|
|
|
(945
|
)
|
Impairment loss recognised on financial assets
|
|
|
956
|
|
|
|
(957
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
370
|
|
|
|
-
|
|
|
|
(545
|
)
|
|
|
(175
|
)
|
|
|
-
|
|
|
|
(176
|
)
|
|
|
(1,647
|
)
|
|
|
(1,823
|
)
|
Taxation
|
|
|
(244
|
)
|
|
|
(278
|
)
|
|
|
-
|
|
|
|
(522
|
)
|
|
|
(145
|
)
|
|
|
(24
|
)
|
|
|
(32
|
)
|
|
|
(201
|
)
|
|
|
-
|
|
|
|
(723
|
)
|
|
|
-
|
|
|
|
(723
|
)
|
(Loss) profit for the year
|
|
|
(22,914
|
)
|
|
|
(11,905
|
)
|
|
|
234
|
|
|
|
(34,585
|
)
|
|
|
(2,284
|
)
|
|
|
(3,197
|
)
|
|
|
1,125
|
|
|
|
(4,356
|
)
|
|
|
(2,159
|
)
|
|
|
(41,100
|
)
|
|
|
-
|
|
|
|
(41,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on owned ships
|
|
|
6,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,160
|
|
|
|
8,038
|
|
|
|
3,096
|
|
|
|
-
|
|
|
|
11,134
|
|
|
|
-
|
|
|
|
17,294
|
|
|
|
(1,012
|
)
|
|
|
16,282
|
|
Impairment loss on disposal group (Note 40)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
576
|
|
|
|
-
|
|
|
|
576
|
|
|
|
-
|
|
|
|
576
|
|
|
|
-
|
|
|
|
576
|
|
Acquisition of subsidiary (Note 41.1)
|
|
|
33,078
|
|
|
|
54,096
|
|
|
|
-
|
|
|
|
87,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,174
|
|
|
|
156,709
|
|
|
|
243,883
|
|
Capital expenditure
|
|
|
6,874
|
|
|
|
1,671
|
|
|
|
39
|
|
|
|
8,584
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
27
|
|
|
|
-
|
|
|
|
8,611
|
|
|
|
479
|
|
|
|
9,090
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
32
|
SEGMENT INFORMATION (cont’d)
|
2019
|
|
Drybulk
Carrier Business
|
|
|
Tanker
Business
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Handysize
|
|
|
Supramax
|
|
|
Others
|
|
|
Total
|
|
|
MR Tanker
|
|
|
Small Tanker
|
|
|
Others
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Vessel revenue
|
|
|
102,805
|
|
|
|
153,937
|
|
|
|
-
|
|
|
|
256,742
|
|
|
|
37,813
|
|
|
|
13,419
|
|
|
|
5,182
|
|
|
|
56,414
|
|
|
|
-
|
|
|
|
313,156
|
|
|
|
(4,645
|
)
|
|
|
308,511
|
|
Ship sale revenue
|
|
|
8,067
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,067
|
|
|
|
7,352
|
|
|
|
8,480
|
|
|
|
-
|
|
|
|
15,832
|
|
|
|
-
|
|
|
|
23,899
|
|
|
|
(7,353
|
)
|
|
|
16,546
|
|
Other
|
|
|
1,360
|
|
|
|
1,218
|
|
|
|
1,058
|
|
|
|
3,636
|
|
|
|
-
|
|
|
|
-
|
|
|
|
924
|
|
|
|
924
|
|
|
|
-
|
|
|
|
4,560
|
|
|
|
1,429
|
|
|
|
5,989
|
|
Total revenue
|
|
|
112,232
|
|
|
|
155,155
|
|
|
|
1,058
|
|
|
|
268,445
|
|
|
|
45,165
|
|
|
|
21,899
|
|
|
|
6,106
|
|
|
|
73,170
|
|
|
|
-
|
|
|
|
341,615
|
|
|
|
(10,569
|
)
|
|
|
331,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
(53,449
|
)
|
|
|
(74,286
|
)
|
|
|
(22
|
)
|
|
|
(127,757
|
)
|
|
|
(5,502
|
)
|
|
|
(2,497
|
)
|
|
|
-
|
|
|
|
(7,999
|
)
|
|
|
-
|
|
|
|
(135,756
|
)
|
|
|
(13,688
|
)
|
|
|
(149,444
|
)
|
Vessel operating costs
|
|
|
(23,632
|
)
|
|
|
(4,436
|
)
|
|
|
1,483
|
|
|
|
(26,585
|
)
|
|
|
(10,194
|
)
|
|
|
(5,743
|
)
|
|
|
864
|
|
|
|
(15,073
|
)
|
|
|
-
|
|
|
|
(41,658
|
)
|
|
|
7,769
|
|
|
|
(33,889
|
)
|
Charter hire costs
|
|
|
(15,162
|
)
|
|
|
(41,393
|
)
|
|
|
-
|
|
|
|
(56,555
|
)
|
|
|
(5,581
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,581
|
)
|
|
|
-
|
|
|
|
(62,136
|
)
|
|
|
468
|
|
|
|
(61,668
|
)
|
Depreciation of ships, drydocking and plant and equipment–
owned assets
|
|
|
(10,585
|
)
|
|
|
(3,596
|
)
|
|
|
-
|
|
|
|
(14,181
|
)
|
|
|
(5,305
|
)
|
|
|
(1,489
|
)
|
|
|
(2,269
|
)
|
|
|
(9,063
|
)
|
|
|
-
|
|
|
|
(23,244
|
)
|
|
|
5,715
|
|
|
|
(17,529
|
)
|
Depreciation of ships and ship equipment – right-of-use assets
|
|
|
(114
|
)
|
|
|
(24,945
|
)
|
|
|
-
|
|
|
|
(25,059
|
)
|
|
|
(5,420
|
)
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
(5,445
|
)
|
|
|
-
|
|
|
|
(30,504
|
)
|
|
|
55
|
|
