Are Risks a Factor in the Cruise Industry?

Throughout the summer, it seemed as if every week our newspapers reported some sort of incident on board a cruise ship. Fires, food poisoning outbreaks, groundings…the list goes on. But, aside from focusing on the actual incidents, we have to ask what kind of effect occurrences such as these have on the cruise companies individually and the cruise industry as a whole.

Perhaps the first question we should ask is how much of a loss is incurred due to each of these incidents, and how much of that loss is covered by insurance. Second, we need to inquire whether the losses are usually significant  enough that analysts should factor in a discount for risks when looking at the cruise industry.

Although several of the major cruise lines can proudly point to high results achieved despite incidents of this sort occurring, it is hard to overlook statements in various company reports quoting dollar amounts lost due to incidents on-board ship and the lost days of revenue in the weeks following. Continue Reading

Greetings From Our New Publisher

Through my experience in the shipping industry, including my recent move to Marine Money, I have come to realize that the luckiest day of my then brief business career was the day that I joined the Kedma Group as Chief Financial Officer.

I am sure that everyone in the greater maritime field who did not go out to sea has their own interesting story as to how they got involved in the business. I will keep mine brief: pure luck.  But luck only gets you through the front door; you have to make something of the opportunity which you are given.
There are very few people in shipping today who do not know Jim Lawrence, and most of the readership knows him well. His network of contacts spans the globe. Jim has been the publisher of Marine Money for the past ten years. He nurtured the newsletter from its infancy. In many respects, my role as the new publisher is easy.  Continue Reading

Understanding Derivatives: A Prerequisite for New Executives?

Michael J. Egelhof

The international derivatives market continues to register extremely strong gains. By press release dated July 10, 1996, The International Swaps and Derivatives Association, Inc. (“ISDA”) announced the following results of its survey of swaps and other privately negotiated derivatives transactions in 1995, compiled by the Arthur Andersen accounting firm. At the close of 1995, transactions outstanding in interest rate and currency swaps and options stood at 17.7 trillion dollars in notional principal, up 56.7%  from year-end 1994. Continue Reading

UK Inland Revenue Raid on Kappa Maritime

The dust is settling around the UK Inland Revenue raids on London Greek shipowner Kappa Maritime and some of the tension is leaving the air. The Inland Revenue was swift to assure the international maritime community in London that there had been no policy change.

Although a spokesman refused to comment on Kappa’s case, he made it clear that the raid, under Section 20c of the Inland Revenue Act, was undertaken after investigations on an individual basis. It has been monitoring Kappa, the UK operation of Mr. Pantelis “Lou” Kollakis, for some time. We only apply for a Section 20c raid if we feel there is the possibility of serious tax fraud,” he continued.  It could not be used as part of a general campaign against a section of the community.” Continue Reading

Shreyas Shipping

India’s container trade reached 1.6 million TEUs in the 1995-96 financial year and, thanks to the liberalisation policy now in motion, this is expected to grow to 3 million TEUs by 2000. Of this, it is estimated 2.5 million alone will be for the feedering trades either around India’s huge coastline or to nearby countries such as Sri Lanka or the Middle East.

One of India’s fastest growing companies, Bombay-based Shreyas Shipping, says it is poised to take advantage of this boom in container traffic, and its annual results bear out a major growth programme.

Indeed, Mr. S. Ramakrishnan, chairman and managing director, says he aims to capture 25% of the available market – and estimates Shreyas is moving 15% of feeder traffic now, since its 1994 startup. Speaking to shareholders in Bombay at the annual meeting and reflecting on the 1995-96 results he commented:  “The 12 month period ending March 31, 1996 has seen Shreyas leap forward on many fronts. We have generated significantly increased income, with operational profits in line with our projections. We have expanded our container feeder services and developed new routes with our established partners.” Continue Reading

Prolonging the Inevitable

The shipping industry’s time-hewn and painful tendency to flood a recovering market with tonnage was affirmed once again last week when the Bonn government’s public-law bank, Hamburgische Landesbank (HL), disclosed not only its record after tax profit of Dm 50 m, but also the explosive growth of its ship lending portfolio.

