Overview Finance Policy

Capital Allocation Strategy

1.   Improve the financial capacity and flexibility: To accommodate the business strategy, the company needs to maintain a solid capital structure at all times and an acceptable level of free liquidity, at levels which will give sufficient assurance to the debt and equity providers that the company’s financial position is solid and sustainable. The company should aim at deleveraging in the high end of the cycle. KCC should build a diversified portfolio of capital sources to minimize the funding risk and maintain a competitive cost of capital.

2.   Maintain an attractive dividend policy: KCC targets to distribute a substantial part of the free cash flow to the shareholders.

Liquidity

KCC shall minimize the risk of having insufficient liquidity to meet liabilities as they fall due and should be able to withstand 12 months of a realistic low case scenario. Excess liquidity should be available on a short notice. Cash reserves should only be invested in relatively low risk and short to medium term debt markets to be readily available for the needs of the company.

Capital Structure and Equity Funding

KCC needs to maintain a solid capital structure and further optimize it to give sufficient assurance to the debt and equity providers that the company’s financial position is solid and sustainable. KCC should aim at improving the financial capacity and flexibility through deleveraging in periods with strong cash flows. 

KCC will work to make the share attractive for external investors through continuous development of the combination carrier business, an efficient capital structure, timely and relevant investor communications, and stable dividend payments. Over time the ambition is to increase the liquidity in the share to improve the attractiveness of the stock and improve access to the capital markets. KCC aims at attracting investors with ESG focus.

KCC targets an equity ratio above 40% but could be below during investment periods. Target NIBD/EBITDA adjusted for delivery/sale of vessels shall be below 5x but could be above during certain periods. Equity should be raised prior to committing to new investments. KCC intends on a quarterly basis to distribute a minimum 80% of free cash flow generation to equity after debt service and maintenance cost as dividends to its shareholders, provided that all known, future capital and debt commitments are accounted for and the company’s financial standing remains acceptable. The timing and size of dividends are at the discretion of the Board of Directors and the General Meeting. Distribution of dividends is further subject to any restrictions in the borrowing arrangements or other contractual arrangements in place at the time.

Debt Funding

KCC aims at having diversified sources of funding whilst still aiming to minimize cost of funds and secure flexible terms. The general preference will be to finance growth through equity issues and bank debt. The company should in addition target to use the bond market on a continuous basis to have a supplementary source and to stretch out the average repayment structure of the loan portfolio through issuing bonds with bullet structure. Alternative debt sources can be used provided that overall leverage, cash break even and interest costs remain within acceptable levels. KCC will make use of sustainability linked or other ESG structures.

KCC aims at minimizing the cost of borrowing, but always targeting achieving maximum flexibility of covenants. The company should seek a diversified maturity profile to avoid concentration risk and reduce refinancing risk. Credit facilities denominated in USD are preferred or debt that can be swapped at a reasonable cost. The number of covenants should be minimized and standardized across loan agreements and the main part of debt funding should be long-term facilities to secure predictability.

Risk Management

The company should maximise the use of natural and operational hedges to mitigate risk before using financial derivatives. There is an exception for freight derivatives, which can be used to balance the desired risk in the physical portfolio. The main rule should be to use interest rate and currency derivatives to prevent a situation of financial distress, to prevent breach of covenants or in situations where fixing levels are considered particularly attractive. The hedging level should be evaluated based on cash flow stability and visibility/contract coverage, total financial risk of the company and earnings outlook/market cycle. The use of derivatives shall be subject to separate board decisions or mandates.

KCC shall carry out quarterly risk reviews, and the results shall be reported to the Board of Directors.