|
|
(30,449
|
)
|
Cost of ship sale
|
|
|
(8,280
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,280
|
)
|
|
|
(7,757
|
)
|
|
|
(8,564
|
)
|
|
|
-
|
|
|
|
(16,321
|
)
|
|
|
-
|
|
|
|
(24,601
|
)
|
|
|
7,757
|
|
|
|
(16,844
|
)
|
Other
|
|
|
(232
|
)
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
(247
|
)
|
|
|
(139
|
)
|
|
|
(444
|
)
|
|
|
(2
|
)
|
|
|
(585
|
)
|
|
|
-
|
|
|
|
(832
|
)
|
|
|
135
|
|
|
|
(697
|
)
|
Costs of sales
|
|
|
(111,454
|
)
|
|
|
(148,671
|
)
|
|
|
1,461
|
|
|
|
(258,664
|
)
|
|
|
(39,898
|
)
|
|
|
(18,762
|
)
|
|
|
(1,407
|
)
|
|
|
(60,067
|
)
|
|
|
-
|
|
|
|
(318,731
|
)
|
|
|
8,211
|
|
|
|
(310,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
778
|
|
|
|
6,484
|
|
|
|
2,519
|
|
|
|
9,781
|
|
|
|
5,267
|
|
|
|
3,137
|
|
|
|
4,699
|
|
|
|
13,103
|
|
|
|
-
|
|
|
|
22,884
|
|
|
|
(2,358
|
)
|
|
|
20,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
|
(11,354
|
)
|
|
|
(4,910
|
)
|
|
|
94
|
|
|
|
(16,170
|
)
|
|
|
(7,459
|
)
|
|
|
(5,774
|
)
|
|
|
2,202
|
|
|
|
(11,031
|
)
|
|
|
(2,255
|
)
|
|
|
(29,456
|
)
|
|
|
(1,989
|
)
|
|
|
(31,445
|
)
|
Interest income
|
|
|
659
|
|
|
|
666
|
|
|
|
-
|
|
|
|
1,325
|
|
|
|
368
|
|
|
|
180
|
|
|
|
37
|
|
|
|
585
|
|
|
|
-
|
|
|
|
1,910
|
|
|
|
69
|
|
|
|
1,979
|
|
Interest expense
|
|
|
(4,850
|
)
|
|
|
(5,257
|
)
|
|
|
-
|
|
|
|
(10,107
|
)
|
|
|
(3,214
|
)
|
|
|
(893
|
)
|
|
|
(1,042
|
)
|
|
|
(5,149
|
)
|
|
|
-
|
|
|
|
(15,256
|
)
|
|
|
3,340
|
|
|
|
(11,916
|
)
|
Share of losses of joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,420
|
)
|
|
|
(1,420
|
)
|
Taxation
|
|
|
(95
|
)
|
|
|
(99
|
)
|
|
|
-
|
|
|
|
(194
|
)
|
|
|
(215
|
)
|
|
|
(296
|
)
|
|
|
20
|
|
|
|
(491
|
)
|
|
|
-
|
|
|
|
(685
|
)
|
|
|
-
|
|
|
|
(685
|
)
|
(Loss) profit for the year
|
|
|
(15,640
|
)
|
|
|
(9,600
|
)
|
|
|
94
|
|
|
|
(25,146
|
)
|
|
|
(10,520
|
)
|
|
|
(6,783
|
)
|
|
|
1,217
|
|
|
|
(16,086
|
)
|
|
|
(2,255
|
)
|
|
|
(43,487
|
)
|
|
|
-
|
|
|
|
(43,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on owned ships
|
|
|
2,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,905
|
|
|
|
8,124
|
|
|
|
5,966
|
|
|
|
-
|
|
|
|
14,090
|
|
|
|
-
|
|
|
|
16,995
|
|
|
|
-
|
|
|
|
16,995
|
|
Impairment loss on right-of-use assets
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
2,250
|
|
Impairment loss on goodwill and intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,589
|
|
|
|
1,590
|
|
|
|
-
|
|
|
|
3,179
|
|
|
|
-
|
|
|
|
3,179
|
|
|
|
-
|
|
|
|
3,179
|
|
Capital expenditure
|
|
|
3,065
|
|
|
|
50,008
|
|
|
|
31
|
|
|
|
53,104
|
|
|
|
54,000
|
|
|
|
605
|
|
|
|
57
|
|
|
|
54,662
|
|
|
|
-
|
|
|
|
107,766
|
|
|
|
(1,565
|
)
|
|
|
106,201
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
32
|
SEGMENT INFORMATION (cont’d)
|
2018
|
|
Drybulk
Carrier Business
|
|
|
Tanker
Business
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Handysize
|
|
|
Supramax
|
|
|
Others
|
|
|
Total
|
|
|
MR Tanker
|
|
|
Small Tanker
|
|
|
Others
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Vessel revenue
|
|
|
116,372
|
|
|
|
146,097
|
|
|
|
1,218
|
|
|
|
263,687
|
|
|
|
37,911
|
|
|
|
17,395
|
|
|
|
5,183
|
|
|
|
60,489
|
|
|
|
-
|
|
|
|
324,176
|
|
|
|
(20,321
|
)
|
|
|
303,855
|
|
Ship sale revenue
|
|
|
8,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,667
|
|
|
|
-
|
|
|
|
3,780
|
|
|
|
-
|
|
|
|
3,780
|
|
|
|
-
|
|
|
|
12,447
|
|
|
|
(3,780
|
)
|
|
|
8,667
|
|
Other
|
|
|
1,670
|
|
|
|
1,225
|
|
|
|
1,060
|
|
|
|
3,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,133
|
|
|
|
1,133
|
|
|
|
-
|
|
|
|
5,088
|
|
|
|
1,408
|
|
|
|
6,496
|
|
Total revenue
|
|
|
126,709
|
|
|
|
147,322
|
|
|
|
2,278
|
|
|
|
276,309
|
|
|
|
37,911
|
|
|
|
21,175
