ST. HELIER, Channel Islands, Mar 12, 2010 (BUSINESS WIRE) — DHT Holdings, Inc. (NYSE: DHT) today sent a letter to MMI Investments, L.P. in response to MMI’s public letter of March 2, 2010.
Following is the text of DHT’s letter to MMI:
March 12, 2010
MMI Investments, L.P.
1370 Avenue of the Americas
New York, NY 10019
Dear Mr. Lifflander:
Thank you for your recent letter, which included thoughtful observations about DHT Holdings, Inc. (“DHT” or the “Company”) and current issues facing the Company. I have shared your comments with my fellow directors and the senior management team and would like to take this opportunity to address some of your suggestions and concerns.
I want to assure you that the DHT Board of Directors (the “Board”) is pursuing the same fundamental goal you express of enhancing the Company’s performance and increasing shareholder value.
As you know, over the past two years, the shipping industry has experienced an unprecedented downturn even more severe than the overall economy. With freight rates dropping, the value of our assets declining, and credit markets seizing up, we recognized the need to reevaluate DHT’s business and financial strategy. Since the middle of last year, the Board and management have been undertaking a thorough review of our platform and operations, market opportunities, and growth prospects. DHT has emerged from this review with a clear path forward – we believe a prudent growth strategy, focused on leveraging our strong corporate platform to capitalize on opportunities made possible by current market conditions, is the right approach to create sustainable long-term shareholder value.
We believe DHT is well positioned to successfully execute on its growth strategy. As you note in your letter, with all of its vessels chartered to solid counterparties at contracted charter rates, DHT has stable and positive cash flow for several years to come. We have also significantly strengthened our balance sheet by making $153 million of debt repayments since 2008. When coupled with our proven access to the capital markets, the suspension of the dividend, and the recently announced holding company reorganization, DHT now has the flexibility to grow and prosper. While we recognize you take issue with some of our decisions, most of which predate your investment in DHT, it is critical to understand the broader context in which they were made.
Just this month, we have made three significant corporate announcements. These actions, which have been in process for many months, move us several important steps forward in implementing our long-term strategy.
Just yesterday, we announced the appointment of Board member Randee Day as acting Chief Executive Officer. With her extensive industry and financial experience, as well as in-depth knowledge of DHT and its business, we believe Randee will successfully advance the strategic objectives and growth plans previously endorsed by the Board. On March 4, we announced the appointment of Einar Michael Steimler, a veteran shipping executive and seasoned director, to our Board. On March 1, we announced the creation of a new holding company structure that will further enhance DHT’s financial flexibility and facilitate growth. All of these actions stemmed directly from last year’s review, and combined with the strength of our operating platform, will help us meet our objectives.
Your letter makes clear you believe it is important for DHT to add a Board member with “seasoned operational” experience and Board oversight expertise. As evidenced by the appointment of Mr. Steimler, we agree. What you couldn’t know when you wrote your letter was that we have been working for the past year to supplement the Board with such a director. As a founder, former Chief Executive Officer and current Chairman of Tanker (UK) Agencies, Mr. Steimler brings extensive commercial, operational and industry-specific experience to DHT, particularly within the tanker sector, and we believe he is the ideal person to enhance the Board’s operational perspective.
Let me address your request that we reinstate the dividend. I assure you the choices leading up to suspension of the dividend were carefully thought through and designed to appropriately manage DHT’s capital allocation and prospects for future growth. The Board understands your concern about dividend policy. However, our decision to strengthen DHT’s balance sheet and preserve liquidity, at the cost of eliminating the dividend, was not made lightly. Rather, it was the result of a comprehensive evaluation of our current business, future opportunities, and financial obligations, considered in the context of worsening shipping market conditions, the challenged state of the public capital markets, and the virtual absence of functioning credit markets.
In January 2008, the Board determined that a full payout strategy, as had been employed since the IPO in 2005, was no longer sustainable for DHT due to certain of its financial obligations. The Board concluded that a fixed dividend would provide shareholders with a stable and visible distribution while enabling DHT to meet corporate imperatives – including meeting future financial obligations, investing in our fleet, and enhancing our ability to grow over the long term.
We review DHT’s dividend policy every quarter based on the Company’s financial commitments, current and projected cash flow, shipping market conditions, and new business opportunities. In June 2009, the Board took steps to reduce total leverage and increase flexibility by prepaying $50 million under our credit facility. This prepayment improved DHT’s future liquidity by pushing out scheduled debt repayment obligations and allowed the Company to comply with its financial covenants and pay the dividend.
During the second and third quarters of 2009, there was further substantial downward pressure on ship values. By September 2009, the charter-free value of our vessels had fallen as much as 50% from mid-2008. At the same time, there was a substantial fall in spot freight rates. While DHT’s time charter-based earnings served the Company well, our profit sharing element, which had historically represented a significant portion of earnings, was severely impacted.
This reduction in earnings and continuing adverse market conditions — combined with the decreasing value of the Company’s assets, the need to remain in compliance with financial covenants and the stressed credit markets — led the Board to conclude it was in the best interest of stockholders to suspend dividend payments. The resulting increase in financial flexibility provides downside protection and puts DHT in a position to take advantage of the current cycle and pursue attractive growth opportunities that are available in today’s depressed market.
While a further decrease in ship values in the existing fleet is still possible, we believe that with the steady cash flow from the base hire under the time charters, extended debt repayment schedules, and $40 million of cash on hand, the Company is well positioned to weather adverse market conditions and take advantage of opportunities for long-term value creation for our stockholders, including prudent expansion of our fleet. That said, in the future we will certainly consider reinstating the dividend and/or initiating a share buyback — subject to DHT’s financial commitments, current and projected cash flow, evaluation of current and future conditions in the shipping markets, and new business opportunities.
Regarding the 2007 purchase of the two Suezmax tankers, we would note that DHT bought those vessels at prices well below the peaks we saw during 2008. DHT has employed these vessels on long-term bare boat charters to Overseas Shipholding Group at charter rates that provide a good return on investment and are at a significant premium to current market rates. This has proven to be financially beneficial to DHT — the two vessels represent approximately 24% of our overall fleet value, but produced over 30% of 2009 EBITDA (excluding profit sharing).
Regarding the timeliness of our March 2009 equity offering, we would note that this offering, which generated strong demand from investors, provided capital that strengthened DHT’s balance sheet and enhanced our ability to weather a difficult environment characterized by falling earnings and ship values.
We want to thank you for your thoughts on how to further improve DHT. We regret not being able to meet with you earlier to discuss your concerns, but considering the significant corporate announcements that were pending when you first contacted our CEO, I’m sure you can now appreciate why we were not in a position to meet with you at that time.
We look forward to working with you and other shareholders in our efforts to further strengthen DHT and increase shareholder value. In that regard, Randee Day and I would be pleased to meet with you to discuss DHT and address your concerns.
Erik A. Lind
Chairman of the Board
About DHT Holdings, Inc.
DHT Maritime, Inc., a wholly owned subsidiary of DHT Holdings, Inc., operates a fleet of double-hull crude oil tankers. The company’s fleet currently consists of three very large crude carriers, which are tankers ranging in size from 200,000 to 320,000 deadweight tons, or ”dwt,” two Suezmax tankers, which are tankers ranging in size from 130,000 to 170,000 dwt, and four Aframax tankers, which are tankers ranging in size from 80,000 to 120,000 dwt. The company’s fleet principally operates on international routes and had a combined carrying capacity of 1,656,921 dwt and a weighted average age of 9.7 years as of December 31, 2009.
SOURCE: DHT Holdings, Inc.