Ship Finance in the FSU and Eastern Europe

by Alan McCarthy, vice-president Tufton Oceanic London

Sufficient time has passed since the break-up of the former Soviet Union and the Comecon trading block to arrive at some reasonably sensible views of the shipping finance market in this area.

Much has been written already, and executives in the major shipping banks find in their morning post almost every day an invitation to spend some time and money to attend this course, that seminar or another jamboree in a glamorous (Western) city to discuss new opportunities and developments. There is no shortage of authors or speakers eager to pass on their views and comments. Most of them anecdotal.

It is important, therefore, to consider what really has been done in the way of ship financing, and by whom. Continue Reading

Russian Shipping Roulette

by Bridget Hogan

Several years ago – in 1990, to be exact – Sim Kee Boon, then Chairman of Keppel, came to New York to speak to a gathering of investors organized by Marine Money. The talk in the finance community then was all about Russia and Eastern Europe. Keppel’s Chairman, describing his company’s investment strategy, acknowledged the US community’s fascination with investing in its former cold war adversary. But, he said, if you want to make money, Vietnam and Southeast Asia were far better alternatives. Six years later, his vision may still be true.

The shipping industry in Russia is in a turmoil similar to that of the political system. As the country’s industry faces 1996, the position is that ships are old, investment insufficient to replace them, and the legal regime unattractive to draw in western funds. Continue Reading

P&I: A New Player in the World’s Equity Markets

by Bridget Hogan

Changes in the structure of P&I Clubs mean at least $1.5 billion will, within three years, be held in case of need following casualties. The Clubs have moved towards holding large reserves. Increased levels of net exposure and more stringent statutory environments have contributed to the need for Clubs to increase net assets. These far exceed levels considered necessary in the past. With such huge reserves being held long-term, Clubs’ managements have turned their attention to investments.

In the past, Clubs’ funds were held for the settling of claims and might be needed on short notice. Huge amounts of shares, which may need to be sold at a loss due to a large claim, could not be bought.

All this has changed and, in some cases, the assets of Clubs have nearly quadrupled this decade. In addition, there has been the imposition of the regulatory requirements applied throughout the insurance industry, including P&I Clubs demanding the creation of statutory reserves and the imposition of solvency criteria. Continue Reading

Precious Shipping

Precious Shipping Public Company Limited (PSL) has been one of the most successful and fastest growing shipping companies in the short period of its existence. Founded in December of 1989, it started operations in March of 1991 and was listed on the Stock Exchange of Thailand (SET) in July of 1993. It is a subsidiary and the only publicly listed company of the G. Premjee Group, a conglomerate closely held by the Gujarati family of India. Continue Reading

Pacific Basin

Pacific Basin (PB) was founded in 1987 on the belief that the growing economies of the Asia/Pacific region would create a strong demand for handy-size bulk carriers between 20,000 and 35,000 dwt in size.

In addition to its regular operations, PB is particularly active in the sale and purchase of secondhand vessels. According to its management, ships are a commodity whose trade could produce the short term result of maximizing the shareholders’ wealth. PB, however, through its S&P activities, achieves yet another objective: the ownership of modern vessels that better serve its clients’ (charterers) interests. Continue Reading

No Rouble at All

by Imogen Rumbold, partner, Lawrence Graham, London

When Piraeus-based Tsaviliris & Sons bought the 250 tonne bollard pull Fotiy Krilov from Ukrainian owners, they thought they had bought the biggest tug in the world for $45 million. In fact, they had bought a major and expensive headache, and some sizeable travel and legal bills as they became embroiled in a dispute over ownership and title to the vessel.

Happily, the dispute was resolved and the Tsaviliris Giant is now in service for its new owners. But this is only the most high profile of a number of cases where the buying and selling of vessels into and out of former Soviet republics theory, such deals should be no more complicated than any other transaction. Many transactions do go through without problems. What can go wrong, and how can you avoid being caught?