|
|
|
|
6,316
|
|
|
|
65,402
|
|
|
|
|
|
|
|
341,711
|
|
|
|
(22,693
|
)
|
|
|
319,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
(57,707
|
)
|
|
|
(71,087
|
)
|
|
|
41
|
|
|
|
(128,753
|
)
|
|
|
(7,966
|
)
|
|
|
(3,463
|
)
|
|
|
-
|
|
|
|
(11,429
|
)
|
|
|
-
|
|
|
|
(140,182
|
)
|
|
|
(11,523
|
)
|
|
|
(151,705
|
)
|
Vessel operating costs
|
|
|
(26,514
|
)
|
|
|
(3,405
|
)
|
|
|
1,670
|
|
|
|
(28,249
|
)
|
|
|
(11,313
|
)
|
|
|
(8,960
|
)
|
|
|
1,036
|
|
|
|
(19,237
|
)
|
|
|
-
|
|
|
|
(47,486
|
)
|
|
|
14,829
|
|
|
|
(32,657
|
)
|
Charter hire costs
|
|
|
(16,091
|
)
|
|
|
(69,428
|
)
|
|
|
(1,468
|
)
|
|
|
(86,987
|
)
|
|
|
(16,090
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,090
|
)
|
|
|
-
|
|
|
|
(103,077
|
)
|
|
|
2,429
|
|
|
|
(100,648
|
)
|
Depreciation of ships, drydocking and plant and equipment–
owned assets
|
|
|
(9,016
|
)
|
|
|
(2,716
|
)
|
|
|
-
|
|
|
|
(11,732
|
)
|
|
|
(3,157
|
)
|
|
|
(1,738
|
)
|
|
|
(2,268
|
)
|
|
|
(7,163
|
)
|
|
|
-
|
|
|
|
(18,895
|
)
|
|
|
4,801
|
|
|
|
(14,094
|
)
|
Cost of ship sale
|
|
|
(7,676
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,676
|
)
|
|
|
-
|
|
|
|
(3,784
|
)
|
|
|
-
|
|
|
|
(3,784
|
)
|
|
|
-
|
|
|
|
(11,460
|
)
|
|
|
3,785
|
|
|
|
(7,675
|
)
|
Other
|
|
|
(550
|
)
|
|
|
24
|
|
|
|
859
|
|
|
|
333
|
|
|
|
(1,269
|
)
|
|
|
(697
|
)
|
|
|
(2
|
)
|
|
|
(1,968
|
)
|
|
|
-
|
|
|
|
(1,635
|
)
|
|
|
489
|
|
|
|
(1,146
|
)
|
Costs of sales
|
|
|
(117,554
|
)
|
|
|
(146,612
|
)
|
|
|
1,102
|
|
|
|
(263,064
|
)
|
|
|
(39,795
|
)
|
|
|
(18,642
|
)
|
|
|
(1,234
|
)
|
|
|
(59,671
|
)
|
|
|
|
|
|
|
(322,735
|
)
|
|
|
14,810
|
|
|
|
(307,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
9,155
|
|
|
|
710
|
|
|
|
3,380
|
|
|
|
13,245
|
|
|
|
(1,884
|
)
|
|
|
2,533
|
|
|
|
5,082
|
|
|
|
5,731
|
|
|
|
|
|
|
|
18,976
|
|
|
|
(7,883
|
)
|
|
|
11,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
|
1,758
|
|
|
|
(5,993
|
)
|
|
|
271
|
|
|
|
(3,964
|
)
|
|
|
(7,368
|
)
|
|
|
(922
|
)
|
|
|
8,075
|
|
|
|
(215
|
)
|
|
|
(6,195
|
)
|
|
|
(10,374
|
)
|
|
|
(4,110
|
)
|
|
|
(14,484
|
)
|
Interest income
|
|
|
1,196
|
|
|
|
1,190
|
|
|
|
2
|
|
|
|
2,388
|
|
|
|
536
|
|
|
|
258
|
|
|
|
42
|
|
|
|
836
|
|
|
|
-
|
|
|
|
3,224
|
|
|
|
563
|
|
|
|
3,787
|
|
Interest expense
|
|
|
(4,985
|
)
|
|
|
(1,764
|
)
|
|
|
-
|
|
|
|
(6,749
|
)
|
|
|
(3,249
|
)
|
|
|
(921
|
)
|
|
|
(1,104
|
)
|
|
|
(5,274
|
)
|
|
|
-
|
|
|
|
(12,023
|
)
|
|
|
5,506
|
|
|
|
(6,517
|
)
|
Share of losses of joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(454
|
)
|
|
|
(454
|
)
|
Impairment loss recognised on financial assets
|
|
|
(16
|
)
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(24
|
)
|
|
|
(37
|
)
|
|
|
(21
|
)
|
|
|
(3
|
)
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
(85
|
)
|
|
|
(1,498
|
)
|
|
|
(1,583
|
)
|
Taxation
|
|
|
113
|
|
|
|
(131
|
)
|
|
|
(1
|
)
|
|
|
(19
|
)
|
|
|
158
|
|
|
|
262
|
|
|
|
(1,785
|
)
|
|
|
(1,365
|
)
|
|
|
-
|
|
|
|
(1,384
|
)
|
|
|
(5
|
)
|
|
|
(1,389
|
)
|
(Loss) profit for the year
|
|
|
(1,934
|
)
|
|
|
(6,706
|
)
|
|
|
272
|
|
|
|
(8,368
|
)
|
|
|
(9,960
|
)
|
|
|
(1,344
|
)
|
|
|
5,225
|
|
|
|
(6,079
|
)
|
|
|
(6,195
|
)
|
|
|
(20,642
|
)
|
|
|
2
|
|
|
|
(20,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on ships
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,262
|
|
|
|
1,600
|
|
|
|
-
|
|
|
|
2,862
|
|
|
|
-
|
|
|
|
2,862
|
|
|
|
(2,862
|
)
|
|
|
-
|
|
Capital expenditure
|
|
|
26,690
|
|
|
|
6,629
|
|
|
|
307
|
|
|
|
33,626
|
|
|
|
-
|
|
|
|
815
|
|
|
|
54
|
|
|
|
869
|
|
|
|
-
|
|
|
|
34,495
|
|
|
|
(1,776
|
)
|
|
|
32,719
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
33
|
OTHER OPERATING (EXPENSE) INCOME
