Swiber Seeks Shareholders’ Mandate for Preference Shares Issue

Perpetual securities are uncommon in Asia, but this has not deterred a number of offshore services companies in Singapore from looking into tapping this source of liquidity. Singapore listed offshore services firm Swiber Holdings is seeking shareholders’ approval to allot and issue convertible preference shares, which if converted in full into conversion shares at the conversion price, will not result in the issuance of not more than 40% of the enlarged share capital of the company.

Preference shares belong to a hybrid investment class, which is senior to common shares but are subordinate to bonds. Analysts generally perceive preference shares as a loan to the company, because preference shareholders are not entitled to normal voting rights but are entitled to dividends. In Swiber’s proposed issue, the company is offering convertible preference shares that provide investors the option to exchange for a predetermined number of the company’s common stock. A convertible preference share has features similar to a convertible bond. The differences lie in that preference shares are subordinated to debt of the issuing company and are usually perpetual securities with no maturity date.

Dividends to Swiber’s preference shareholders are cumulative and payable semi-annually at a fixed rate per annum, and there is a built-in dividend step up which may be activated upon events such as the deference of dividends. The issuer may, at its sole discretion, choose to defer dividend payment to the next dividend date. However, during this period, the dividend stopper will kick in and the issuer will not be allowed to declare or pay any dividends, or repurchase or redeem shares ranking junior to the preference shares.

Preference shares are and are not redeemable at the option of the preference shareholders. The issuer has the right but not the obligation to redeem the preference shares on any stipulated optional redemption date, occurrence of a tax event (any change in any tax law or regulation in Singapore) or occurrence of an accounting event (any change in the accounting standards applicable to the company). For the benefit of preference shareholders, preference shares are convertible into fully paid conversion shares during the conversion period. This means that there could be an increase in the number of shares outstanding in the future, and may be earnings dilutive to the existing shareholders. We expect more details to be announced at a later date.

Swiber intends to distribute the preference shares to institutional and accredited investors on a private placement basis and proceeds will be used for general working capital and capital expenditure.

Business as Usual for Now

Shipowners in Asia are bracing for the potential negative repercussions from the worsening banking crisis in Europe. After all, it was not too long ago when the lack of trade finance caused the BDI to plunge to a low of 663 points on 5 December 2008. Thankfully, a quick check with a number of commodity traders has suggested that the situation is still healthy on the ground. Trade finance is still available and cargoes are moving.

Even so, there are increasing worries that the major European shipping banks might no longer be able to continue provide funding to the shipping industry. Financial institutions in Asia and elsewhere have been reducing credit lines and exposures to European banks in the recent months and this have forced many European lenders to swap lines offered by the European Central Bank for US dollars. Bank of China for example is said to have stopped the counterparty dealings with several European banks. And if more banks are to follow suit, European banks will find it even more difficult to raise US dollars due to concerns over counterparty credit risks. Anxiety about the European debt crisis is driving up sharp spikes in the credit default swap spreads on major shipping banks, suggesting that the markets are increasingly cautious about the credit prospects of these lenders. Continue Reading

STX Pan Ocean Closes USD 510 million Syndication

South Korea’s STX Pan Ocean has secured a USD 510 million 12 year syndicated loan facility with a consortium of nine domestic and international lenders, comprising ABN AMRO, BNP Paribas, China Development Bank, Credit Industrial et Commercial, Deutsche Schiffsbank, DnB NOR Bank, Export-Import Bank of Korea, ING and Standard Chartered.

In October 2010, the company broke new ground and entered into the global pulp transportation market by securing the large consecutive voyage contract with the world’s largest pulp and paper company, Brazil’s Fibria Celulose. To fulfil this 25 year USD 5 billion contract that commences from 2012, STX Pan Ocean ordered 20 pulp carriers from another STX Group company, STX Offshore & Shipbuilding. Proceeds from the latest loan will be used to cover 70% of the total cost in the construction of 16 pulp carriers. Funding for the remaining
four vessels will be secured at a later date.

