Ardmore inks 1st sustainability-linked financing

New York-listed product and chemical tanker company Ardmore Shipping Corporation has completed its first sustainability-linked finance facility with the Netherlands-based ABN AMRO, one of the founding banks of the Poseidon Principles framework.

The tanker owner said that the new $15 million receivables facility replaces its existing receivables facility and contains pricing adjustment feature linked to its performance on carbon emission reduction and other environmental and social initiatives.

The facility’s targets for carbon emission reduction align with the International Maritime Organization’s targets for GHG emissions reduction of cutting the shipping industry’s greenhouse gas (GHG) emissions by 50 percent by 2050 when compared to 2008 levels.

Basically, the pricing structure in the new facility will reward the company for maintaining its carbon emission reduction trajectory and overall performance on ESG.

Ardmore follows in the footsteps of crude oil and petroleum tanker company International Seaways which in January 2020 secured credit facilities worth $390 million, which included a sustainability-linked pricing mechanism.

The general idea behind the Poseidon Principles framework is for the signatory banks, as capital providers, to influence the type of ships being provided with capital moving forward, thus ensuring greater liquidity for greener ships supporting the energy transition.

“The facility recognises Ardmore’s current strong performance on Environmental Social and Governance (ESG) initiatives including, carbon emission levels which significantly outperform the targets set out under the Poseidon Principles, and a very diverse organisation with employees representing 10 nationalities of which 59% are female,” Ardmore said.

The company added that other commercial terms and conditions are improved from the prior receivables’ facility and that the new facility will mature in July 2022 with options to extend.

The financing arrangement was revealed in the company’s earnings report for the second quarter of 2020.

During the period Ardmore managed to return to black, having reported a net income of $13.6 million, reversing from a net loss of $9.9 million reported in the same period a year earlier.

The tanker shipping company booked a net income of $20.1 million for the six months ended June 30, 2020, as compared to a net loss of $19.1 million a year earlier.

“We are pleased to report a very profitable second quarter with 41 cents in earnings per share, reflecting solid Ardmore chartering performance on the back of strong trading conditions driven by volatility and market disruption,” Anthony Gurnee, the Company’s Chief Executive Officer, said.

“We have taken advantage of these conditions to build cash and strengthen our balance sheet: our leverage on a net debt basis is down to 48.5% and cash and undrawn lines as of now is $82 million, therefore our capital allocation policy and priorities are working as intended.“

MR tankers earned an average TCE rate of $21,256 per day for the three months ended June 30, 2020 and $20,280 per day for the six months ended June 30, 2020. Chemical tankers earned an average TCE rate of $16,337 per day for the three months ended June 30, 2020, and an average of $17,864 per day for the six month period, the company said.

Gurnee said that the recent market weakness has also presented attractive opportunities for vessel acquisitions.

Therefore, earlier this month Ardmore bought a 50,093 Dwt 2010 Japanese-built MR product tanker for $16.7 million. The vessel is expected to deliver to Ardmore in August 2020.

“The ship completed its required second special survey and ballast water treatment system installation recently in June, saving us that cost and effectively reducing the price by $2 million in addition to enabling it to trade uninterrupted until its next docking in 2023.  We have also recently chartered-in another 2010-built Japanese MR for one year at a rate of $13,400 per day plus one option year with delivery expected in September,” he added.

Commenting on the charter market, Gurnee said that there were signals emerging that the market is coming off a bottom.

As disclosed, the oil market itself remains in turmoil; inventory levels remain high, global oil consumption is recovering to differing degrees across geographies and oil production is set to increase in August under the existing OPEC+ agreement. 

“While the near-term outlook remains uncertain and market conditions are highly volatile, we maintain our long-term positive view and will continue with our capital allocation priorities while also sustaining our spot-market earnings power and seeking opportunities to build long-term value for our shareholders,” he concluded.