Labuan Woos Shipowners with Tax Savings But…

Malaysia has been pushing forward on plans to attract shipowners to Labuan but experts say many corporations and SMEs in the shipping business remain unaware of the significant tax benefits offered to encourage more shipping leasing activities in the island. Speaking at a seminar co-organised by OCBC Bank (Malaysia) Berhad and Equity Trust (Labuan) Limited recently, Ms Sue Yong, managing director of Equity Trust, said the favourable tax regime and regulatory environment in Labuan has helped both foreign and Malaysian-based companies to lower their operating costs through innovative leasing structures.

Ms Yong pointed out that leasing through the Labuan International Business & Financial Centre (“Labuan IBFC”) involves enormous tax benefits – taxation at 3% of net audited profit or a flat tax of RM20,000 (USD 6,226) instead of the usual 25%. In addition to the tax benefit, offshore companies registered in Labuan need not pay withholding tax or stamp duty on offshore transactions with the exception of companies that are engaging in the business of transporting passengers or cargoes by sea or the chartering of ships on a voyage or time charter basis. Continue Reading

Lessons Learnt But Not Forgotten

The world of ship owners, shipbuilders, financiers and, ultimately the investors, entered into an age of anxiety and confusion when the financial markets collapsed at the end of 2008. But then, is it the latter which led to the former, or the writings were clearly on the wall since the beginning of 2008 (or maybe even earlier)? Some analysts suggested that the industry was overwhelmed by the euphoria of the “unstoppable growth” of the BRIC nations, especially China, and the explosive supply of credits and spending power of the Developed nations. Therefore, is it excusable that the industry will be laden with excessive capacities for years to come, and it is no one’s fault since everyone has been misled? 

Recently, I have the chance of catching up on my readings, and particularly one by Mr. Kazuo Inamori, the founder of Kyocera and KDDI – both being world market leaders in their respective industry sectors. Whilst reading this book, it became clear to me that the issues we (the shipping industry) are facing are created not because the statistics were misleading, but due to two very basic human defects: Greed and Arrogance. In the book, it was quoted that “Life is an expression of our mind”.    Continue Reading

Shipbuilding Capacity at the Opening of a New Decade – Where Are We?

By Worldyards

We at Worldyards pride ourselves in having relatively accurate (yes, everything is relative) measures on both shipbuilding capacity and size of the orderbook, therefore we think it is appropriate to end 2009 with our final public market comment on capacity. We discussed this issue in numerous occasions in the past (see, Reality Check – 3 years on dated 18 March 2008), at most times throwing cold water into various supply-side scares such as massive delays, lack of main engine and crankshafts etc.. We do naturally track the numerous delays and failures of some shipyards before they cut the first steel. Such misfires have been part and parcel of the shipbuilding landscape for many years. Our capacity figures represent fact-based tracking of all expansions and productivity increases. These measures to record shipyard facility capacity are combined with a detailed tracking of orderbook progress to indentify instances where the contracted orderbook will fall short of projections due to either shipbuilder default (construction delays) or else buyer problems (that result in either outright default on contract or a hard-fought-for mutual agreement to terminate or reschedule). Continue Reading

Review and Outlook for the Global Maritime Sector

By Nazery Khalid, Senior Fellow, Maritime Institute of Malaysia

Rough seas, turbulent times

Amid a sea of change brought by the global economic recession and credit crunch, the maritime sector has been subjected to intense forces and challenges that have altered its landscape dramatically. The sharp decline in world trade has wrought serious havoc not seen in the shipping industry for a long time. The shipping sector, which facilitates an estimated 80% of the global trade by volume, has gone on from the darling of investors to a dud in an astoundingly short time. From the heights of record breaking performances in almost all sectors of then industry only two years ago, the maritime industry went on a dramatic free fall that has seen players languishing in massive loss. Some have even failed to survive the economic downturn and financial crisis.