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on ships (Note 14)
|
|
|
(16,282
|
)
|
|
|
(16,995
|
)
|
|
|
-
|
|
Impairment loss on right-of-use ships (Note 15)
|
|
|
-
|
|
|
|
(2,250
|
)
|
|
|
-
|
|
Impairment loss on goodwill and intangibles
|
|
|
-
|
|
|
|
(3,179
|
)
|
|
|
-
|
|
Impairment loss on disposal group held for sale
|
|
|
(576
|
)
|
|
|
-
|
|
|
|
-
|
|
Impairment loss on office equipment, furniture and fittings and motor vehicles
|
|
|
(138
|
)
|
|
|
-
|
|
|
|
-
|
|
Foreign exchange gain (loss)
|
|
|
5,205
|
|
|
|
(330
|
)
|
|
|
4,261
|
|
Gain on deemed disposal of previously held joint venture interest
|
|
|
-
|
|
|
|
-
|
|
|
|
213
|
|
Gain on disposal of business
|
|
|
-
|
|
|
|
-
|
|
|
|
3,255
|
|
Other operating income (expense)
|
|
|
57
|
|
|
|
(805
|
)
|
|
|
(1,707
|
)
|
|
|
|
(11,734
|
)
|
|
|
(23,559
|
)
|
|
|
6,022
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans to joint ventures (Note 5)
|
|
|
157
|
|
|
|
983
|
|
|
|
2,573
|
|
Bank interests
|
|
|
408
|
|
|
|
996
|
|
|
|
1,214
|
|
|
|
|
565
|
|
|
|
1,979
|
|
|
|
3,787
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
Interest on bank loans
|
|
|
8,831
|
|
|
|
7,832
|
|
|
|
6,139
|
|
Interest on non-bank loan
|
|
|
2,797
|
|
|
|
-
|
|
|
|
-
|
|
Amortisation of upfront fees on bank loans
|
|
|
1,909
|
|
|
|
448
|
|
|
|
220
|
|
Guarantee fees to related parties (Note 5)
|
|
|
-
|
|
|
|
-
|
|
|
|
54
|
|
Other finance cost
|
|
|
884
|
|
|
|
194
|
|
|
|
104
|
|
Interest on lease liabilities
|
|
|
2,517
|
|
|
|
3,442
|
|
|
|
-
|
|
|
|
|
16,938
|
|
|
|
11,916
|
|
|
|
6,517
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
Loss before taxation
has been arrived at after charging (crediting):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of ships, drydocking and plant and equipment (Note 14)
|
|
|
23,849
|
|
|
|
17,529
|
|
|
|
14,094
|
|
Depreciation of other property, plant and equipment *
|
|
|
122
|
|
|
|
155
|
|
|
|
179
|
|
Amortisation of intangible assets *
|
|
|
146
|
|
|
|
29
|
|
|
|
18
|
|
Total depreciation and amortisation – owned assets
|
|
|
24,117
|
|
|
|
17,713
|
|
|
|
14,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of ships and ship equipment – right-of-use assets
|
|
|
26,413
|
|
|
|
30,449
|
|
|
|
-
|
|
Depreciation of property – right-of-use assets *
|
|
|
1,019
|
|
|
|
601
|
|
|
|
-
|
|
Total depreciation and amortisation – right-of-use assets
|
|
|
27,432
|
|
|
|
31,050
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortisation
|
|
|
51,549
|
|
|
|
48,763
|
|
|
|
14,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss net of reversals recognised on financial assets
|
|
|
1,823
|
|
|
|
-
|
|
|
|
1,583
|
|
Net gain on disposal of businesses
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,255
|
)
|
Gain on deemed disposal of previously held joint venture interest
|
|
|
-
|
|
|
|
-
|
|
|
|
(213
|
)
|
Cost of inventories recognised as expense (included in voyage expenses)
|
|
|
48,797
|
|
|
|
51,327
|
|
|
|
43,119
|
|
Expense recognised in respect of equity-settled share-based payments
|
|
|
1,847
|
|
|
|
3,156
|
|
|
|
2,297
|
|
Employee benefits expenses (including directors’ remuneration and share based payments)
|
|
|
16,775
|
|
|
|
19,336
|
|
|
|
20,283
|
|
Cost of defined benefit plan and defined contribution plans included
in employee benefits expenses
|
|
|
1,123
|
|
|
|
1,245
|
|
|
|
1,381
|
|
|
*
|
Included in administrative expense
|
In December 2004,
Grindrod Shipping Pte. Ltd. was granted incentives under the Approved International Shipping Enterprise Incentive (“AIS”)
Scheme, with effect from 10 June 2004. The incentives to the company were extended in October 2014, with effect from 10 June 2014.
