Auditors qualify Sri Lanka’s Mercantile Shipping Company accounts
Sep 10, 2018 20:01 PM GMT+0530 | 0 Comment(s)
ECONOMYNEXT – Auditors have given a qualified opinion on the accounts of Sri Lanka’s Mercantile Shipping Company with the group’s current liabilities exceeding assets owing to mounting losses at a ship-owning subsidiary which has defaulted on loan repayments.
There was ‘material uncertainty related to going concern’ of the Mercantile Shipping group, auditors Ernst & Young chartered accountants said in its annual report.
It issued a qualified opinion on the accounts as there were delays in getting information on the subsidiary Mercantile Emerald Shipping (Private) Limited’s (MESL) renegotiation of a loan from Bremer Landesbank-Germany, now merged with Norddeutsche Landesbank.
Mercantile Shipping Company group incurred a net loss of 330 million rupees for the year ended 31 March 2018, up from 279.6 million the year before.
The group’s current liabilities exceed its current assets by 4,051 million rupees and group net assets have become a negative of 1,849 million.
The group is in talks with Bremer Landesbank on rescheduling the loan of its subsidiary Mercantile Emerald Shipping (Private) Limited which it has guaranteed.
Mercantile Emerald Shipping has deferred loan instalment payments amounting to almost six million US dollars.
Mercantile Shipping Company group chairman H A R K Wickrematileka told shareholders in the annual report that the firm was taking action to turn the firm around.
“The group’s negative financial position is mainly due to the challenges faced by Mercantile Emerald Shipping (Pvt) Ltd its fully owned subsidiary. A significant impact was also created by the escalating interest rates,” he said.
Emerald Shipping’s two vessels have successfully completed the first dry docking and got all class-renewals.
The two ships were affected by the shipping recession and fall in charter rates.
“Hence the vessels will be in a well-maintained position and will not incur major repair and maintenance expenses within the next 5–7 years period (and) some reduction in operational costs (i.e. repair and maintenance costs) could be expected,” Wickrematileka said.
The bank has financed the dry docking of both vessels despite adverse market conditions and vessels were back in operation and has continued to cooperate with the company in dealing with the servicing of the loan, Wickrematileka said.
The report said the company has entered into a pool agreement for the ships with Industrial Maritime Carriers L.L.C (USA) so it can earn fixed earnings per day.
The bank has continued to allow the company to pay loan instalments on a “pay as you earn” basis.
“The increased overdraft allows MESL to meet all short-term liabilities and would certainly not be granted in the absence of a going concern,” the report said.
“In the opinion of the directors, foreclosure of the vessels will not be viable to the bank as the arket value of the vessels are less than the loan amount payable to the bank.”
(COLOMBO, 10 September, 2018)