Smyril struggles in sea of debts

Faroese ferry company Smyril Line has debts of over £135m and shareholders stand little chance of getting their money back if the company goes to the wall it emerged this week.

The company's accounts for last year, seen by The Shetland Times, reveal that the massive debts come from three mortgages against the ferry Norröna and two mortgages against assets. The five mortgages total £72m.

In addition the company - which last year made losses of £4.2m - has £67m of other liabilities including a loan of £45m repayable over the next five years.

The accounts, prepared by Tórshavn-based accountancy company Rasmussen & Weihe, also show that Smyril Line has sold cargo capacity for the next 10 years to Esbjerg-based freight company Smyril Blue Water in an effort to bring in more cash.

Earlier this year Smyril Line sold their 50 per cent stake in Smyril Blue Water to the other shareholder, Blue Water, so future cargo earnings will benefit Blue Water rather than Smyril Line.

It also emerged this week that there is mounting unease among SIC councillors and trustees of the Shetland Development Trust over the scale of the trust's investment in Smyril Line, which currently stands at £4.4m.

Last month the trust offered to inject a further £700,000 in Smyril Line as part of a deal to secure Shetland's ferry connections to Faroe and Denmark next summer.

But final agreement with other shareholders has not yet been reached about the deal which would see £500,000 being handed over in the form of a loan convertible to equity and a £200,000 grant to pay for the marketing of Shetland.

In return the Norröna would call in to Lerwick once a fortnight en route to Denmark and once a fortnight en route to Faroe.

If the timetable is adopted potential passengers from Denmark or Faroe would have to spend a minimum of a fortnight in Shetland before they could return home.

In addition direct sailings between Shetland, Norway and Iceland would be scrapped.

The Shetland Times understands that a majority of trustees were against putting in the extra cash and economic development chairman Drew Ratter failed to get a seconder when he pushed for the extra funding to be approved last month.

Trustees were later told that the investment had already been approved by the council following a decision, made last year, to invest £4.7m in Smyril Line to fund a take-over of Norwegian ferry company Fjord Line.

The trustees were also told that a six-man negotiating team set up earlier this year - made up of SIC convener Sandy Cluness, chief executive Morgan Goodlad, councillor Drew Ratter, councillor Josie Simpson, development trust boss Neil Grant and independent trustee Bobby Hunter - had been given delegated authority to invest the £4.7m as they saw fit.

When the trustees rebelled and said that the cash should come from some other other source, such as the Shetland Charitable Trust, they were - according to one source - "read the riot act".

A few days later they received a letter from SIC finance boss Graham Johnston which advised them that the development trust was the most appropriate channel for the investment to come from.

Another source, who described the letter as "threatening and very harsh", said: "We were told that because the original investment was made by the development trust the remainder also had to come from the development trust.

"We were made to feel very very bad that we were going against the will of democratically elected people. We were also told not to speak to the press."

Yell councillor John Nicolson said he was surprised to learn that the negotiating committee had the delegated power to approve extra investment in Smyril Line.

"I will in the next few days be having a look to see what the situation is," he said.

Under development trust rules, councillors have to approve any investment of over £250,000.

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