As such, the shipping profits of Grindrod Shipping Pte. Ltd. are exempted from income tax under Section 13F of the Singapore Income
Tax Act. The shipping profits of the subsidiaries incorporated in Singapore are exempted from income tax under Section
13A of the Singapore Income Tax Act.
The tax rate used for the 2020, 2019
and 2018 reconciliations below is the corporate tax rate of 17% payable by corporate entities in Singapore on taxable profits under
tax law in that jurisdiction. The corporate taxation rates payable by the South African entities in terms of the tax law in South
Africa is 28% (2019 and 2018: 28%).
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Current tax
|
|
|
|
|
|
|
|
|
|
|
|
|
In respect of the current year
|
|
|
312
|
|
|
|
569
|
|
|
|
467
|
|
Capital gains taxation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,797
|
|
Withholdings tax
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
In respect of prior years
|
|
|
328
|
|
|
|
8
|
|
|
|
(364
|
)
|
|
|
|
633
|
|
|
|
577
|
|
|
|
1,900
|
|
Deferred tax
|
|
|
|
|
|
|
|
|
|
|
|
|
In respect of the current year
|
|
|
90
|
|
|
|
108
|
|
|
|
(505
|
)
|
In respect of prior years
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
|
90
|
|
|
|
108
|
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
723
|
|
|
|
685
|
|
|
|
1,389
|
|
The total charge
for the year can be reconciled to the accounting loss as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax
|
|
|
(40,377
|
)
|
|
|
(42,802
|
)
|
|
|
(19,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit calculated at corporate rate
|
|
|
(6,864
|
)
|
|
|
(7,264
|
)
|
|
|
(3,273
|
)
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of income that is exempted from tax
|
|
|
(5,633
|
)
|
|
|
-
|
|
|
|
1,619
|
|
Effect of expenses that are not deductible in
determining taxable profit
|
|
|
12,938
|
|
|
|
13,469
|
|
|
|
2,057
|
|
Effect of different tax rates of subsidiaries
operating in other jurisdictions
|
|
|
(17
|
)
|
|
|
(1,118
|
)
|
|
|
(107
|
)
|
Effect of income not taxable in determining taxable
profit
|
|
|
-
|
|
|
|
(4,409
|
)
|
|
|
-
|
|
Effect of tax losses disallowed to be brought
forward
|
|
|
4
|
|
|
|
-
|
|
|
|
1,494
|
|
Under (over) provision of tax in prior year
|
|
|
302
|
|
|
|
7
|
|
|
|
(128
|
)
|
Withholding tax
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
Effect of different tax
rate applied for capital gains
|
|
|
-
|
|
|
|
-
|
|
|
|
(273
|
)
|
|
|
|
723
|
|
|
|
685
|
|
|
|
1,389
|
|
|
38
|
CONTINGENT LIABILITIES
|
|
(a)
|
Guarantee from the Group for a joint venture loan from a financial institution:
|
Tri-View Shipping
Pte. Ltd. (“TVS”), entered into a facility agreement with TVS’ related party, Mitsui & Co. Financial Services
(Asia) Ltd (“Lender”) on 15 August 2019 for a credit facility of $2,069,000.
Mitsui & Co.,
Ltd (“Mitsui”), the joint venture partner holding 49% of the shares in TVS, provided a guarantee to the Lender for
100% of the loan amount (“Mitsui’s Guarantee”). In consideration of Mitsui providing Mitsui’s Guarantee,
a guarantee facility agreement between Mitsui and the Group was signed on 15 August 2019. The Group shall provide a guarantee fee
to Mitsui for 51% of any amounts to be paid by Mitsui under the Mitsui Guarantee. The guarantee was released on the repayment of
the loan on 13 November 2020.
