HONG KONG CONTINUES AS SHIP FINANCE CENTER

by Paul Richardson

The emergence of mainland China as a future major economic force is providing the impetus for the development of the country’s commercial fleet. Locally-based shipowners, particularly in the booming southern and central regions, are increasingly utilizing Hong Kong subsidiaries, purposely set up to tap the potential of the major foreign finance houses, and as a means of by-passing any political restraints that might be in place, and which the Chinese believe, hinder future development.

Large Order Looms
In recent weeks, Hong Kong has played host to a number of South Korean shipbuilders who have been actively chasing a highly lucrative order for the construction of up to six 200,000 dwt capesize bulk carriers for one of China’s largest steel mills, Shougang.

To date, no firm contracts have been placed, but from Hong Kong the word is that the vessels will be shared between Hyundai Heavy Industries, Daewoo Heavy Industries and Samsung Heavy Industries. A seventh vessel is likely to be built at the Sasebo shipyard in Japan. Continue Reading

End to UK Subsidies Will Change Ship Finance

by Paul Richardson

From the beginning of 1996, government subsidies towards shipbuilding contracts placed at yards in Europe, including the U.K., will be no longer.  The much-debated financing, labeled unfair by U.S. authorities, and constantly questioned by the Asian shipyards, will be phased out, and all commercial shipbuilding projects, should they carry any form of subsidy, will need to be backed by the private sector, such as banks or even owners’ equity.

A Paris meeting organized by the Organization for Economic Cooperation & Development (OECD) in mid-July reached an initial agreement to end the government subsidies, although a reciprocal requirement relating to ship operations under the so-called Jones Act, was placed on the US doorstep, leading to a compromise from the Clinton administration.

In place of the government subsidies, yards which include those in the U.K., will be open to cheap ship finance, but, more importantly, the incorporation of a new “injurious pricing code” will be introduced, to stop newbuildings being booked at loss-making prices by shipyards keen to gain a major market share.

Until 1996, the maximum level of government subsidy on shipbuilding contracts placed in all EC countries is 9%, but there are tremors throughout the industry that in the run up to January 1996, a certain amount of panic contracting will take place, as European shipyards and shipowners looking to place newbuilding orders in the EC on the back of existing government subsidy arrangements, will be fighting to firm up orders before the deadline passes. If that happens, the entire market position could become close to chaotic, and the future of many small time shipyards post ’96, particularly in the U.K., will be questionable. Continue Reading

OSG Drops Acquisition Bid

What now for American Trading Transportation Co.?

The sale of the company to Overseas Shipholding Group Inc.  was dropped in mid-March after both companies said that  antitrust questions raised by the U.S. Department of Justice  had delayed the acquisition past a cancellation date agreed to  by the two companies.

According to press reports, BP North America Inc., the U.S.  subsidiary of British Petroleum Co., was the loudest voice  opposing the merger of the two fleets.  Reportedly, BP felt an OSG-ATT merger would lead to  over concentration of ownership of ships eligible to move  petroleum in the Jones Act cabotage trade with the potential to  boost freight rates.

Several sources in the shipping industry were surprised that  objections to the merger would be cause the Justice Department  to kill a merger. They note several U.S. flag tankers are in  lay-up and oil movements from Alaska are expected to decline in  coming years.   Continue Reading

Profiles of Marine Money’s Top 20 Companies

American President Companies
United States

Structure: Publicly listed company traded on the New York Stock Exchange.

Principal Activities: APC  provides container transportation services in North America, Asia and the Middle East through an intermodal system combining ocean, rail and truck transportation.  In addition, the company has real estate holdings which are being developed and sold.  Since 1990, the company has undergone a major restructuring and streamlining of its operations.

Carnival
United States

Structure: Publicly listed company traded on the New York Stock Exchange.

Principal Activities: Carnival celebrated its 20th anniversary in 1992.  The company operates two separate cruise lines – Carnival Cruise Lines and Holland America Line – and a tour business.  Carnival operates nine ships in the Caribbean and Mexico.  Holland America operates five ships in the Caribbean and Alaska while Windstar Cruises operates three sailboats in more exotic places.  The company also has a 25% stake in Seabourn Cruises and operates a tour company with hotels, buses and railcars in Alaska and the Yukon.  The company is seeking buyers for its stake in the Crystal Palace Resort in the Bahamas. Continue Reading

Caveat Emptor Key to Global Investing

Investing in different markets around the world has become an integral part of investment management. Institutional investors, pension fund managers, and money managers are increasingly looking to diversify their portfolios by investing in foreign markets as a way to enhance their risk/reward ratios.

However, with this diversification has come new risks beyond simply understanding the different companies. Instead, the manager must consider a whole realm of market-based risks including price volatility, political risks, liquidity issues, disclosure issues, weaker shareholder protection, higher transaction costs, and less reliable settlement systems, among others. Any one of these risks can influence the manager’s market allocations. Failure to take these issues into account can have a significant impact on the eventual performance of a portfolio.

Following are some of the results of a survey compiled by Ennis, Knupp & Associates of non-US, stock-market suitability. Their study examined many issues, including those listed above in thirty-five different markets. For our purposes we have drawn our conclusions out of this data particularly on those issues most frequently identified by individuals in the nineteen different markets covered by this year’s Ranking Issue. Continue Reading

A Market-by-Market Look at Accounting Changes

In preparing our ranking issue, we have tried to be as consistent as possible, though this has not been an easy task given the wide variety of accounting procedures and practices. From year to year the challenge remains the same,  constructing complete income statements from non-standardized numbers and notes that may or may not reveal the needed information, or reformatting balance sheets into traditional assets equal liabilities plus owners equity.

