Legal Roundup: It Has Been a Kind Year

Let the truth be told: times are pretty good for maritime law firms worldwide. There appears to be enough work on the “closing room” table for everyone.

Lawyers, of course, take their cues from their clients. To wit, the dramatic increase in the amount of structured finance being offered by banks and other financial institutions today has generated tremendous demand for legal services. Just this week we read that even the Royal Bank of Scotland was now jumping into the fray by offering “investment banking” services. Well, big capital markets deals mean higher fees for their originators, as well as higher fees for lawyers on both sides of the table.

We refer not only to the better publicized public equity offerings of Nordic American Tanker Shipping and Knightsbridge Tankers with their entire squadrons of attorneys representing a multitude of interests too long to list here, but to the surge in lower profile deals, in particular, cross-border tax leases involving the UK, France,The Netherlands and the United States. Syndication is also very much in vogue. Continue Reading

East Asian Developments

by K.K. Chadha

Chinese Company Listing in Hong Kong

China’s Chu Kong Shipping Development is selling shares at HK$1.20 (US 15 cents) a share in its initial public offering in Hong Kong to raise HK$225 million. Ultimately controlled by the Guangdong provincial government through Guangdong Province Navigation Holdings, Chu Kong will issue 187.5 million shares, or 25 percent of its enlarged share capital.

The issue was to close on Friday, May 16, and trading in the company’s shares was to begin on May 23. At $1.20 a share, the company is selling its shares at 9.8 times historic earnings, based on profits of $82.98 million last year. Profits totaled $59.8 million in 1995 and $58.09 million in 1994.

Chu Kong operates cargo services between Hong Kong and China’s Pearl River Delta as well as wharf and godown business. It also has a 30 percent stake in Dongguan Humen Container Terminal in southern China and a 25 percent interest in the 15.7 kilometer Guangzhou-Foshan Expressway.

Of the projected $205 million net proceeds, about $128.5 million has been earmarked for working capital and may be placed on short-term deposits. Chu Kong’s parent company, Chu Kong Shipping Enterprises (Holdings) has interests in passenger transport between Hong Kong and the Pearl River Delta, gas supply and ship maintenance.

C.H. Tung Worth More Than $47 million

Hong Kong’s chief executive designate, C. H. Tung, owns more than HK$387 million (US$47.35 million) worth of shares in his listed family shipping company, Orient Overseas International Ltd. (OOIL). Mr. Tung, former chairman of OOIL, declared that he still holds more than 80 million shares, or about 15.6 percent, of OOIL, which is capitalized at about US$304 million. The figures came to light after declarations of interests filed by Mr. Tung and his close aides. Mr. Tung does not own any property in his name, but his wife Betty is the sole beneficial shareholder of a company which owns two apartments. The family’s famous villa in Deep Water Bay, which is used for entertainment and for receiving VIP guests, is owned by a family trust in which Mr. Tung and his wife have no beneficial interest.

FMC Watching COSCO in Atlantic Trade

The US Federal Maritime Commission (FMC) is monitoring Cosco’s activities in the cross-Atlantic trade to gauge if it has caused an unreasonable decline in service standards or freight rates. FMC Chairman Harold Creel said at a seminar in Hamburg recently that the commission was monitoring Cosco as it was a Chinese government-controlled line. US carriers are concerned that the Chinese might be subsidizing Cosco’s operations as the carrier tries to break into the cross-Atlantic trade. Reports in the US have alleged that Cosco has undercut the market by charging US$800 per teu from Hong Kong to the US – considerably lower than rates charged by US carriers. Mr. Creel said the FMC was also watching the development of the Shanghai Maritime Exchange, which was established last year. “We will ensure there are no unreasonable increases in costs of services,” he said.

Daedong Back in Business with Cash Injection

South Korea’s Daedong Shipbuilding is being revitalized with a cash injection from its new parent, the Soosan Group. The company failed to pay its debts in January, but hopes to balance its books soon.