At 31 December
2019, the outstanding amount relating to the above loan facility was $1,841,000. The loan was repaid in 2020.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
38
|
CONTINGENT LIABILITIES (cont’d)
|
|
(b)
|
Financial support from the Group to its joint ventures:
|
At 31 December 2019, the Group has
provided financial support of $20,804,000 to joint ventures to enable the companies to meet their obligations as and when they
fall due for at least 12 months from the date of signing of their respective financial statements for the financial year ended
31 December 2019. The Group does not provide any financial support as at 31 December 2020.
|
39
|
LEASES AND SHIP CHARTERS
|
Operating leases, in which the Group
is the lessor, relate to a ship owned by the Group chartered out under bareboat charter party agreement with a lease term of 4
years, with 2 years extension option. The lease does not have an option to purchase the ship at the expiry of the lease period.
Maturity analysis of operating lease
payments:
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Year 1
|
|
|
5,256
|
|
|
|
5,241
|
|
Year 2
|
|
|
2,081
|
|
|
|
5,256
|
|
Year 3
|
|
|
-
|
|
|
|
2,081
|
|
Total
|
|
|
7,337
|
|
|
|
12,578
|
|
At 31 December
2020, the group is committed to $3,927,000 (2019: $9,623,000) for short-term leases of ships and $16,000 (2019: $193,000) for
office and residential property respectively.
|
40
|
ASSETS CLASSIFIED AS HELD FOR SALE
|
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Investment in joint ventures (i) (ii)
|
|
|
63
|
|
|
|
83
|
|
Assets of disposal group (iii)
|
|
|
3,762
|
|
|
|
4,594
|
|
|
|
|
3,825
|
|
|
|
4,677
|
|
Liabilities of disposal group (iii)
|
|
|
(508
|
)
|
|
|
(538
|
)
|
|
|
|
3,317
|
|
|
|
4,139
|
|
|
(i)
|
In 2018, the Group agreed to sell the vessel in Petrochemical Shipping Limited, a joint venture
of the Group, and to wind up the joint venture arrangement. The joint venture arrangement was dissolved on 19 March 2021. The proceeds
from the dissolution is exceeded the carrying amount of $63,000 (2019: $83,000) and, accordingly no impairment loss has been recognised
on the classification to assets classified as held for sale.
|
|
(ii)
|
In 2018, the Group agreed to wind up Leopard Tankers Pte. Ltd., a joint venture of the Group, in
such a manner that the Group purchased two vessels, the Leopard Sun and Leopard Moon in January 2019 and February 2019 respectively.
At 31 December 2020, the carrying amount of the investment is $Nil (2018:$ Nil) and hence no further impairment loss was recognised
on the classification to assets classified as held for sale.
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
40
|
ASSETS CLASSIFIED AS HELD FOR SALE (cont’d)
|
|
(iii)
|
In 2019, the Group
agreed to dispose of one of GSSA’s businesses (Unicorn Tanker division) to a third
party and in 2020, the Group agreed to dispose of a second GSSA business (Training school)
to a third party.
|
Management assessed the fair
value less cost to sell the assets and liabilities of the first disposal group on the date that they were classified as held for
sale and recorded an impairment loss of $3,179,000 in 2019. The assets of the disposal group was further impaired by $576,000
in 2020. The conclusion of the sale process has been hampered by the global pandemic however the transaction is expected to be
completed during 2021.
Management assessed the fair
value less cost to sell the assets and liabilities of the second disposal group on the date that they were classified as held
for sale and recorded an impairment loss on office equipment, furniture and fittings and motor vehicles of $138,000 in 2020. The
transaction is expected to be completed during 2021.
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Net assets of disposal group held for sale as at 1 January
|
|
|
4,056
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Business classified as held for sale during the year
|
|
|
99
|
|
|
|
4,056
|
|
Movements during the year on assets held for sale
|
|
|
(76
|
)
|
|
|
-
|
|
Impairment of disposal group held for sale
|
|
|
(576
|
)
|
|
|
-
|
|
Effect of foreign currency exchange differences
|
|
|
(249
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net assets of disposal group held for sale as at 31 December
|
|
|
3,254
|
|
|
|
4,056
|
|
The classes of assets and liabilities
comprising the disposal groups classified as held for sale are as follows:
|
|
2020
|
|
|
2019
|
|
|
|
Training
School
|
|
|
Unicorn Tanker
division
|
|
|
Total
|
|
|
Total
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and bank balances
|
|
|
-
|
|
|
|
60
|
|
|
|
60
|
|
|
|
141
|
|
Trade receivables
|
|
|
69
|
|
|
|
336
|
|
|
|
405
|
|
|
|
704
|
|
Other receivables and prepayments
|
|
|
7
|
|
|
|
188
|
|
|
|
195
|
|
|
|
92
|
|
Contract assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Inventories
|
|
|
-
|
|
|
|
125
|
|
|
|
125
|
|
|
|
255
|
|
Ships, property, plant and equipment
|
|
|
70
|
|
|
|
2
|
|
|
|
72
|
|
|
|
2
|
|
Goodwill
|
|
|
-
|
|
|
|
2,554
|
|
|
|
2,554
|
|
|
|
3,349
|
|
Right-of-use assets
|
|
|
317
|
|
|
|
34
|
|
|
|
351
|
|
|
|
35
|
|
Assets classified as held for sale
|
|
|
463
|
|
|
|
3,299
|
|
|
|
3,762
|
|
|
|
4,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
17
|
|
|
|
145
|
|
|
|
162
|
|
|
|
498
|
|
Contract liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Lease liabilities
|
|
|
346
|
|
|
|
-
|
|
|
|
346
|
|
|
|
38
|
|
Liabilities directly associated with assets classified as held for sale
|
|
|
363
|
|
|
|
145
|
|
|
|
508
|
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets of disposal group
|
|
|
99
|
|
|
|
3,155
|
|
|
|
3,254
|
|
|
|
4,056
|
|
In 2020, assets and liabilities
of the Training school (2019: Unicorn Tanker division) has been recorded within the respective notes as ‘assets/liabilities
of a disposal group classified as held for sale’.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
41
|
ACQUISITION OF ASSETS AND DISPOSAL OF BUSINESSES
|
41.1
IVS Bulk Pte. Ltd.
