Cash Flow and Cash

The Group’s four main sources of funds are operating cash flows, bank loans, convertible bonds and equity. The major factors influencing future cash balances are operating cash flows, purchases of dry bulk vessels, sale of assets, and drawdown and repayment of borrowings.

As part of the ordinary activities of the Group, the Treasury function actively manages the cash and borrowings of the Group to ensure sufficient funds are available to meet the Group’s commitments and an appropriate level of liquidity is maintained during different stages of the shipping cycle.

Over the long term, the Group aims to maintain a consolidated net gearing of no greater than 50% – defined as the ratio of net borrowings to net book value of property, plant and equipment – which we believe is appropriate over all stages of the shipping cycle.

Sources and Uses of Group Cash Flow in 2015

The Group’s four main sources of funds are operating cash flows, bank loans, convertible bonds and equity. The major factors

Current Position and Outlook

During year 2015:

  • Borrowings decreased by US$59 million, after:

    • Our net repayment of US$79 million of bank borrowings and finance lease liabilities.
    • We put in place US$134 million of new bank borrowing facilities secured by our unmortgaged dry bulk vessels. Such new bank borrowings included the refinancing of US$89 million of bank loans due in the first half of 2015.
    • We issued US$125 million, 3.25% p.a. coupon,guaranteed convertible bonds maturing in July 2021.
    • We bought back and cancelled 2016 convertible bonds with a face value of US$104 million in aggregate at a discount to face value saving US$2.3 million of principal repayments and related coupon payments in the period before maturity.
  • We received Towage sale proceeds of US$80 million.
  • We received sale proceeds of US$60 million for the last two RoRo vessels

As at 31 December 2015:

  • The Group’s cash and deposits were US$358 million reflecting a 35% net gearing ratio.
  • Our undrawn committed bank borrowing facilities were US$375 million, including US$311 million of Japanese export credit facilities for our newbuilding commitments of US$274 million payable in 2016 to 2017.
  • Our unmortgaged vessels comprised towage assets with a net book value of US$33 million and two dry bulk vessels.
  • Cash and deposits, undrawn committed bank borrowing facilities and operating cash flows will enable us to fund the following payment obligations:

    • US$74 million of our bank borrowings due in 2016.
    • The 2016 convertible bond principal repayment of US$106 million due in April 2016.
    • The 2018 convertible bond principal repayment of US$124 million in October 2016 if all bondholders exercise their rights to redeem the bonds at 100% of the principal amount.

Cash and Deposits

The split of current and long-term cash, deposits and borrowings is analysed as follows:

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US$ Million20152014Change
Cash and deposits358.3361.7
Restricted bank deposits
- non-current
- current
0.1
-
0.1
1.6
Total cash and deposits 358.4363.4-1%
    
Current portion of long-term borrowings(292 7)(179.1)
Long-term borrowings   (820.6)
Total borrowings (926.0)(999.7)+7%
    
Net borrowings(567.6)(636.3)+11%
    
Net borrowings to net book value of
   property, plant and equipment  
35%40%
Net borrowings to shareholders' equity59%64%
Net working capital40.8294.7-86%

Treasury is permitted to invest in a range of cash and investment products subject to limits specified in the Group Treasury Policy. These include overnight and term deposits, money market funds, liquidity funds, certificates of deposit, structured notes, and currency-linked deposits.

Treasury enhances Group income by investing in a mix of financial products, based on the perceived balance of risk, return and liquidity. Cash, deposits and investment products are placed with a range of leading banks, mainly in Hong Kong.

The Group’s cash and deposits at 31 December 2015 comprised US$352.5 million in United States Dollars and US$5.9 million in other currencies. They are primarily placed in liquid deposits of three months or less and saving accounts to maintain the liquidity to meet the Group’s vessel purchase commitments and working capital needs.

Restricted bank deposits at 31 December 2014 primarily related to additional collateral for certain bank borrowings.

During the year, Treasury achieved a 0.9% return on the Group’s cash. Interest income is benchmarked against a target yield of 0.8% being 50 basis point above 3-month USD LIBOR.

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