Last Dance for the Old Ladies

It is astonishing to see to what extent investors have regained their appetite for tanker equity offerings. While the investor profiles may differ, the reality is that today there is enough room in the equity markets to support both a Knightsbridge Tankers, with its five brand new VLCCs, and Mosvold Shipping Ltd.’s four vintage VLCCs. Restated, there is both investor interest in reasonably certain high current yields coupled with highly uncertain residual values (Knightsbridge) as well as interest in reasonably certain residual values coupled with highly uncertain current yields (Mosvold).

A Brief History
Mosvold is a long standing name in shipping. “For several decades the company was involved in a broad range of shipping activities (tankers, dry cargo, reefers and ferries) as well as offshore and extensive activities in trade, industry and insurance.” Of recent, the Group is best known for its acquisition of Dual Drilling Company in 1990 and its subsequent sale of Dual to Ensco International Ltd. in 1996. Mosvold Shipping Ltd. (hereafter “MSLtd”) was set up as a separate listing on the Oslo Stock Exchange as from November 30, 1995 to carry on the Company’s remaining ship owning and operating business. Continue Reading

IRI’s Turmoil Continues

The end of May was a difficult time in the halls of International Registries Inc. (IRI’s) New York office, as longtime legal expert, IRI investor and Marshall Island’s Registry head, Guy E.C. (Clay) Maitland, was barred from his office.  The action brought to a head a simmering feud between Maitland and IRI Chairman and CEO, the Reston, Virginia-based, Archie Stewart.

IRI is the contract administrator and marketing agent for both the Liberian and Marshall Island’s ship and corporate registries.

Stewart and Maitland are significant investors in IRI, along with Tony Guida, who is the organization’s Chief Financial Officer, in the acquisition of the Liberian Flag’s administration and marketing contract from USLICO.  USLICO, the former contract administrator, sold the business to the IRI team in 1990. At that time, the Liberian Civil War was sufficiently unsettling that the Liberian investment was not worth the trouble and potential embarrassment to publicly traded USLICO. USLICO chose to focus on its core life insurance business, and sold the ship and corporate registry to the Stewart and Maitland team. But the internal corporate relationship has Stewart in the role of managing partner and therefore able to “lock” Maitland out. Continue Reading

Freight Derivatives – Toward a Market That Really Works

Swaps and options have been used since the late 1980′s along with their older cousin, futures, sometimes successfully, to manage risk concerning interest rate and foreign exchange exposure, in the bulk shipping industry. They have also been used to manage fuel cost exposure for Buyers of marine fuel. This article asks why a great deal of potential for market penetration still exists, for controlling freight rate exposure (for Buyer of freight) or to manage freight revenues (for Owners) and offers some prescriptions for pro-active players.

The bulk shipping industry is well known for having large amounts of money at stake, with chartering decisions made quickly on what little data is available. And then, once a decision is made on what to do, the difficulties in executing the strategy are also apparent to many principals and brokers. When “paper,” i.e. futures, options and derivatives, came on the shipping scene in the 1980′s, they offered a potential to solve these problems of price discovery (i.e., where is the “market”?) and ability to execute a transaction. Reading the sales literature from banks and futures brokers would suggest that industry participants can find panacea by hedging. Yet, futures and derivatives have made little headway into certain parts of the business. Continue Reading

East Asian Developments

by K. K. Chadha

Chu Kong IPO Pulls in US$8.77 Million in Interest
China’s Chu Kong Shipping Development Co, which went public in Hong Kong in May, reaped HK$68 million (US$8.77 million) from interest earned from subscription monies. This compares with the company’s profits of $82.98 million for last year and $59.8 million for 1995. Investors applied for 480 times the company’s shares available to the public, locking up HK$97 billion of public money.

Director Jackie Huang Jiangji said the subscription level was satisfactory, given competition for funds with fellow red chip Beijing Enterprises Holdings, whose May offering was more than 1,000 times subscribed.

Chu Kong issued 187.5 million shares at HK$1.20 each to raise HK$225 million in its initial public offering. Ten percent of the shares were reserved for employees. Continue Reading

Apples and Oranges

by Sydney P. Levine, President, Shipping Intelligence, Inc., New York, NY

A recent article in the March Lloyds Shipping Economist reminded me that a common error in analysis – of almost anything – is comparing two things that are not comparable. Comparing “apples and oranges,” like dividing by zero, can lead to strange and wonderful conclusions that may be interesting, but may also be far from correct.

The article, How To Recognize True Value For Money by Thomas Mayr, is concerned with the value of secondhand ships, and, I suspect, is motivated by the overheated tanker resale market.