On
14 February 2020, the Group acquired additional equity interest in IVS Bulk Pte. Ltd. from its joint venture partner which increased
its ownership interest from 33.5% to 66.75%. The Group elected to apply the optional concentration test in accordance with IFRS
3 Business Combinations and concluded that the ships are considered as a group of identifiable assets. Consequently, the
Group determined that substantially all of the fair value of the gross assets (excluding cash and cash equivalents) acquired is
concentrated in the ships and concluded that the acquired set of activities and assets is not a business.
The
fair value and book value of the net assets acquired amounted to $134,818,000 and $147,683,000 respectively. The difference between
fair value and book value is allocated on a pro rata basis of relative fair values to reduce certain of the assets acquired (i.e.
ships). The ships acquired and cash and cash equivalents assumed as part of the transaction amounted to $243,596,000 and $15,774,000
respectively.
In
connection with the acquisition of the additional 33.25%, the company entered into a new shareholders’ agreement with Sankaty,
the remaining partner, which grants the company control of key aspects of the corporate governance of the joint venture. As such,
the Group consolidates the financial statements of IVS Bulk Pte. Ltd. with effect from the date of acquisition, resulting in the
decrease in the amount due from joint ventures and amount due to related parties.
Assets and liabilities recognised at the date of acquisition
|
|
2020
|
|
|
|
US$’000
|
|
|
|
|
|
Cash and bank balances including restricted cash
|
|
|
15,774
|
|
Other receivables and prepayments
|
|
|
694
|
|
Due from related parties
|
|
|
2,512
|
|
Inventories
|
|
|
485
|
|
Ships, property, plant and equipment (Note 14)
|
|
|
243,883
|
|
Right-of-use assets (Note 15)
|
|
|
87
|
|
Bank loans (Note 26)
|
|
|
(125,517
|
)
|
Other payables
|
|
|
(2,690
|
)
|
Due to related parties
|
|
|
(33
|
)
|
Lease liabilities (Note 25)
|
|
|
(90
|
)
|
Fair value of net identifiable assets acquired
|
|
|
135,105
|
|
Net cash outflows arising on acquisition of IVS Bulk
Pte. Ltd.
|
|
2020
|
|
|
|
US$’000
|
|
|
|
|
|
Total purchase consideration
|
|
|
(44,087
|
)
|
Less: cash and bank balances including restricted cash
|
|
|
15,774
|
|
Payment for acquisition of subsidiary, net of cash acquired
|
|
|
(28,313
|
)
|
Non-controlling
interest of 33.25% in IVS Bulk recognised at the acquisition date was measured based on the fair value of purchase consideration
of IVS Bulk and amounts to $44.1 million.
On 1 December 2020, additional
funding from GSPL to IVS Bulk Pte. Ltd. of $4,000,000 was converted to share capital in terms of the shareholders agreement. The
conversion increased the shareholding of GSPL from 66.75% to 68.86%. This has been accounted as an equity transaction between
the shareholders.
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
41
|
ACQUISITION OF ASSETS AND DISPOSAL OF BUSINESSES (cont’d)
|
41.2 Island Bulk Carriers Pte. Ltd.
During the year ended 31 December
2020, the Group acquired additional equity interest in Island Bulk Carriers Pte. Ltd. (“IBC”) from its joint venture
partner which increased its ownership interest from 65% to 100% and subsequently recognised IBC as a subsidiary of the Group (Note
16) resulting in consolidation of IBC as at 31 December 2020. Prior to this, the Group had recognised IBC as a joint venture (Note
17) and it was accounted under the equity method. IBC is a vessel operating entity with a process and workforce. The transaction
was determined by management to be in substance a business combination as defined in IFRS 3 Business Combinations not an
asset acquisition. The deemed disposal of its previously held joint venture interest had no impact on the profit or loss or the
Group and no cash and cash equivalents were assumed as part of the transaction.
41.3
Disposal of businesses
In
connection with the Spin-Off (Note 1), the Group sold two of its businesses to then related companies within Grindrod Limited.
The two businesses are namely, Ocean Africa Container Lines division (“OACL”), a division of GSSA and Unicorn Bunker
Services (Pty) Ltd (“Unicorn Bunker”), a subsidiary of GSSA. The sale and purchase agreements were signed on 1 January
2018 and the consideration of the sales was $20,985,000 (South African Rands 260 million) for OACL and $15,496,000 (South African
Rands 192 million) for UBS, respectively.