STX Pan Ocean has been actively raising funds since the start of this year to finance capex requirements through a combination of shipping banks, export credit agencies and domestic corporate bonds. We provide a list of recent transactions in the accompanying table.

CNMIEC Offers Preferential Loan to Bangladesh Shipping Corporation

CNMIEC Offers Preferential Loan to Bangladesh Shipping Corporation

Chinese state-owned trading house, China National Machinery Import & Export Corporation (“CNMIEC”), has approached Bangladesh Shipping Corporation (“BSC”) for the sale of 7 vessels worth at least USD 251 million. According to local press, CNMIEC seeks to sell two product tankers of up to 35,000 dwt at USD 43.5 million apiece, two bulk carriers of up to 38,000 dwt  at USD 31 million apiece, two small container ships between 1,100 – 1,200 TEUs at USD 20 million each and an oil tanker at a price tag of USD 62 million to the Bangladeshi national carrier.

CNMIEC will be throwing in a deal sweetener in the form of a preferential loan. The trading house is confident that it will be able to secure a preferential loan of 12-13 years for BSC with a grace period of 2-3 years, at an interest rate between 2.5 – 3.0%. The proposal has been submitted to the government for review.

Bangladesh has been planning to build up its national fleet to reduce reliance on hiring foreign vessels for its imports.

China Rongsheng Inks Another Massive Credit Facility

On Monday, Hong Kong listed China Rongsheng Heavy Industries Group Holdings signed a strategic collaboration agreement worth RMB 30 billion (USD 4.7 billion) with China Development Bank in the Chinese city of Nanjing. A large chunk of the facility will go towards its offshore engineering division. We note that Rongsheng has signed many similar corporative agreements with numerous Chinese lenders including China Exim, Bank of China, China Everbright Bank, China CITIC Bank and Agricultural Bank of China since August 2010, of at least total of over RMB 129.5 billion (USD 20.2 billion!).

We also have more details on Rongsheng’s recently completed USD 220 million offshore syndicated loan. Sole book runner Credit Agricole took up the biggest slice in the loan of USD 40 million while four lead arrangers Societe Generale, Aozora Asia Pacific Finance, Bank of East Asia and Bank of Tokyo-Mitsubishi UFJ committed USD 30 million each. Cathay United Bank chipped in USD 20 million. Italian bank Banca Monte Dei Paschi di Siena, Taiwanese lenders Chang Hwa Commercial Bank and Hua Nan Commercial Bank, as well as Metropolitan Bank and Trust in Philippines rounded up the syndication and contributed USD 10 million each. The loan offers the lenders a margin of LIBOR plus 130 basis points and is guaranteed by China Exim Bank.

China Rongsheng Inks Yet Another Massive Credit Facility

China Rongsheng has never failed to impress us with its ability to secure massive credit facilities from international and domestic lenders. Shortly after sealing a USD 220 million syndicated facility led by bookrunner Credit Agricole, the non-state owned shipbuilder has signed a credit facility with Agricultural Bank of China (“ABC”). This is the second credit facility that the shipbuilder has signed with the Chinese lender.

In the latest arrangement, ABC will provide China Rongsheng with a RMB 28 billion (USD 4.4 billion) facility, out of which RMB 20 billion (USD 3.1 billion) will go towards the development of its shipbuilding and marine engineering divisions while the rest of the funds will be used to invest in its machinery division.  If we tally up the figures, China Rongsheng has raised USD 6.3 billion of debt so far this year. That is mind boggling, given the weakening industry outlook and severe challenges faced by the shipbuilding industry. To date, China Rongsheng has an orderbook of USD 6.8 billion.

STX Pan Ocean Raises USD 384 million Debt

In today’s credit market, banks are increasingly conservative in their lending and as a result, export credit agencies provide the necessary credit enhancement to turn large deals into a reality. South Korea’s STX Pan Ocean has recently been tremendous successful in tapping the two largest export credit insurers in Asia, K-Sure and Sinosure for the financing of three VLOCs and three capsize bulk carriers.

