China Rongsheng Mulls Over MTNs

Last Wednesday, China’s largest private shipbuilder, China Rongsheng Heavy Industries, announced plans to issue RMB 3.6 billion (USD 570 million) medium term notes to fund its general working capital requirements and repay part of its loans with higher interest rates. The first tranche of three year RMB 2 billion is expected to be issued on March 28, and will pay investors a fixed annual coupon, determined after bookbuilding. The notes are underwritten by Minsheng Bank and are rated AA by China Lianhe Credit Rating Company.

China Rongsheng recently reported 2011 net profit of RMB1.72 billion (USD 272 million) against gross revenue of RMB 15.9 billion (USD 2.5 billion). Deutsche Bank’s analyst Kevin Chong pointed out in his recent report that there has been a significant increase in group receivables from RMB 328 million (USD 52 million) in FY10 to RMB 3.6 billion (USD 571 million) in FY11. This is a cause for alarm as 91% of the receivables are overdue, underlying risk of provisions for doubtful debts in future. Cash and cash equivalents balance fell to RMB 6.3 billion at the end of 2011, compared to RMB 10.4 billion a year ago while group net gearing increased from 49% in FY10 to 122% in FY11.

Market Review: Shipping Bond Issuance Hit Record USD 8 billion

In the past, bonds were hardly seen as a typical source of ship finance. Bond issues by shipping companies were infrequent and were typically sold in relatively small tranches to complement larger bank debt facilities. But this picture has changed dramatically since 2009. In 2011, total shipping bond issues in Asia surged an astonishing 90% to USD 7.97 billion
from USD 4.12 billion in 2010, a figure that has exceeded the historical high of USD 7.81 billion recorded in 2009. The sharp rise in the volume of shipping bond issuance in Asia can be attributed to two main factors – material contraction in the banks’ appetite for shipping loans and the liquidity flush in Asia.

It is well-documented that many European banks are going through a difficult period, reducing and restructuring their shipping
loan portfolios. The lending capacity of these lenders will remain constrained by regulatory requirements and higher cost of funding. Tightening conditions for lending has prompted more companies to explore alternative sources of financing. The continual low interest rate environment and the abundance of in Asia have also encouraged fixed income investors to seek
alternative bond investments. Continue Reading

SK Shipping Plans KRW 150 billion Bonds

Shortly after STX Pan Ocean’s announcement to sell KRW 250 billion (USD 223.5 million) three year convertible bonds, another Korean shipping company is planning to tap the domestic bond market in a big way. SK Shipping plans to issue unsecured three year bonds of KRW 150 billion (USD 133 million), and out of which KRW 100 billion will be used to refinance existing bonds due in March with the remaining amount set aside for working capital. The bonds will pay investors an annual coupon rate of 5.1%.

Moving forward, SK Shipping is expected to add 16 more vessels including 5 VLCCs, 2 VLGCs and 9 dry bulkers.

STX Pan Ocean launched first shipping bond issue for the year

STX Pan Ocean will be selling KRW 250 billion (USD 223.5 million) worth of three-year bonds at a fixed rate of 3% for general corporate and facility investment purposes. Unlike most of its past domestic bond issues, the latest bond offering will be sold with warrants. Based on our records, this is the first time that STX Pan Ocean will be offering bundles of bonds with equity warrants for sale.

Each warrant gives the bondholder or his designee the right but not the obligation to buy one new STX share (listed on the Korea Exchange) at an exercise price of KRW 6,980. The warrants are priced at a discount to enhance the yield of the bonds and make them more attractive to potential buyers. By offering potential investors warrants that are “in the money”, STX Pan Ocean is able to offer its unsecured plain vanilla bonds at a much lower coupon than would have otherwise cost in excess of 5% for a three year tenor. The exercise price may be subjected to changes depending on prevailing market conditions, but will not be more than a 10% discount to the prevailing market price of the shares prior to the signing of the subscription agreement. Shares of STX Pan Ocean closed at KRW 8,120 last Friday. Continue Reading

Hanjin Heavy Industries Mulls Bond Offering

Bond markets in Asia continue to serve as a major source of funding for many shipping and shipbuilding companies. Bonds do not dilute existing equity, mostly sold on an unsecured basis, and more importantly offer longer repayment periods at lower costs compared to bank debt.

This week, Korean shipbuilder Hanjin Heavy Industries & Construction is hoping to sell KRW 120 billion (USD 103.3 million) three year domestic bonds. The bonds are expected to be priced at 6.1%, marginally higher than the company’s KRW 150 billion corporate bonds issued in November 2011. Meritz Securities, Korea Investment & Securities, Woori Investment & Securities, Korea Development Bank, Daewoo Securities, Shinhan Investment Corp and Hyundai Securities are reportedly participants in this offering.

COSCO Holdings Raises RMB 4 billion Domestic Bonds

Investors have appeared to leave China COSCO Holdings’ recent fiasco over charter party disputes behind them, as evident from the successful closing of company’s latest jumbo bond offering. The listed flagship and subsidiary of China Ocean Shipping (Group) Company sold RMB 4 billion (USD 626 million) seven year medium term notes (“MTN”), with lead manager China International Capital Corporation and co-lead Bank of China, just a month before 2011 came to a close.

