Maritime Asset Recovery and Protection: Effective Mortgage Enforcement

Few if any maritime loans are entered into with the possibility of default and enforcement to the fore, but shipping loans and investments are among the highest-risk adventures with high “casualty” rates from failing shipowners, and also among the most difficult to enforce and foreclose, by the nature of the easy ability of the security asset – the ship – to move out of jurisdictions and out of range of seizure.

Lenders and secured investors are thus often slow to take up “ultimate” enforcement – repossession. Various other means are tried first; restructuring, refinancing and extending of additional funds are among the most common. Sometimes this helps a shipowner-borrower through a difficult patch or until some assets are voluntarily liquidated; but often the result is that the lender has dug himself even deeper into the mire.

Repayment problems tend not to arise singly. Difficult market circumstances generally affect all owner players in the market, and especially those owners who are only active in that one market and have no counterbalancing healthy sector from which cross-subsidy may flow. The consequence is that, at the same time as the negative cash flow bleeds the company, the resale market value of the asset-securities is dropping so that it no longer covers the outstanding loan: which has meantime no doubt been growing as payments have been deferred. Continue Reading

Iran Returns to the Shipping Forum

Iran’s state shipping lines are poised to return to the world of commercial loans to fund their ambitious vessel replacement programmes to the year 2001.

Not since the 1980s has Iran sought outside funds for vessel orders, preferring instead state subsidy or barter deals.  Direct government funding reflected the importance the government has always placed on merchant shipping as the second defense arm to keep the country’s trade routes open in times of conflict.

Now, however, shipping line executives have managed to convince the government of President Akbar Hashemi Rafsanjani that the best prices for new ships are likely to be gained by paying yards cash, and so barter deals are to be dropped. Continue Reading

Interest Rate Swaps: Dangerous Derivative or Effective Tool?

Recently there have been numerous articles noting the losses sustained by institutions utilizing interest rate swaps. As a result, the whole area of derivatives has been tainted by much negative publicity. This is not deserved, and seems to have been the result of the misuse of the instrument for speculation, rather than risk insurance purposes.

The following is intended to “demystify” interest rate swaps and demonstrate their use as interest rate risk and rate reduction instruments.

As is widely known, an interest rate swap is a contractual arrangement whereby a debtor converts one form of interest obligation for another. The market for interest rate swaps is based on at least two major factors. One if the existence of financial markets with different characteristics, particularly the format of interest rate payments. One market is the traditional short term floating rate market based on periodically resetting a debtor’s interest rate based on LIBOR, one benchmark rate in this market, and the lender’s cost of funds as a rule. The other major market is the public and private fixed rate market, in which rates are set at a specified rate for the life of the loan. The benchmark rate in this case is the comparable Treasury note rate. Rates are set based on the credit of the borrower at some premium over the U.S. Treasury obligation of similar maturity. Continue Reading

Hull Insurance

London hull underwriters are hoping to impose tough new clauses from next month (November) which are aimed at stopping delayed and suspicious claims from shipowners. Hoping to, that is, unless quick-talking brokers refuse to accept the changes to the Joint Hull Committee’s Institute Time Clauses (ITC) from November 1 – as some underwriters privately expect.  The clauses will not be mandatory and, therefore, it seems likely that they could be slow to be adopted.

What the Committee wants to impose are the first changes since the clauses were redrafted in 1983.  One aim is to try to eliminate the claims from those owners who to try to cut costs by passing off routine maintenance as repairs so making underwriters pay. “It is quite improper for the ITC to provide cover which effectively allows an assured to allow the engine to deteriorate to such an extent that it causes damage which is covered by the policy,” commented the Committee’s chairman Mr. Stephen D. Redmond.  He dubbed this an “inappropriate incentive.” Continue Reading

Do You Know Your Company’s Value?

The concept is as old as business itself. To be profitable, you have to earn more money than what you spend in the process of producing the goods and/or services you trade. And, this may be the only business concept that hasn’t changed as the markets evolved.  However, the application of this concept went through different stages as the markets became more and more sophisticated.  

