Straddling 1997: The Future of Hong Kong Symbolized in Container Port Failure

CT9′s problems are politically motivated and have become a thorn in the side of the British and Hong Kong governments.  They have done untold harm to Hong Kong Governor Chris Patten’s image and thrown doubt on the ability of Britain to hold sensible communications with China.  Indeed, they have shown that the British have little understanding of the Chinese logic and, at best, have failed to grasp the understanding that China cannot and will not lose face, no matter what it entails.

Hong Kong, the world’s busiest container port, will not have the capacity to meet projected demand by the time it is handed back to China in 1997. The eight Kwai Chung terminals and mid-stream operators will handle over nine million boxes in 1994, and will continue an already established annual increase of just over 14%.

Nearly all mainhaul container lines operate on a fixed-day, weekly sailing schedule, and it only takes a couple of hours delay in one port to throw a complete itinerary out of place.  The financial burdens of such problems are well known by the big lines, and the need to charter replacement vessels is costly.

Plans to build an array of container terminals on reclaimed land at Tsing Yi and on Lantau Island were first announced in the late 80′s. The identity of the successful consortium members to build and operate the terminal was not known until 1992. Since then, political alliances and business jockeying have nearly derailed plans more than once. And the future is still unknown. Continue Reading

Profits from COFRs

We were going to dedicate an entire issue to the subject of COFRs, but as has been the case every day now for a month or more, events overtake plans and so with a solution – but certainly not the final solution – seemingly at hand, we scale back our coverage to examine just the most realistic choices owners currently have, what the choices might cost, what impact they may have on owners and their financial backers, and the possibility of some better longer term solution.

Make no mistake about it – a bullet has been narrowly dodged.  Two weeks ago, speaking in front of a gathering of the Norwegian Shipowners on the subject of COFRs, the possibility of the “train wreck” seemed decidedly real.  There was talk that night in early October that the eleventh hour lack of a viable COFR solution provided the owners their last best hope to not only cause the Coast Guard to delay the December 28 COFR deadline but also, if the subsequent actual or threatened shortage of tonnage calling at the US were serious enough, perhaps even provide the opportunity to revisit the mind boggling threat of unlimited liability. Continue Reading

Options and Comparative Pricing for COFR Requirements

(Editor’s Note: The following article is an amalgam of interviews, conversations with principals and written contributions. Special credit deserves to go to the following attorneys: Joseph G. Braunreuther, a partner with Watson, Farley & Williams in New York, Arthur Dimopoulos and Stephen Flott of the firm Flott, Rosner & O’Brien in Washington, D.C.)

With only 50 some days to the deadline for COFRs, vessel owners and operators must ready evidence of financial responsibility for the U.S. Coast Guard.  While a small portion of vessel owners may be in a position to provide a guaranty for their ships (i.e. Mobil’s subsidiary to provide bonds as guaranties for its owned or chartered vessels), most shipowners must rely on outside sources for a guaranty required to obtain COFRs.  Several facilities are being offered to provide guaranties, including bonding companies, sureties and full insurance companies. The following is a full discussion of COFR requirements and the prominent facilities available to fulfill the rules proving those requirements can be met.

The Coast Guard’s Interim Final Rule for financial responsibility requirements established under OPA has determined that it will enforce the previously unenforced financial responsibility requirements under CERCLA.  The Interim Final Rule is based largely upon the Notice of Proposed Rulemaking issued by the Coast Guard on September 26, 1991.  OPA and CERCLA each contain provisions requiring vessels over 300 gross tons to obtain COFRs establishing their ability to pay claims under those statements in order to enter the U.S. waters.  To obtain a COFR, owners and operators must show evidence of financial responsibility sufficient to meet the aggregate OPA and CERCLA liability limits for oil and hazardous substances pollution damage of $1,500 per gross ton for tank vessels and $900 per gross ton for non-tank vessels. Continue Reading

