Vision an asset in rough waters

M.L. CHANDCHUTHA CHANDRARAT

By NAREERAT WIRIYAPONG

Thoresen Thai Agencies (TTA), the country’s largest dry bulk shipper, ignored several investment opportunities in the past two years when the shipping business was booming, in the belief that adownturnwouldcomesooner or later.

It couldn’t have been more right. Shippin rates have plunged by more than 90%from a peak of 11,793 in May to a six-year low in the wake of the global credit crunch.

The widespread financial woes have affected theeconomyof the United States, where they originated, as well as those in Europe and Asian powerhouses such as Japan and South Korea.

‘‘It is somethingwehave never seen before. The financial system is not functioning, causing people to lose confidence and discouraging them from doing business,’’ said M.L. Chandchutha Chandrarat, the TTA managing director.

‘‘The BDI (Baltic Dry Index) has fallen so quickly and sharply because cargo capacities cannotbesold whilenewsupply of vessels hasbeendelivered to the market.

This has double impacts on the shipping industry.’’

The USeconomy is forecast to contract by1%next year or even worse and it will absolutely take more than a year to fix all the problems, said the 42-year-old Berkeley MBAgraduate.

In thecoming year, the worldeconomy is projected to grow by only2%and that would result in a 2-3%increase in shipping demand.Onthe other hand, the global fleet is expected to expand by 10%as newvessels are delivered.

But compared to 1997 Asian financial crisis, M.L. Chandchutha believes that the current financial meltdown will have less impactonthe shipping industry since mostAsian economieshave still performed relatively well.

Nevertheless, TTA has outlined measures to weather the economic storms on the expectation that the shipping business would remain under the constraints of oversupply until 2011.

TTA believes that the BDI, the most closely watched shipping cost of commodities, will bounce back to realistic levels of about 3,000 to 5,000 in the next three years.

‘‘If the situation gets worse and there is no demand,wemight have to retire some of our ships,’’ he said, adding that 10 of TTA’s existing fleet of 44 vessels would reach the decommissioning age of 25 years old over the next two years.

Thecompanywouldalso stop the maintenance of old ships to cut expenditures. The maintenance cost of TTA’s existing fleet is $65 million per year, he added.

TTA’s liabilitiesnowtotal $200 million, mostly for the purchases of five ships to be delivered at a price of $35 million each. The purchases are60% funded by bank loans, said M.L. Chandchutha.

‘‘Thanks to our conservative management style over the past few years, our debt level is low, mainly long-term loans.

Wefeel quite comfortable with the current situation,’’ he noted.

Thanks to its vision, TTA did not invest much in the past two years even as numerous deals were offered.

‘‘Whenbusiness peaks, everyoneseems to rush by emotion to invest. But TTA and I said no to many projects offered to us sincewewere aware of the downturn coming,’’ he said.

‘‘Nowweare flexible with potential investments. While others are having (financial) problems, this is a good time to bargain and get cheap prices for good assets.’’

M.L. Chandchutha isnowdirector of 49 shipping companies of the Thoresen group. His prior work experiences include managementpositions at MorganStanley in Singapore and Bank of America in Hong Kong and California.

‘‘For othercompanies that overinvested in the past years andnowhave a lot of debts, I’d tell them to focus on cost reduction and restructuring the debts,’’ he said.

‘‘While others are stuck in unfavourable conditions, TTA never stops expanding the business. I think the opportunity is right to make the investment.’’

While the prospect of the shipping sector does not look so promising, M.L. ChandchuthasaidTTAwaslooking abroad to expand into energy-related businesses in Southeast Asia. The SET-listed shipper has been involved in a couple of deals to buy into energy infrastructure projects in the region.

‘‘Next year is going to be tough for the shipping business to make a profit but in other aspects,wedon’t have any problem. The situation should be manageable,’’ he said.

Dry bulk shipping accounts for 75%of TTA’s total revenue of 35.38 billion baht in fiscal 2008 ending Sept 30, the highest ever since its inception. Net profit was also at a record high 8.77 billion baht.

The offshore service operation operated by Mermaid Maritime Public Co(MMPLC) contributed about 20%to the group’s revenue last year.MMPLCposted a net profit of one billion baht on revenue of 5.28 billion baht.

Subsea engineering vessels, whichcontinue to be in short supply throughout the region, are expected to contribute to thecompany’s future business. Thedrilling segment of the oil-and-gas industry also shows a bright outlook.

‘‘Whenthe economy slows down,we have to take a long-term perspective,’’ said M.L. Chandchutha.

‘‘WhatI learned duringmyMBAstudies and have applied tomywork over the past 20 years could be used to manage the current crisis.’’