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Send  Share  RSS  Twitter  25 Nov 2008

SHIPPING: Lonrho Abandons Cape Ships

 



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CAPE TOWN-based SA Independent Liners (SAILS) has been placed into liquidation only months after UK-based Pan African investor Lonrho increased its stake in the recently launched shipping line.

Last year Lonrho took a 45% stake in SAILS and in April this year it boosted its stake in the fledgling business to 66.7% (as reported recently in CBN).

SAILS was described as a relatively new container shipping line, offering an ‘alternative service’ to exporters and importers on the Europe, West African and South African trade routes.

It looked to build a niche in shipping freight from South Africa to West Africa, Belgium, Germany, Holland and the UK. It also aimed to concentrate on containerised shipping with four strategic South African industries, motor manufacturing, chemicals, mining and agriculture.

Lonrho seemed so enamoured with its investment in the shipping line that the group was contemplating launching the LONRHO SAILS branding.

But last month Lonrho did an abrupt about-turn at SAILS when announcing it would withdraw from the African sea freight market “in light of the current global economic slowdown and the credit crunch”.

Reading between the lines it would seem that the initial performance of SAILS as well as the cost of keeping the business afloat spooked Lonrho.

A SENS announcement noted that the decision to abandon ship followed a strategic review of Lonrho’s investment in SAILS and the “funding required to complete the implementation of the group’s business plan and reach profitability…”

Naturally – as the biggest shareholder – Lonrho’s decision had massive implications for SAILS. What has transpired is that SAILS – after seeking alternative support – was placed into liquidation.

As fickle as Lonrho’s actions may seem, the UK-based investment company pointed out that SAILS incurred a loss of around R90 million from turnover of about R105 million in the half-year to end March 2008.

Lonrho said SAILS’ performance in the interim period reflected “the substantial costs of developing new routes in the shipping industry”.

While placating shareholders about the robust portfolio of investments that remained in Lonrho, CE David Lenigas said SAILS was the only company in the group portfolio that had a direct correlation with depressed world markets.

“It was also the only Lonrho company that had an ongoing requirement for funding and would have required in the region of $15 million from Lonrho to fully deploy the agreed business model and become cash positive.”

Lenigas said given a predicted downturn in global sea freight rates, the tightening world economy and the impact of the credit crunch it was prudent for the Lonrho board to carry out a strategic review of its position.

“The conclusion was that the current world market is not conducive to the roll out of a new African shipping line.”


 
 
 
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