As with any task of this nature, the key is in the preparation. Before we began, we contacted different accountants, bankers, investors and owners around the world to find out which figures they consider the most important and what format would be the fairest and most informative. In our conversations we identified two major issues: One, where should the gains or losses from ship sales go-up top in operating profit or down below as an extraordinary item?  Two, when figuring return on equity and earnings per share, should we use net income or earnings before taxes or profits after taxes but before appropriations?  Continue Reading

Marine Money’s Third Annual Ranking of the World’s Leading Shipping Companies

This year marks the third consecutive year that we have completed a major comparative ranking of the results for both public and private, shipping and shipping-related companies. And with each year we have expanded the coverage.  This year’s issue looks at the results of over one hundred companies from eighteen different markets around the world, an increase of over 40%.

As in the past, we have worked closely with the companies, shipping bankers, accountants and institutional investors to standardize the variety of accounting formats. This is not an easy task, and it is unlikely that everyone will agree with our decisions. On page 20 you will find a description of the decisions we made with regard to restating and standardizing the accounting policies. In addition, we have included a question and answer section that looks at some of the major accounting questions that are repeatedly raised, such as the impact of the new tax laws in Norway and accounting for foreign exchange gains and losses. In putting this together, we relied on the expertise and information provided by the accounting firm Moore Stephens.

Having settled on a standard accounting format, we went through the results, restated them where necessary, and input them in the Marine Money International Financial Database. Inside are more than twenty tables that rank the performance of the companies from an operator’s, banker’s and investor’s perspective. Included are rankings of revenue, earnings before interest and taxes (EBIT), net income, margins, leverage ratios such as cash flow/total borrowed funds and times interest earned, return on equity, cash flow multiples, and fleet age, among others. Each table also compares the 1992 results with 1991 results to reveal trends and to indicate who has moved up or down. Continue Reading

Soviet Armada Poised for Major Thrust into Reefer Trades

The integration of former Soviet shipping companies into world reefer shipping has taken a giant step forward with the formation of a new deep sea pool. A consortium of seven companies in the USSR has combined their resources to form Ocean Reefer Transport, which will be initially responsible for five vessels between 5,000 and about 11,000 dwt. However, long term plans envisage the transfer of up to 60 ships in the Bukhta and Cristal classes to the pool. The actual number of ships committed to the pool will vary from 10 to around 50, depending on market conditions.

In the formative stages, the pool will be represented in New York by the newly formed agency Trans Ocean Express Ltd., run by 25-year-old Daniel Lev. The company is jointly owned by Lev and companies participating in the pool.  Later in the year, the headquarters will be transferred to Panama, coinciding with the opening of branch offices in Moscow, Vladivostock, Kaliningrad, Riga, Klaipeda, Sebastopol and Murmansk. The new Panamanian company will be staffed by Soviets and Lev, whose family emigrated to America 15 years ago and has interests in the film industry.     Continue Reading

Oslobanken Plans Takeover of Pareto and Rights Issue

The development of a stronger corporate finance profile has been cited as one of the main reasons for the takeover of Pareto by Oslobanken. Details of the merger plans have been kept under wraps, pending a shareholders meeting later this month and, significantly, so have the bank’s first half results. Oslobanken managing director Eric Lind told Marine Money, “We are planning to arrange the takeover of Pareto through a share issue, and we are coupling this with a rights issue at the same time.” Norwegian Stockbrokers contacted by Marine Money thought that the size of the issue would be in the region of Kr400m and 500m.

The takeover of the fast expanding Pareto could add new a dimension to Oslobanken’s ship finance activities. Pareto was already a major force in the K/S market at the start of this year, before the takeover of DnB Corporate added another 60 accounts to its portfolio. In April, the company formed a strategic alliance with the newly established Nedscan Marine Business A/S, a joint venture between the Dutch groups, NMB Corporate Investments BV, Dolfinance and former executives of DnB Corporate in Bergen. However, Eric Lind emphasized that Pareto’s strong ship finance business was not a major consideration in the takeover. He said, “We will not be involved in financing Pareto’s shipping projects, as we do not wish to become involved in both sides of a transaction. The reduction of many K/S tax benefits may restrict ship finance opportunities in the future, although most of Pareto’s ship finance projects have not been tax driven. Our main reason for taking over Pareto, however, is related to its strong business in the K/S market and project finance. We believe that this can be used to generate equity for real estate and industrial projects in the years ahead.”  Continue Reading

What Are The Options in Risk Management?

Many new tools for holding down costs or for locking in revenues have been presented to the maritime industry in recent years. Futures, forwards, options, swaps, caps, collars, fences, and swaptions…the list goes on and on. In all of these tools, the shipping company is urged to manage the cost or revenue by entering into another transaction involving a financial instrument.  In this, the first of two articles, we try to illustrate where the similarities and differences among the instruments lie.

Financial engineers, in their efforts to create products for customers, have been accused by many people in the shipping industry of going overboard in terms of their inventiveness. While there is certainly an increased awareness of some of the risk management products named above, conversations with readers of Marine Money – including some very savvy financial types – reveal that a great deal of confusion still exists about the exact nature of all these devices. The uncertainty is focused in several areas, such as what the profit/loss profiles look like for each device, and what the costs are – both explicit and implicit. Additionally, some readers were not clear on what instruments could be applied in which markets.    Continue Reading