Daedong, which launched two 46,500 dwt bulkers at its Chinhae yard for Korea’s Dooyang Line in March, has a backlog of 14 vessels, totaling 586,100 dwt and valued at US$372 million. The last delivery is scheduled for June 1998. The orders include two 46,500 dwt bulkers from Parakou Shipping of Hong Kong, three 45,000 dwt chemical product carriers from Primorsk Shipping of Russia and two 72,700 dwt ore strengthened bulkers for Pan Ocean of South Korea.

Despite delays in building schedules due to bankruptcy proceedings, operations have returned to normal now, enabling the company to stick to delivery schedules, a company official said.

East Asian Developments

by K.K. Chadha, Hong Kong

Pacific Ports Offer Snapped Up

Pacific Ports, which is being spun off by listed Fairyoung Holdings, said its new share issue in Hong Kong was oversubscribed. It offered 200 million new shares at HK$3.09 (US$0.40) each. Of these, 160 million were to be placed internationally and 40 million sold in Hong Kong, raising a total of HK$618 million. Because of popular demand, 20 million shares were reallocated from the international placing to the Hong Kong offering, boosting the kitty to 60 million shares.

Pacific Ports, the first pure port operator to list on the Stock Exchange of Hong Kong, is one of the largest foreign investors in port facilities in China. About HK$460 million of the proceeds will be used to fund five port and warehouse projects in China, with the remainder retained as working capital. Continue Reading

Tally Ho: Oil Major Fleet Renewal Marches On

by Alan Ginsberg

First International, NATS, Knightsbridge, Chevron: when shipping professionals get together (including at the recently held Connecticut Maritime Association Conference), these transactions are invariably lumped together, with the gist of the conversation being “Are these good for the industry/oil majors/independent tanker owners/bankers/investors/sponsors and their rosters of professionals?” – in no particular order, of course. And, after reading Goldman Sachs’ recently issued report on Knightsbridge Tankers in which they estimate the Company’s revenues expressed in daily bareboat charterhire rate terms for each of its five VLCCs at $30,000 in 1998 and $60,000 in 1999, it is clear that we are all going to have plenty to talk about.

In this article, we will continue to compare and contrast the recent Chevron and Knightsbridge transactions with the prior Nordic American Tanker Shipping and First International Petroleum Transport Corp. transactions concluded in 1995 and 1993 respectively. While we have been deluged with articles in the trade press on how these transactions meet the needs of the oil majors, we have yet to read any critical assessment of these transactions. Continue Reading

Danish Firm Wins Legal Battle in Hong Kong

A marathon legal battle ended in Hong Kong last month (March) when Wheelock Marden & Co. was ordered to pay 310.4 million Danish kroner (US$40 million) to a Danish shipping finance firm for failing to provide full information before seeking loans from the company in the 1980s. The conglomerate will also have to pay costs for the six-month trial that are expected to run into tens of millions of dollars.

In an 800-page judgment, Mr. Justice Barnett found the directors of Wheelock Marden, which was taken over by the late shipping tycoon Sir Yue-Kong Pao’s Wharf group in 1985, not guilty of defrauding creditors.

Aktieselskabet Dansk Skibsfinan-siering (Danish Shipping Finance) had said the former directors had known that Wheelock Marden’s shipping arm Wheelock Maritime International (WMI) would not receive financial support from its parent. Continue Reading

Cosco Pacific to Buy Terminal Stakes in China

Cosco Pacific is raising just under HK$1.2 billion (US$155 million) through its China-owned parent company Cosco (Hong Kong) Group to buy stakes in container ports in China and in the region.

Cosco Pacific announced on March 24 that attributable profit surged a higher-than-expected 63.2 percent to $586 million for the year ended December. Turnover increased 16.5 percent to $1.12 billion.