In the first transaction, Norddeutsche Landesbank Girozentrale (“NordLB”) and Banco Santander S.A. have teamed up with K-Sure to provide a pre and post delivery loan facility of up to USD 247.2 million to part finance the acquisition cost in relation to three 400,000 dwt Very Large Ore Carriers presently being constructed by STX Offshore & Shipbuilding. The vessels will upon delivery be bareboat chartered to STX Pan Ocean and will be subject to certain long term time-charter arrangements with Vale International S.A. Continue Reading

GMF Closes Two Shipping Funds

Korean shipping fund arranger Global Marine Financing (“GMF”) has recently launched two time-chartered based shipping funds under the Ship Investment Company scheme (“SIC structure”) in South Korea, together with Mirae Asset Securities. The two ship funds named Badaro No. 17 and Badaro No. 18 have raised about USD 46 million each and will be investing in two 82,000 dwt Kamsarmax bulk carriers that are currently under construction at Sundong Shipbuilding & Marine Engineering. We understand that the structure is highly sophisticated which involves non-deliverable forwards to hedge currency risks and index-floating time charter contracts with the world’s largest grain company, Cargill.

There is an increasing pool of investors in Korea who are taking the view that there are real investment opportunities in the shipping sector. Many of them are willing to invest a significant chunk of equity, which makes projects viable for offshore banks from a loan to value ratio perspective. According to GMF, major investors to the funds include leading Korean institutional investors. Two of GMF’s shareholders, Mirae Asset and Samsung C&T, were not just investors in the two funds but also played vital roles in the deal making process. Mirae Asset Securities raised equity from its excellent network of institutional investors while Samsung C&T was instrumental in sealing the time-time charter contracts with Cargill. Continue Reading

China Rongsheng Heavy Secures USD 220 million Syndication Loan

Hong Kong listed Chinese shipbuilder China Rongsheng Heavy Industries has successfully closed its first ever overseas dollar denominated syndicated loan transaction of USD 220 million, led by bookrunner Credit Agricole. The successful closing of facility has strategic importance to non-state owned shipbuilder, given the tighter regulations and capital controls imposed by the central government on the Chinese lenders. The Import-Export Bank of China (“China Exim”) played an instrumental role in this syndicated transaction as a guarantor for the facility and according to sources, over 10 overseas banks participated in this deal.

The latest and maiden foray into the international syndication market marks an important milestone in its history as the shipbuilder seeks to diversify its funding sources and reduce its exposure to RMB loans. No other non-state owned shipbuilder in China has been as successful as Rongsheng when it comes to securing debt from the Chinese lenders. In 2010, Rongsheng entered into a number of strategic cooperation agreements with Bank of China, China Eximbank, Agricultural Bank of China and China Everbright Bank with a total credit line of up to RMB 118 billion (USD 18.5 billion)! In June, Rongsheng also inked a RMB 11 billion (USD 1.7 billion) credit line from China CITIC Bank.

Shandong Ocean Investment Signs RMB 20 billion Credit Facility

Chinese State-owned Shangdong Ocean Investment Company (“SOIC”) has signed a RMB 20 billion (USD 3.1 billion) credit facility with Agricultural Bank of China to unlock Shandong province’s potential in the marine sector. According to overseas media reports, the investment company has secured funding commitments of over USD 323 million from various local and foreign financial institutions, and has since placed orders for seven newbuildings of a total 786,000 dwt with a number of Chinese shipbuilders. The ships are scheduled for delivery between September 2011 and October 2013. Earlier in March, the local government-backed firm has also acquired an 82,000 dwt Kamsarmax bulker for its shipping division, Shandong Marine.

The investment firm is currently working on a “blue marine fund” of a target size of RMB 30 billion (USD 4.7 billion) to bolster its financial position. The fund hopes to collect at least RMB 8 billion (USD 1.25 billion) in the first round of fundraising and is waiting for the approval from the National Development and Reform Commission. Proceeds will be used largely to invest in shipping and logistic assets, marine equipment manufacturing, marine bio-resources and eco-tourism.