Details of the sale of businesses
as follows:
|
|
2018
|
|
|
|
US$’000
|
|
|
|
|
|
Total sales consideration
|
|
|
36,481
|
|
Carrying amount of net assets sold
|
|
|
(34,289
|
)
|
Reclassification of translation reserve to profit or loss
|
|
|
1,063
|
|
Gain on sale before income tax
|
|
|
3,255
|
|
|
|
|
|
|
Net cash inflow arising on disposal
|
|
|
|
|
Total sales consideration
|
|
|
36,481
|
|
Less: Net settlement of amount due to related parties
|
|
|
(3,229
|
)
|
Cash consideration received
|
|
|
33,252
|
|
Cash and cash equivalents disposed of
|
|
|
(7,934
|
)
|
|
|
|
25,318
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
Loss for the purpose of basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the shareholders of the Group
|
|
|
(38,795
|
)
|
|
|
(43,487
|
)
|
|
|
(20,640
|
)
|
Effect of dilutive potential on ordinary share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Earnings for the purposes of diluted earnings per share
|
|
|
(38,795
|
)
|
|
|
(43,487
|
)
|
|
|
(20,640
|
)
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
|
42
|
EARNINGS PER SHARE (cont’d)
|
Number of shares for the purpose of calculating basic and diluted
earnings per share
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Issued ordinary shares as at 1 January
|
|
|
19,063,833
|
|
|
|
19,063,833
|
|
|
|
19,063,833
|
|
Effect of treasury shares held
|
|
|
(97,419
|
)
|
|
|
(41,168
|
)
|
|
|
-
|
|
Weighted average number of ordinary shares as at 31 December
|
|
|
18,966,414
|
|
|
|
19,022,665
|
|
|
|
19,063,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Basic and diluted loss per share
|
|
|
(2.05
|
)
|
|
|
(2.29
|
)
|
|
|
(1.08
|
)
|
The
shares granted under 2018 FSP in 2018 (Note 30) are not included in the calculation of diluted loss per share because they are
antidilutive for the year ended 31 December 2020, 31 December 2019 and 31 December 2018. These shares granted under the 2018 FSP
could potentially dilute basic earnings per share in the future.
*
Amount is less than US$0.01
|
43
|
NON-CONTROLLING INTEREST
|
Summarised
financial information in respect of the Group’s subsidiary that has material non-controlling interests is set out below.
The summarised financial information below represents amounts before intragroup eliminations.
|
|
2020
|
|
|
|
US$’000
|
|
IVS Bulk Pte. Ltd.
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
11,000
|
|
Non-current assets
|
|
|
252,447
|
|
Current liabilities
|
|
|
(15,428
|
)
|
Non-current liabilities
|
|
|
(104,264
|
)
|
|
|
|
|
|
Equity attributable to owners of the Company
|
|
|
98,990
|
|
Non-controlling interests
|
|
|
44,765
|
|
|
|
|
143,755
|
|
|
|
|
|
|
Revenue
|
|
|
27,620
|
|
Cost of sales
|
|
|
(30,050
|
)
|
Gross loss
|
|
|
(2,430
|
)
|
Administration expenses
|
|
|
(968
|
)
|
Interest received
|
|
|
28
|
|
Interest paid
|
|
|
(4,568
|
)
|
Tax expense
|
|
|
(11
|
)
|
Loss for the year, representing total comprehensive loss for the year
|
|
|
(7,949
|
)
|
|
|
|
|
|
Loss attributable to the owners of the Company, representing total comprehensive loss for
the year
|
|
|
(5,312
|
)
|
Loss attributable to the non-controlling interests, representing total
comprehensive loss for the year
|
|
|
(2,637
|
)
|
Loss for the year, representing total comprehensive loss for the year
|
|
|
(7,949
|
)
|
|
|
|
|
|
Net cash inflow from operating activities
|
|
|
424
|
|
Net cash outflow from financing activities
|
|
|
(6,830
|
)
|
|
|
|
(6,406
|
)
|
|
|
|
|
|
Non-controlling interest arising on the acquisition of IVS Bulk Pte. Ltd. (Note 41.1)
|
|
|
44,087
|
|
Share of loss for the year
|
|
|
(2,637
|
)
|
Adjustments
|
|
|
332
|
|
Balance at 31 December 2020
|
|
|
41,782
|
|
GRINDROD SHIPPING HOLDINGS LTD.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
The Group has
entered into drydock and ballast water treatment contracts for some of its ships during the year. In terms of the agreements, the
Group has committed to payments for these ships. The following has been authorised:
|
|
2020
|
|
|
2019
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
|
1,057
|
|
|
|
2,510
|
|
The
expenditure will be financed out of cash resources from operations and bank loans.
The historical consolidated and combined
financial information presented has been prepared on the assumption that the Group as a whole will continue to operate as going
concerns. The Board of Directors has no reason to believe that the Group will not continue to operate as a going concern as disclosed
in Note 4 to the financial statements.
|
46
|
EVENTS AFTER THE REPORTING PERIOD
|
|
a)
|
On 1 March 2021 the ordinary
shares of the Company increased from 19,063,833 to 19,310,024. The shares were issued
to certain employees to partially settle the 2018 FSP awards due to vest on 1 March 2021
(the balance of the 2018 FSP awards were settled with the remaining 56,975 treasury shares).
|
|
b)
|
On 11 March 2021, the ships Leopard Moon and Leopard Sun were contracted for sale for $21,400,000
each. The vessels are expected to be delivered to the new owners in April 2021.
|
|
c)
|
On 11 March 2021, the ship Breede was contracted for sale for $6,800,000. The vessel is expected
to be delivered to the new owners in April 2021.
|
|
d)
|
Petrochemical
Shipping Limited, a dormant joint venture company incorporated in the Isle of Man, was
dissolved on 19 March 2021.
|