Further to its announcement on 30 August 2022 that it had made an indicative all cash offer of US$26 for each Grindrod Shipping Holdings Limited share that it didn’t already own (consisting of a cash purchase price of US$21.00 per share plus a special cash dividend from Grindrod of US$5.00 per share to its existing shareholders), Taylor Maritime Investments (TMI) has announced that it has now made a conditional offer for Grindrod with these same headline terms. The transaction values Grindrod at approximately US$506 million on a fully diluted basis (including the special dividend).
TMI says that it that has entered into a transaction implementation agreement, dated as of 11 October 2022, between itself, Grindrod and Good Falkirk (MI) Limited, a wholly-owned subsidiary of TMI (which will be `the “Offeror” for the purpose of the transaction). The voluntary conditional cash offer is in accordance with Rule 15 of The Singapore Code on Take-overs and Mergers and the rules of the US Securities and Exchange Commission. As mandated by the Financial Surveillance Department of the South African Reserve Bank, Grindrod shareholders holding their shares on the JSE will receive their offer consideration in the equivalent amount of South African Rand. The South African Rand to US Dollar exchange rate to be applied to determine the amount of South African Rand will be set out in the offer to purchase. We would recommend shareholders read the offer in full and rather than cut and paste, we have reproduced the announcement (click here to read).
Vessel Sale, Trading Update and Notice of EGM
Separately, TMI has announced this morning details of a Vessel Sale, Trading Update and Notice of EGM.
Investment policy changes and EGM
TMI is proposing certain changes to its investment policy, which related to the offer for Grindrod. TMI says that the proposed changes are designed to afford it with greater flexibility as to the size and financing of investments it can make. TMI will be sending a circular to shareholders to convene a general meeting to be held on or around 28 October 2022 at which the ordinary resolution will be proposed. If approved, the investment policy changes will allow TMI to invest in a majority stake in a shipping company up to 40% of gross assets on an exceptional basis, with a commitment to bring the investment exposure down to a maximum of 30% of gross assets within 18 months through a combination of vessel sales and group restructuring.
Furthermore, in order to facilitate the financing of larger investments such as the proposed acquisition of Grindrod, TMI proposes to increase its current gearing limit to 40% of gross assets on an exceptional basis, with a commitment to bring gearing back within the current limit of 25% of gross assets within a maximum of 18 months through a combination of vessel sales and cash generation. Save for these changes, TMI says that the substance of its existing investment policy will remain unchanged. Further details of the proposed changes will be set out in the Circular and TMI says that its directors will be voting in favour of the proposals in respect to their own beneficial holdings in TMI shares (which amount in aggregate to 3,618,476 Ordinary Shares representing 1.1% of the Company’s issued share capital). TMI says that undertakings to vote in favour of the proposals have been received from Shareholders which amount in aggregate to 41,946,549 Ordinary Shares representing 12.7% of the Company’s issued share capital and letters of intent to vote in favour of the Ordinary Resolution have also been received from Shareholders which amount in aggregate to 78,606,747 Ordinary Shares representing 23.8% of the Company’s issued share capital.
Vessel sale and trading update
TMI has announced that it has agreed to sell a 2012 built Supramax vessel for net proceeds of US$20.1m generating additional cash proceeds to support the proposed acquisition of Grindrod. The vessel was an IPO seed asset and the sale is expected to complete before the end of November 2022, generating an IRR of 25% and MOIC of 1.3x. TMI says that the sale price is broadly in line with the current carrying value based on 30 September 2022 fair market value. Once the sale completes, the fleet will consist of 26 ships with no further vessels currently contracted for sale.
Based on 30 September 2022 fair market values and the current average net time charter (TC) rate of $17,670 per day, the average annualised unlevered gross cash yield for the fleet is c.24%. The average charter duration cover for the fleet is 6 months as at 30 September 2022.
TMI advises that it has covered 56% of remaining fleet days for the financial year ending 31 March 2023 and 20% of remaining fleet days for the financial year ending 31 March 2024. It says that this provides it with strong earnings visibility and certainty, with “the opportunity in this good market”, to secure more charters at attractive rates for the remaining open days for the fleet.
Comments from Edward Buttery, Chief Executive Officer of TMI
“The proposed acquisition of Grindrod Shipping, which is expected to be NAV and earnings accretive, represents an exciting opportunity to combine the fleets of both companies to create a significant owner of medium-sized dry-bulk ships. We should benefit from economies of scale from a larger fleet of vessels and taking further advantage of the strong earnings environment we anticipate extending to at least the end of 2024 given favourable supply-demand fundamentals.
In connection with the Proposed Acquisition, we are pleased to be able to realise a significant gain on the sale of a vessel in what continues to be a liquid market for the dry bulk segment. Meanwhile, the softening of charter rates through the previous quarter owing to decongestion as ports reopened, a weaker-than-expected grain season and typical summer weakness has now abated with TC rates climbing steadily from lows in early September and vessel values expected to follow. With our diversified chartering strategy, we were able to maintain healthy earnings through this softer period and are now in a position to secure attractive terms for the remaining open days of our fleet as the market strengthens.”