There are several errors of the “apples and oranges” type in the article. The first is that the author treats the entire tanker (or bulker) fleet as a homogeneous whole, neglecting the fundamental division of the fleet into industrial carriers and tramp ships. To an industrial carrier, a ship is one of a number of inputs to a complex business process. To a tramp owner, a ship is the business. Industrial carriers and tramp owners have different hopes and expectations about the freight and resale markets, and they think and act differently in the same situation. For example, does anyone really believe that the industrial carriers and tramp owners feel the same way about freight rates? Tramp owners, naturally, prefer high rates – the higher the better; the industrial carriers prefer rates that are high enough to guarantee the continuance of the tramp fleet, but no higher. Continue Reading

Trans-national Maritime Mergers and US Security/Subsidy Programs: What’s a National Security Asset to Do?

by C. Jonathan Benner

The late twentieth century is a time of general industrial consolidation. The maritime industry is no exception to this trend. In the liner trades, we have seen traditional conference mechanisms falter and give way to a transitional period of contractual “alliances” between carriers. These alliances, in turn, have yielded to a series of outright mergers. The latter process appears to be in full cry and is likely to be the dominant structural dynamic of the liner trades in what little time remains to the century.

For purposes of this article we can focus on three major consolidations. P&O and Nedlloyd merged in late 1996. Canadian Pacific Ltd. is attempting to finalize a takeover arrangement for an acquisition of Lykes Bros. Steamship Co. Neptune Orient Lines and APL are seeking necessary U.S. approvals for an acquisition of APL shares by NOL. Continue Reading

Structural Changes in the Oil and Tanker Markets

by Jarle Hammer, Director, Fearnresearch, Fearnleys A/S

Expectations about future tanker demand have fallen quite dramatically over the last couple of years. One major reason for this is the amazing technological progress seen in the offshore industry, which, in the course of just a few years, has brought break-even costs for North Sea and other offshore oil production down from about 20 USD per barrel to only around 5 USD per barrel. Key elements are enhanced recovery, horizontal drilling, very deep drilling and floating production.

Recently, most of the growth in world oil demand has been covered by non-OPEC sources, closer to the large market areas. This trend seems likely to continue for some time. Additionally, a larger share of the stagnant Middle East oil production is now being shipped eastwards, over distances only about half as long as for the rapidly shrinking volumes being shipped by large tankers around South Africa to Atlantic destinations. Continue Reading

OMI Watch

Normally we try not to deal in rumor or innuendo, preferring to leave that ground for other well-known publications. But the rumors of John Fredriksen’s Frontline AB making a hostile play for OMI have reached a fever pitch. Now, back in November 1996 we published a piece on OMI relating that the existing shareholder structure of the company compared favorably to Frontline’s own shareholder structure just prior to Mr. Fredriksen’s takeover. These rumors persisted through the completion of OMI’s offering in late November. The company has nearly succeeded in divesting its US flag vessels and operations, going so far as to indicate that the company’s domicile might be relocated outside of the United States. Such action would remove the company’s natural takeover defense: the Jones Act requirements that 75% of voting rights of any company involved in US cabotage be controlled by US interests. Continue Reading

Play the Psychology, Not the Earnings

by Alan Ginsberg

Let’s start with the following two suppositions: (1) shipping equities remain under-owned by US-based financial institutions today; and (2) institutional ownership is desirable. With respect to the first point, it pays to remember that none of the major US stock indexes (e.g. the S&P 500, Russell 2000, Wilshire 5000) has a pure shipping component.

The inability to easily benchmark risk/return only adds to the difficulty that the potential institutional investor must account for in plotting his risk evaluation strategy. In searching for energy plays, he will consider the stocks of integrated oil majors first, oil services companies (i.e. drilling and off-shore supply) second, and ship-owning companies third. With few exceptions (Teekay comes to mind), on the basis of historical share price performance over the past few years, it is difficult to blame him for placing ship-owning companies last. But the tide is turning today, as we saw from our Investor Seminar held in New York this past January with our co-sponsor, DnB Securities: fund managers who made a killing in oil services stocks (SEACOR, Hvide, Tidewater, Trico) are now willing to see if there are any more easy pickings to be found. Continue Reading

The “New Osprey”

On Tuesday, May 13th, Osprey Maritime Ltd. announced that it intended to purchase all outstanding shares in Gotaas-Larsen (GL), the privately-held British tanker and LNG carrier owner, for $750 million. It is anticipated that the acquisition of GL’s fleet, which consists of four double-sided VLCCs and five LNG carriers, will be accomplished through a credit facility consisting of a combination of new bank debt and equity rights issues, totaling $944 million, $200 million of which will be used to refinance existing Osprey debt.

The LNG carriers will continue to operate under the Gotaas-Larsen flag, and the former owners will receive an 8% equity interest equal to $40 million, and have a seat on the board of directors of the company. The deal, which was lead by DenNorske Bank and assisted by bank syndicates Christiana and Indosuez, will make Osprey an overnight behemoth in the LNG trade. The company has indicated that it may sell part of the newly acquired VLCC fleet.

There is little doubt that Osprey’s acquisition of GL was a “good fit” in developing what those close to the company call “the new Osprey,” a transportation group composed of three distinct areas of focus: products, crude and LNG carriers. Osprey’s marketing strength and consolidation savings will be key elements in running the newly acquired vessels efficiently. Continue Reading