The biggest single problem facing would-be purchasers of ex-Eastern Bloc shipping is finding out who really owns the ship and who has the authority to sell it. This is a process which involves careful checking of company documentation, and accessing a fragmented system of registers. But it has to be done against the pressure of time. Not only can deals collapse in the normal way if delayed, but there is the added complication of rapid personnel changes in FSU companies. Deals done with one management must be completed before they get moved on. Continue Reading

Joint Ventures and East European Shipping: Contribution to Development and Change

by Professor Michael S. Roe, BA, MSc, PhD, MCIT

The recent changes in East Europe have created a new situation of a scale never before experienced. Prior to the political changes of 1987, the economy of East Europe was effectively controlled by the Council for Mutual Economic Assistance (CMEA), a bureaucracy dominated by the Soviet Union whose tasks were to coordinate trade between member states and the outside world; to exchange information on trade; and to provide an exchange mechanism for goods within the CMEA without involving hard currency, largely based on the transferable Rouble.

With the accession of Gorbachev, decreasing Soviet intervention in other East European states, declining East European economies, lack of hard currency, and pressure from EC, US, IMF and the World Bank, the CMEA eventually collapsed. The Organisation for International and Economic Coordination (OIEC) was proposed as a replacement, but East Europe was characterised by disunity and CMEA’s only successor was a liquidation committee. Gorbachev first spoke of perestroika in 1984; the crux of this reform programme was the revitalisation of the Soviet economy, but its impact was considerably wider, influencing political and economic structures throughout East Europe. Its impact on the Soviet shipping industry can be said to date from January 1987, when self financing and cost accounting were introduced, and on the wider East European shipping industry thereafter. Continue Reading

Jinhui Holdings Co. Ltd.

Jinhui, a Hong Kong-based company (listed on the Oslo stock exchange), is involved into three major business segments: shipping, trading and infrastructure development.

Shipping is the backbone of Jinhui, accounting for more than 50% of the company’s revenues. Jinhui’s shipping activities were established in 1987 and are concentrated on the ownership and operation of handy-size bulk carriers transporting commodities into and out of China and other countries in that region. Jinhui owns five vessels, while it operates a fleet of approximately 35 vessels. Jinhui believes that, by managing instead of owning the vessels, it avoids exposure to the fluctuations of the shipping markets while, through its short term time charters, it takes advantage of upward trends in freight rates. The recent explosion in Chinese imports has fueled the growth of Jinhui’s shipping and trading operations. Its local origin is a competitive advantage over foreign operators who rush to take advantage of the deregulation of the Chinese economy and position themselves into the fastest growing market in the world. Despite the increased competition, Jinhui is still better positioned in the Chinese market due to its better understanding of the specific needs of the local customers and its long term relationships with the local authorities and other local enterprises. Continue Reading

A Fish Story from Russia

In a triumph of tenacity, 1995 saw the successful initial financing for Joint Venture Kaliningrad Group 1, Ltd. (“JVKG”), a deal Marine Money first saw almost three years earlier when Joel Peck, the investment banker with American Marine Advisors (then with Lehman Brothers), spoke enthusiastically about the concept. The deal brings together the U.S. and Russian partners in JVKG, a fishing company registered in the Marshall Islands, with shipyards in Germany, the U.S. and Mexico which are renovating JVKG’s vessels, with manufacturers in Norway and the U.S. which are supplying equipment for the vessels, and with finance provided by U.S., German and Norwegian investors.

JVKG closed the extremely complex, multinational $28 million financing on June 30, 1995, to fund the renovations of the first four of its ten factory processor fishing vessels. Senior financing was provided by John Hancock Mutual Life Insurance Company, Boston, and Kreditanstalt fur Wiederaufbau, Frankfurt. Junior financing was provided by John Hancock, Eksportfinans, Oslo, and U.S. suppliers. John Hancock also has an equity stake in JVKG and in its management company, Ocean Resource Management, L.P. of Seattle (“ORM”). Continue Reading

1995 P&I Highlights

A number of major issues have been under discussion during the last twelve months, not the least of which is the future of the International Group of Clubs. This article is based upon the HSBC Gibbs Limited annual study of the P&I Clubs, and offers some perspective on what has occurred.

One year ago, the most important topic was the provision of Certificates of Financial Responsibility (COFR) for vessels trading to the United States of America. Since then, two commercial guarantee organizations have become operational: Firstline and Shoreline. The Firstline scheme, under which Stockton Re provides the guarantees, is a fixed premium entity. This means that owners have no liability for supplementary calls. Shoreline is a mutual insurance company, but it has minimized the possibility of supplementary calls being made by purchasing reinsurances in the commercial market. Continue Reading