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$100,000 lesson from Marco Polo Marine.

Saturday, April 15, 2017

I always say that I have been mostly lucky as an investor. The operative word is "mostly".

Long time readers would remember the narrative for Marco Polo Marine, a business which transformed from a tugs and barges operator, it was doing all the right things to grow stronger, adding value over the years. 

In fact, Marco Polo Marine weathered the Global Financial Crisis well and remained profitable even through bad times. That says something about their management.

When I decided to invest in Marco Polo Marine, I noticed persistent insider buying a few years ago and their prospects were good. They started to pay meaningful dividends too. 

It was likely that, conditions permitting, dividends would continue as the founding family had a 60% stake in the business and they still do.

So, what went wrong?

Marco Polo Marine is in a cyclical industry and in a cyclical industry, we have to expect down cycles. They managed to survive previous down cycles because they were more conservative. 

That is a lesson from this episode.

Any company in a cyclical industry might want to be more conservative because we don't know when things might go down and for how long they might stay in the doldrums. Trying to do too much with a weak balance sheet could be dangerous.

I have said before that if a highly geared business has strong cash flow, then, it could cope with its debt. Yes, it is about having a healthy interest cover ratio. This was from 2015:

This was why I avoided the likes of Otto Marine although some of us might remember how there were write ups on how they changed their business model and things could become better. It was all too speculative for me. 

I didn't buy into Nam Cheong as well because they were building vessels in anticipation of buyers which looked smart during good times. 

Swiber, I avoided and I probably blogged or talked about avoiding their bonds too.

Comparatively, Marco Polo Marine, to me, was a safer investment although it was a smaller business. 

Unfortunately, when bad times strike, cash flow could dry up, especially when the bad times have lasted as long as they have for the O&G businesses. This dry spell has been the worst and the longest for the industry.

I am not writing off Marco Polo Marine yet because it is not over until it is over. However, although they are not a Swiber, there is a chance that Marco Polo Marine might suffer the same fate. If that should come to pass, I will have to write off what was once upon a time a $100,000 investment.

Related post:
Cutting or holding MPM?


AT-AT said...

Hi AK71,
Thumbs up for sharing challenges. We can never be 100% correct. Most importantly is to have a mindset that we hope to win more than we lose and risk only what we can afford to lose. Investment is a marathon not a sprint. 🍻

AK71 said...


Well, Mr. Market is always right and, this time, I got it wrong.

If I can be right more often than I am wrong, I will be quite happy.

Crossing fingers. ;p

Thomas Tan said...

Thanks AK once again. Timely reminder that we can never be right all the time. Therefore it is important to position our investment according to our risk appetite.

AK71 said...

Hi Thomas,

Yes, indeed so. If I had only $100,000 to invest with and I put it all into Marco Polo Marine when I did, you would have to put me in IMH. ;p

Kevin said...

Marco Polo Marine suspends trading as lenders doubt fund injection

AK71 said...

Marco Polo Marine on Monday suspended trading with immediate effect, following an "increasing number" of demand letters from creditors.

"Though the company is not of the present view that a failure of the proposed refinancing and debt restructuring is imminent, the company is not confident at this juncture that it would be able to eventually bridge the gap between the expectations of the lenders and the conditions set by the strategic investors as part of the proposed refinancing and debt restructuring," the marine logistics group said in a statement on Monday.

The Business Times
Monday, May 1, 2017

AK71 said...


Trade creditor file court injunction for wind up.

MPM applied court injunction to stop creditor file wind up.... till end of may 17.
Sean said some investors are willing to invest.... BUT...

sads said...

Hi AK,

What will happens if the company announce bankruptcy and delist.

So it means all the shares that are in the market will instanly become worthless, ie 0.

So the shareholder will get nothing back .

is that correct?

AK71 said...

Hi sads,

If a company becomes bankrupt, shareholders usually lose whatever they have invested in the company.

AK71 said...

Marco Polo Marine is tabling under a scheme of arrangement a restructuring plan involving new equity injections of S$60 million into the parent group, debt-to-equity swap and severe haircuts for some trade claims filed against its shipyard subsidiary.
- The Business Times

Kevin said...

Nine mostly non-O&M investors to take S$60m punt on Marco Polo

AK71 said...

Hi Kevin,

Marco Polo Marine's main issue was a weak balance sheet meeting the most severe and long drawn downturn in the O&M industry. This lifeline together with what seems like a recovery could do the trick.

focustime said...

Hi AK,

Marco Polo is a turnaround play now....

with new investment and higher oil price, prospect is looking good.

AK71 said...

Hi focustime,

I am less speculative in my old age. ;)

You decide. :)

Kevin said...

Hi AK and focustime,

UOB has just sold their entire stake in Marco Polo and they have currently zero stakes in Marco Polo. ;)

AK71 said...

Hi Kevin,

There seems to be some strong speculative interest in MPM. ;)

AK71 said...

Reader says...
Hi AK, I recalled you have a position in Macro Polo Marine and though the company business is not recovering well in the short time, it managed to avert bankruptcy recently with negotiation with the debt holders and equity injection from the private investors. What are your thoughts on the business turning around when the industry cycle turns?

AK says...
I closed that chapter long ago liao. 😛
I don't have much appetite for speculation in my retirement.

Unknown said...

At this point of the business cycle, the upside tramps the downside. Most of the players are gone. That leaves the remaining ones to reap the reward in the next up cycle. If anyone wants to invest in this industry, this is the right time. I am recently vested.

AK71 said...

Hi Unknown,

Good luck to all of us. :)

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