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

Sinotrans Shipping Marks Maiden RMB Bond Issue

Sinotrans Shipping Inc has closed the first ever offshore RMB denominated bonds issued ever by a shipping company. The wholly owned listed subsidiary of state-owned Sinotrans & CSC Group was able to generate sufficient demand for the offering, despite the deepening debt crisis in the Western hemisphere. The bookrunners Bank of China (Hong Kong), Bank of China International (“BOCI Asia”), Agricultural Bank of China and Wing Lung Bank were able to price the three year RMB 2.6 billion (USD 408 million) bonds to yield 3.3% within a few hours, and the rapid bookbuilding exercise was deliberate to minimise execution risk amid the volatile markets.

The closing of the offering suggests that there is still appetite for dim sum bonds, although we note that Sinotrans & CSC Group’s very own listed subsidiary in Hong Kong, Sinotrans Shipping Limited, had played a role in the success. Sinotrans Shipping Limited subscribed 10.8% of the total offering or an equivalent of RMB 280 million worth of bonds. According to Sinotrans Shipping Limited, the investment in Sinotrans Shipping Inc bonds will provide a stable return under the current market condition, compared to holding on to excess cash in a low interest rate environment. We would highlight that the guarantor for the notes, Sinotrans Shipping (Holdings), is also a major shareholder of Sinotrans Shipping Limited.

Bonds Frenzy Continues in Korea

Historically low interest rates have encouraged investors to chase after high yielding assets and many shipping companies have taken advantage of this low interest environment and strong investor demand for yield to lock in cheaper cost of funds, either to refinance existing debt or build up cash positions. This is especially pronounced in China, Japan and South Korea.

In Korea, the domestic bond market continues to serve as a major source of liquidity for shipping companies. The country’s four largest shipping companies – STX Pan Ocean, Hanjin Shipping, Hyundai Merchant Marine and SK Shipping have collectively raised USD 1.56 billion since the beginning of this year, and this amount could well exceed the total bond issues raised in 2010. Continue Reading

Shipping Bonds Take Speed amid Market Turmoil

More shipping companies in Asia are taking a closer look at the variety of bond instruments, ranging from conventional straight bonds to more innovative “dim sum bonds” and perpetual bonds, despite the uncertainties and volatility revolving around the global economy.

Following the successful closing of China Shipping Development’s RMB 3.95 billion (USD 602 million) convertible bond issue in August, another major Chinese conglomerate is planning to tap the bond market in a big way. China COSCO Holdings – the flagship listed entity of COSCO Group is planning to raise not more than USD 2 billion worth of bonds. There are however some distinct differences in strategy between the two largest shipping companies in China. Unlike China Shipping Development whose bond offering was made available exclusively to Chinese domestic investors, China COSCO has clearly international investors in mind. The company will be setting up an offshore wholly owned subsidiary for the offering and provide corporate guarantee for the bonds, subjected to the approval of shareholders. Continue Reading

China Shipping Development Completes Mega Bond Issue

Hong Kong and Shanghai listed China Shipping Development has completed a RMB 3.95 billion (USD 602 million) convertible bond issue that could be the largest convertible offering by an Asian shipping company ever. The oil and bulk carrier division of state-owned China Shipping Group plans to make use of the six year bond proceeds to finance the construction of 19 new buildings – namely three 110,000 dwt oil tankers, eight 48,000 dwt oil tankers, two VLCCs and six 76,000 dwt bulk cargo carriers.

The offering was made available exclusively to Chinese investors and existing holders of its Shanghai listed shares or “A” shares were given preferential rights to subscribe for the bonds. The convertibles pay investors variable coupons ranging between 0.5% and 2% throughout the tenure and will be listed on the Shanghai Stock Exchange. CICC and Guotai Junan Securities were the appointed arrangers. We provide the guts of the deal in the accompanying table.