Cosco Pacific, which leases containers and operates ports, will buy stakes in four mainland container terminals from Cosco (Hong Kong). It would buy 51 percent of Zhangjiagang Terminal, 50 percent of Qingdao, 10 percent of Shanghai and five percent of Yantian Terminal for a total of $455 million. The agreed price represents a 31 percent discount to their combined net asset value of $655 million, and a 52 percent discount to their appraised value of $954 million. The combined throughput of the four ports last year was 2.2 million teus and is expected to reach 4.6 million teus by 2000. Continue Reading

Consolidation in the Shipping Industry

by Evelyn Simpson, Vice President, Chase Securities Inc.

The following speech was presented by Evelyn Simpson at the Connecticut Maritime Association’s annual March conference in Stamford, CT.

There have always been joint ventures, partnerships and alliances between shipping companies. Recently, however, we’ve noticed an acceleration in the rate at which companies are combining forces. Moreover, there has been a shift in the way in which they are doing so.

As in corporate America, the words “merger and acquisition” are becoming commonplace in the shipping industry. Hardly a month goes by when we don’t hear that some shipping company has acquired another, that a company is “on the block” or a company is exploring its strategic alternatives, LOF being the most recent example of the latter. The liner, tanker and reefer segments are leading the charge; however, should the dry bulk market continue to deteriorate, we may see some action there, too. Continue Reading

Fairyoung Unit Buys China Terminal Stakes

Pacific Ports, a subsidiary of Fairyoung Holdings of Hong Kong, has acquired majority stakes in four terminal projects and a warehousing facility in China. The company is being prepared for a listing in Hong Kong to raise HK$550 million (US$70.5 million) to finance expansion plans. These include a 92 percent stake in Xiangyu Quay and a 60 percent holding in Huijian Quay – both joint ventures in Xiamen – and 55 percent stakes in terminals in Nanjing and Suzhou.

The group also has acquired all of Xiamen Warehousing and Processing Zone. All Xiamen facilities are expected to be managed by Sea-Land of the US. Continue Reading

The U.S. Title XI Program and Boom Markets: A Comparison

by Arthur Dimopoulos

On January 30, 1997, the U.S. Maritime Administration (MarAd) issued a 25 year loan guarantee commitment under Title XI of the Merchant Marine Act of 1936, as amended,1 to COSCO Line (America), Inc. for $137,687,000 or 87-1/2% of the actual cost of the construction of four 1,432 TEU Containerships at Alabama Shipyard in Mobile, Alabama.

The significance of the transaction is its confirmation of a change in times, markets and MarAd policy. Since the last building boom in the U.S. during the 1970′s and early 1980′s, when MarAd had $8.1 billion of outstanding Title XI transactions, the world has undergone dramatic change. Fueled by the Asian Tigers’ growing thirst for trade and energy, the COSCO Title XI transaction and a glance at the current Title XI orderbook, indicates a strong and robust resurgence of the U.S. shipbuilding industry and, in general, for the U.S. shipping industry as well. Continue Reading

Status Quo for Drybulk Lending Signs

by Alan Ginsberg

When we focused last fall on drybulk market finance, we posed the question:”Should bankers have butterflies?” At that time, all of the so-called “industry fundamentals” pointed to a sharp, if not precipitous decline: the Baltic Index had dropped below the 1000 level for the first time since the Gulf War; Clarkson put the drybulk order at 13.9% of the fleet (as compared with 7.1% for the tanker fleet); scrap prices had fallen; time charter rates had declined across the board; and secondhand prices had declined although not nearly as much as many had hoped for. Rumblings were heard in Greece of certain owners being in trouble. Certainly, the dam was about to break.

What happened then? Why has the sky not fallen? While there is no one single answer, the most commonly cited reasons are two: first, owner liquidity; second, prudent levels of gearing. Now there are always exceptions: certain banks continue to aggressively market high advance rate loans; further, owners’ pockets are only so deep and the true level of their cash reserves may yet be tested. Continue Reading