Different aspects of a company’s operations are more important than others at different times. From time to time, the interest for a company shifts from overall profitability to earnings per share to EBIT and/or other ratios depending on the industry in which the company under consideration is involved, its growth prospects, the economic outlook of the company’s country of operations and the international economic situation — to mention only a few. Continue Reading

CMB Results

CMB NV, Belgian’s major shipping conglomerate reported half year (January to June) results after tax of Belgium Francs 610 million, blaming the weak US dollar for the fall in profits. In the first six months of last year, the privately-owned group earned BEF 634 million and the profits for the whole of 1994 were BEF 1,039 million.

The last two years have seen an increase in the company’s activities in the derivatives markets, in order to soften the blow of its declining earning power in dollars. While admitting to being active in hedging, a spokesman in Antwerp refused to discuss the details of the derivative products. Continue Reading

Easy Money

The following is excerpted from an address delivered by GE Capital’s Kevin M. Kennedy before the Connecticut Maritime Association on September 28, 1995.

It is not often that bankers are asked to address maritime groups, and there is a good reason for this – we are far too boring. We are accused of being a rather unimaginative lot, constantly getting stuck on details and losing sight of the forest for the trees.

In the shipping field, this is especially true. We are constantly annoying shipowners -men and women of vision – with petty questions like: “If this vessel’s earnings averaged $8,000/day over the past five years, why do you believe it will average $16,000/day for the next ten?” Or, “Is the National Shipping Company of Botswana a good name to have on an eight-year charter?” Or, “How can you operate this ship at $1,700/day when the industry standard is $4,500?” Yes, we do sometimes lack imagination.

However, I will try to fight this stereotype the only ways I can think of: I will avoid the use of statistics where possible, and I will endeavor to be brief. Continue Reading

Arresting Developments

London is the meeting point for the latest gathering of financial advisors to the International Maritime Organisation and the United Nations Conference on Trade and Development  This time to discuss changing the convention covering the arrest of ships.

What has emerged from Marine Money’s investigations into the issue is that no one seems sure who is driving the impetus to change the present convention. Aging of the Convention seems to be the likely reason behind the present moves.  The existing rules date back to 1952, and the revisions are intended to be limited in scope.

Even so, there have still be two conferences on the issue, the first providing a draft convention in 1985.  It is not yet clear whether the group of experts meeting on October 11 and 12 will be able to complete the wording of a new convention to go forward for finalisation at a diplomatic conference. If further talks are needed, it will put a question mark over the timing of any final agreement. IMO says it has no slot available on its timetable for another diplomatic conference until 1997, and it’s not even clear that it would be able to accommodate the session even then. Continue Reading

Teekay Returns Triumphant

At a presentation for the investment community, executives of Teekay Shipping outlined the impressive future prospects for their company and the solid basis for their optimism. If the reaction of the attending group was indicative, Teekay’s then-impending public offering would be successful – a welcome contrast to last year’s aborted sale of Teekay stock. 

In fact, the offering, managed by Goldman Sachs & Co. and co-led by Smith Barney, Furman Selz and Natwest, was widely and quickly subscribed. 6,900,000 shares were sold at a per share price of $21.50 – somewhat higher than had been thought only a few days prior to the sale. The stock, traded on the New York Stock Exchange, has since sold in a narrow range between $22.50 and $23.50 per share.   Continue Reading

Shipping Shares and the London Stock Exchange

by Bridget Hogan

Few, if any, London Stock Exchange (LSE) issues fit the description “typical bulk shipping,” but that does not mean Britain’s shipping shares do not compose a considerable market.

The capitalization of P&O alone is larger than the total market capitalization of either the Oslo and Stockholm Stock exchanges. And London’s total equity trading in 1994/95 reached 1,275 billion pounds. The same year was the exchange’s busiest for foreign equity trading, reaching a record 696 billion pounds. While shipping’s contribution toward these unprecedented statistics was admittedly minor, present and future opportunities exist.

To some extent, the lack of representation of shipping companies is a reflection of the state of the British shipping industry in general. Long-traded traditional names have disappeared, victims of consolidation following the switch to containerization from multipurpose vessels in the 1960′s and 1970′s.

To be a successful world player in any sector – passenger, liner, specialized bulk, such as reefers or chemicals, or even in the basic wet and bulk trades – requires major capital injections. The only shipping company to appear in the 100 largest-listed companies on the London exchange is P&O; and this group has demonstrated the “large is beautiful” success story in all sectors. With 600 million shares valued at six pounds each, it dominates all consideration of the London exchange in the shipping sector. Continue Reading