One From Column A and One From Column B

In our last issue, we featured a global offering by Jinhui Shipping and Transportation Limited, a Hong Kong company operating primarily in the People’s Republic of China. This issuance included a private offering of some 24 million shares and a 2 million share public offering on the Oslo Exchange. Now we have another offering, underwritten by Lazard Freres & Co., Furman Selz and Natwest Securities from Pacific Basin Bulk Shipping Limited. In addition to operating in the same geographical area, both Jinhui and Pacific Basin are bulk shipping companies using handysize vessels. Pacific Basin’s offering is different from Jinhui’s in that it was an all public offering of 5.75 million units, a combination of shares and warrants, including the 15% overallottment which were sold. Each unit consisted of one share of common and a warrant to purchase .25 shares of common exercisable between October 1995 and September 1999.  The units will trade on the US NASDAQ National Stock Exchange until March 31, 1995 at which time the shares and warrants will trade separately. The warrants are exercisable at $16.80 per share. The initial public offering price of a unit was $14.00.

Pacific Basin was established in 1987 by current management, together with Compagnie Maritime Belge (CMB), a leading European shipping company. CMB initially owned 75% of Pacific Basin and acquired the remaining 25% between 1989 and 1991. Later in 1991, Pacific Basin’s current management formed an investor group to acquire 100% from CMB. This investor group included such names as Rockefeller & Co., Connecticut based shipping company Navios, Ryoshin Leasing  (a Mitsubishi joint venture collaboration), Great Eagle Holdings of  Hong Kong, and Peregrine Investments Holdings, a leading Asian investment banking group. In 1992, CMB re-entered the picture by acquiring 17% of the equity. Continue Reading

Oft Talked About, The Two-Tiered Market Has Arrived

Despite claims that the COFR issue has moved “off the political agenda” and on to the commercial business agenda,” a wait-and-see attitude among shipowners persists. Some owners are still determined to cause a crisis. But these are not the ones trading to the US. Those who are trading are increasingly concerned

Still, neither Bergesen nor Bona, Wilhelmsen, nor Eletson has formally decided how or when to obtain COFRs (certificates of financial responsibility required for US trade and issued by the US Coast Guard). A lot of strategizing is going on and, to date, Bergesen DY AS is seriously considering Opaclub, while Eletson is leaning toward First Line.

Only a few select US companies like Mobil Corp. – whose mid-September approval for certification based on a guaranty through a newly-formed subsidiary, Marine Guaranty, created waves – have COFRs in hand. Trickling through were also US tanker-owners like Sabine Transportation Company, Kirby Tankships, Sun Transport and OMI Corp. This is because none of viable options for foreign shipowners are up and running. Continue Reading

Mortgages Made Easier: Taking Over a British Ship

By Suzanne M. Pearson

Since the coming into force on 21st March, 1994 of the Merchant Shipping (Registration, etc.) Act 1993 (the “Act”) and the accompanying regulations, the Merchant Shipping (Registration of Ships) Regulations 1993 (the “Regulations”), the computerization of the Ships Registry has made a small but significant improvement in the mechanics involved in taking a mortgage over a British registered ship.  The Act and Regulations together represent the biggest change in ship registration law and procedure since the 1894 Merchant Shipping Act.  There are many detailed changes.  The two which most affect mortgages are the centralization of the Registry at Cardiff and the institution of a priority system.

The Registry of Shipping and Seamen in its new location in Llanishen outside Cardiff now keeps a central computerized database and the individual hand-written registers previously maintained by Registrars of Ships in individual ports of British registry have been closed.  Therefore, the involvement of Customs and Excise in the registration process has been brought to an end, and the ship mortgages are no longer entered on the registers kept at the 114 ports of registry in the United Kingdom.  These remain ports of choice, which an owner may choose to be marked on his ship, but there is only one register, and that is at Cardiff.

When taking a mortgage over a British ship, timing is extremely important.  When there are a number of mortgages registered on a single vessel, priority will go to the mortgagee who is first in point of time to register his mortgage. Continue Reading

En France, Vivre Les Financements Maritimes

C’est Pret and C’est Bon

Traditionally, the shipping departments of French banks have been small beer – or should that be vin rouge petite – in terms of maritime finance and mortgage lending. But with bond markets dry and owners still in a wait-and-see mode, many of the small but intelligent coterie of French commercial and investment banks are re-grouping with an eye toward market expansion.