With more than two-thirds of its financed fleet between the ages of one and six years, HL is a falling barometer of that dizzying race to build vessels at the first subtle hint of a bullish market, even when capital returns hardly justify the risk assumed by the lender. And so the cycle goes. Continue Reading

OMI Successfully Buys Back Paper

OMI successfully bought back over $130 million of 10-3/4% bonds in mid-July. The transaction was necessitated by OMI’s strategic refocus, which called for a corporate restructuring and the disposing of several vessels not part of its completely foreign flag repositioning. While the 10-3/4% coupon was reason enough for the refinancing, management needed to refinance primarily because the bonds’ covenants were constraining the strategic actions of the company.

The retired bonds had a covenant structure that severely limited the company’s ability to access further debt and dispose of assets. For some time, the company has been battling to stem the tide of losses, and one of the classic methods of fixing losses in shipping is asset sales. Such sales were limited by the bonds covenants, though management at OMI indicated it was never prevented from completing necessary transactions. OMI indicated that its use of the public debt market was not completely negative and would consider using it again, given the right terms and conditions. Continue Reading

How The OECD Agreement Rate System Really (Would Have) Worked

by Andreas Uibeleisen, KfW

KfW is the abbreviation for Kreditanstalt für Wiederaufbau, or Bank for Reconstruction. KfW’s activities today comprise a wide range of specialized banking services in the fields of domestic lending, export financing and channeling German government assistance to developing countries. With a balance sheet of US$167 billion, it ranks within the 10 largest banks in Germany.

Within its function and activities KfW acts as both a public and private lender. However, unlike commercial banks, KfW’s activities must always have a link to the German economy. For ship financing, it can either finance vessels built or converted by German yards for a foreign buyer, or finance a German shipping company ordering new vessels from a German or foreign shipyard.

Ship financing in Germany is highly developed and is offered by commercial banks, specialized ship mortgage banks, so-called Landesbanken, and KfW. In recent years, KfW’s new loan commitments in shipping were roughly US$1.5 billion per year. Per the end of last year, its loan portfolio reached approximately US$9.2 billion, making it the largest ship financing institution in Germany. Continue Reading

New Norwegian Shipping Tax Provisions

Marianne Iversen, Wikborg, Rein & Co., Oslo

As a part of the Norwegian tax reform of 1992, the possibilities to defer income tax were considerably restricted – also for shipping companies. The maximum depreciation rate for ships was reduced from 25 percent to 20 percent (declining balance method), the capital gains taxation was made more effective, etc. Until now, many of the Norwegian shipping companies have had losses to carry forward, implying that the tax reform provisions have not had any considerable impact on them. As these losses, to a great extent, have been utilized, the tax situation of shipping companies could change dramatically in future years without amendments to the existing tax provisions. On this background, and also taking into consideration the new tonnage tax regime introduced in the Netherlands, the tax conditions of the Norwegian shipping companies compared to shipping companies of other countries have been heavily debated. Continue Reading

Leif Høegh & Co. ASA

What can be said about a company that, with a small US$10-12 million maintenance investment, secured a twenty year contract for its 87,657 cubic meter gas carrier built in 1973, ensuring employment for the vessel until it is 49 years old?  Moreover, one must keep in mind that the newbuilding price for a standard gas carrier today is pushing US$250 million!

It seems that if Leif Høegh & Co. is playing its cards right in the gas sector with its two 20+ year old vessels, results in its more profitable ventures – particularly the car, reefer and open hatch sectors – can only be expected to improve at rates equal to or better than today’s levels, leaving shareholders and future generations of Høegh’s happy at the prospect of high returns.  Continue Reading