Investors might be forgiving, but the terms of this piece of new debt were less favourable, compared to a similar MTN issue the company concluded in 3 September 2010. The RMB 5 billion MTN issue in 2010 was not only larger in size, but also offered investors a much lower coupon of 4.35% for a longer 10 year tenure. The latest unsecured notes offer investors an annual coupon of 5.45% for seven years, suggesting that even large state-owned companies in China are not immune to the wider difficulties in the capital markets. Proceeds of the latest bond issue will be set aside for working capital and the key terms of the issue are shown in the Guts of the Deal table accompanying this article. Continue Reading

Beefing Up War Chest – Yangzijiang Taps Domestic Bonds

Just before 2011 came to a close, Jiangsu New Yangzi Shipbuilding (“JNY Shipbuilding”) filled its coffers with over RMB 1.4 billion (USD 220.9 million), having sold its first ever RMB denominated medium term notes (“MTN”) with lead manager, China Minsheng Bank. The three year unsecured notes, issued by the wholly owned subsidiary of the Singapore and Taiwan listed Chinese shipbuilder Yangzijiang Shipbuilding (“YZJ Shipbuilding”), carry an annual coupon payout of 6.05%. The key terms of the issue are shown in the Guts of the Deal table accompanying this article.

On the credit side, JNY Shipbuilding and its MTN issue are both awarded ratings of AA+ by Shanghai Brilliance Credit Rating & Investors Service. This rating is well supported by strong cash flow from operations, proven track record, good order book quality and the parent company’s status as a listed entity in Singapore and Taiwan. Proceeds will be used to beef up working capital, which the yard says is extremely important in a challenging operating environment. Troubles in Europe and the resultant lack of bank appetite for shipping finance, overcapacity and falling freight rates in all traditional segments in shipping have all led to commercial new order flows drying up rapidly. At the same time, LNG and offshore sectors – arguably the only two marine bright spots unfortunately do not play to the strengths of Chinese shipbuilders, with the upsurge in demand benefiting only a selected group of established shipbuilders in Korea. Continue Reading

Aban Offshore Taps High Yield Bonds for Refinancing

Even as the year comes to a close, companies are busy strengthening their balance sheets and ensuring there is sufficient capital to ride through the uncertainties lying ahead. With banks tightening their lending requirements and some reducing their shipping exposure or exiting from the industry, the “Norwegian” high yield market continues to offer oil service, drilling, E&P and shipping companies fund raising opportunities amid challenging times. To the issuers, the attractiveness of the KS model lies in its fast and flexible issuance process, and ability to tap into pools of investors with in depth understanding of markets.

Last Wednesday, Aban Offshore Limited’s Singapore subsidiary Deep Drilling 1 Pte. Ltd had successfully raised USD 125 million four year senior secured bonds with sole manager Pareto Securities. A number of features make this deal attractive to investors, beginning with a good asset in a highly favorable market. The proceeds will be used to refinance existing bonds maturing 19 January 2012, previously issued to acquire 2006 Singapore built jack-up rig, Deep Driller 1. Continue Reading

CSIC eyes RMB 8 billion Convertibles

Buana Listya is not the only company in the maritime space that is mulling over issuing convertible bonds. Chinese state owned shipbuilder, China Shipbuilding Industry Corporation (“CSIC”) is planning to raise not more than RMB 8.05 billion (USD 1.27 billion) worth of convertibles and out of which RMB 3.63 billion will be used to acquire the equity stakes in seven subsidiaries. Another RMB 4.41 billion will be set aside to upgrade the shipbuilder’s ship repair/demolition division, and its capability in constructing sophisticated offshore vessels and larger fuel efficient ships. More details will be announced upon the approval from the country’s regulatory body, State-owned Assets Supervision and Administration Commission of the State Council.

Buana Listya Tama mulls over Convertibles

Six months after a successful spin off from Berlian Laju Tanker (“BLT”), Jakarta listed Buana Listya Tama (“Buana Listya”) is seeking to raise USD 50 million through a convertible bond issue. Details of the potential private placement are yet announced, but we understand that the proceeds will be set aside to fund capital expenditure, as the company continues to pursue organic growth in the domestic crude oil, product tanker and gas tanker markets. Aside from convertible bonds, the company is also considering other funding avenues in light of the recent turmoil in the capital markets.

RS Platou Markets, one of the mandated joint bookrunners in the ongoing potential private placement of the convertible bonds, pointed out that Buana Listya has a strong credit profile with cash reserve of USD 34.6 million and total assets of USD 415.5 million, against total debt of USD 69.0 million. Pending the successful fundraising exercise, Buana Listya’s total debt-to-EBITDA ratio will stand at just 2.1 times, even without taking into account EBITDA contribution from new vessels and all its bareboat charter obligations capitalized. EBITDA can fluctuate significantly as the shipping market goes through peaks and troughs, but what makes Buana Listya more palatable to the investors is that unlike its parent who focuses on the international markets, it has a strong focus on the energy sectors within Indonesia that will provide significant opportunities from the expanding cabotage trade. The strong balance sheet will come especially handy when the company is already actively participating in tenders or discussions for a variety of long term contracts in the Very Large Gas Carrier, floating offshore coal terminals, FPSO and FSO sectors. Buana operates the first and only Indonesian-flagged FPSO, the second largest FSO fleet and the largest oil tanker and gas tanker fleets in Indonesia. Continue Reading