The first moves are being made by Banque Nationale de Paris (BNP) which currently has a commercial marine portfolio of approximately US$1bn. The megabank’s relatively insignificant shipping department has an established presence in Greece and Hong Kong, but rumors that it “may be contemplating an expansion” were confirmed by BNP’s Paris-based shipping department. The bank is undergoing a reorganization to support overall growth that may include new shipping branches in places as far away as New York and Ho Chi Min City.

“BNP has operations in every corner of the world, but finding where there would be a good fit for ship-lending operations in terms of personnel and client base is something that is currently being reviewed,” Didier Salomon at BNP’s Paris headquarters said.  Continue Reading

Dual Allegiances

Reversing a “dual” pronged strategy which combined shipping and offshore drilling, Mosvold Shipping AS is now dusting off its offshore assets, and managing directors are involved in informal discussions with brokers and other potential investors for the sale of its stake in Dual Drilling Company.

“Based on the prevailing situation, the Board of Directors has now reached the conclusion that it will be in the shareholders’ interest to alter the objective of long-term rise in values (in offshore drilling) to a strategy where focus is placed on realizing the values on a short-term basis,” a recent memorandum from the Board read.

The prevailing situation to which the memorandum referred is B. Skaugen Shipping’s sudden stock purchase, which put more than 40% of Mosvold control in Skaugen’s hands.

The old strategy, to diversify and expand its market base, was embodied by the 1990 purchase of 100% of Dual Drilling, a US-based international drilling outfit with 21 rigs.  Following Dual’s IPO last year, Mosvold’s stake fell to 59.4%, but its exposure remained basically unchanged, accounting for approximately 90% of Mosvold’s operating income and 80% of its consolidated total assets. Continue Reading

Banks Not Worried About COFR Deadline

Everyone is talking about the effects of OPA ’90 and the COFR deadline on shipowners.  But what about the banks with outstanding shipping loans?  What are the consequences for them?  Will December 28 come and go with no real impact, or will installments be missed and loans be called in as a result of lost revenue?

Several tanker owners have declared they are taking a tough stand against the Coast Guard by no longer trading to the United States.  Others would like to continue voyages to US ports but will be prevented from doing so because they are unable to obtain the necessary Certificates of Financial Responsibility.  For a great many, the usually lucrative US commercial market may be out of reach due to a lack of adequate and affordable coverage.  So, what will happen?  Are there sufficient markets elsewhere to accommodate these “displaced” vessels?  Perhaps there will be an oversupply of ships outside of the US market which will force the freight rates way down.  If these ships cannot find employment, or if revenues are reduced, it is quite possible that mortgage payments will be late or missed. Continue Reading

And Now, a Szechwan Offering

Ho hum, another global offering?  Well, maybe not. This offering is a little spicy if only because it comes from The People’s Republic of China (“PRC”) via Hong Kong. The offering fever has spread to the Far East. Otherwise, this offering is not too different from some of the others we have seen and reviewed in Marine Money .   Most of these global offerings, particularly stock offerings can be looked at positively.  They all have similar features and results. They create a quick shot in the arm to the enterprise’s balance sheet by providing needed working capital, capital to buy or build vessels, or capital to reduce debt loads. They also dilute the current shareholders’ ownership percentage and provide the ever eager investment community with another game to play. Of course, we shouldn’t forget how it helps world economies by providing underwriters, lawyers and accountants with ample chances to increase their cash flows.

Jinhui Shipping and Transportation Limited (“Shipping Group”) is the entity making the offering. One might not consider Jinhui to be a Far East or Chinese company because it was incorporated in Bermuda in May of 1994, but for sure it can be considered Far Eastern as its parent company is Jinhui Holdings (“Holdings”), a company incorporated in Hong Kong and listed on the Hong Kong Stock Exchange.  The operations of both the Shipping Group and the parent company are predominantly in the PRC and South East Asia. Continue Reading