When the full impact of the global economic downturn hit, the maritime industry was among the first activities to feel the brunt.   This should not come as a surprise given its pivotal role in facilitating much of global trade. In the shipping sector, shipowners who were basking in the glory of historically high demand, freight rates and asset values, suddenly found themselves reeling from the slump in global trade and the demand for the cargos they carry. Banks cut back lending, leaving shipowners high and dry without access to financing to fulfill their obligations to pay for newbuildings and to come up with working capital to run their business. As a result, they had to cancel orders, leaving shipyards and a host of ancillary services providers high and dry. They were saddled with overcapacity and forced to lay up their vessels and send them to shipbreaking yards. The truly badly hit even exited the business altogether and filed for bankruptcy. Continue Reading

2009 in Review: Staying Afloat

The world economy has stop failing and Asia in particular has bounced back faster than expected, largely due to the unprecedented global coordination in both fiscal and monetary policies. But as 2009 draws to a close, uncertainty threatens to derail the sustainability of the current recovery that has been largely driven by replacing private demand with aggressive monetary easing.

We like the way William Thomson, Chairman of Private Capital in Hong Kong, summed up 2009 by describing the global economy’s escape from a cataclysmic collapse of the financial system analogous to a heart attack treated with previously unthinkable doses of adrenaline in the form of unorthodox monetary and fiscal policies. After a lag, the patient has returned to consciousness but is in far from rude health.

Food for Thought

We are very grateful to Viktor Berglind for extending us an invitation to attend RS Platou Conference last week, held in celebration of its 20^th Anniversary in Singapore.

Among the many insightful market presentations, we enjoyed the panel discussion on the market outlook moderated by Mr. Erik Helberg (RS Platou Shipping Research Team), featuring Mr. Richard Hext (CEO Pacific Basin), Mr. Andreas Sohmen-Pao (CEO BW Shipping), Mr. Thomas Preben Hansen (CEO Rickmers Maritime), Mr. Kent Paulli (Director ST Shipping/Glencore) the most and here are some extracts from the very interesting panel discussion involving some of the most established names in the shipping business. Continue Reading

Look Beyond Current Gloom in Shipping, Banks Told

Amid challenges rise opportunities, and ship financing institutions ought to see beyond the current gloom in the sector to appreciate its long-term potential, participants at a ship financing seminar were told. 

Nazery Khalid, Senior Fellow at MIMA said that despite the devastating economic crisis, consumers and businesses need to use goods and materials, and nations need to continue to trade. 

“Shipping will always be at the forefront of trade transportation by carrying much of the world’s global trade”, he said.  “As such, the sector will be the first to benefit from the global economic turnaround, and financial institutions which continue to support the sector during these lean times will stand to capitalize on the sector’s recovery”, Nazery predicted. Continue Reading

Funding the Equity Shortfall

New York-listed Navios Maritime recently announced a series of transaction that are very interesting but mostly the territory of our western sister publication, Freshly Minted. However among this series of transactions was one very important one that bears discussion here, namely a USD 52.82 million reduction in cash requirements for three existing newbuild capesize vessels. This reduction will be effected with part of the issuance of USD 165.22 million of mandatorily convertible preferred stock. Reports indicate the vessels in question are being constructed at Sungdong Shipyard in South Korea.

What is interesting is that the stock of a Greek shipping company listed in New York is being used in lieu of cash to fund the equity portion of a newbuilding commitment in South Korea, all the more so because of all the yards the Koreans have thus far been reputed as the least flexible in amending newbuilding orders for the benefit of their clients. It should be noted that Navios is also acquiring other vessels understood to be under construction at the same yards from entities currently being controlled by Commerzbank, so such flexibility should work to the benefit of all parties involved. Still, the deal highlights how equity investments and even M&A deals will come into play where cash is scarce. It also brings forward the question of whether publicly-listed companies, with their liquid and transparently valued stock, will be at an advantage as newbuilding acquisition candidates in situations such as these.

An Explanation

The rise in the BDI has taken everyone by complete surprise. But in reality the reason for the rise is rather simple. China binge buying iron ore against all expectations with imports rising at 27+ pct higher in 2009 than for 2008, based on the annualized results of the first 4 months of this year, shows you where the big move from the demand side has come from.  This rise in iron ore imports is despite the fact that steel production in China in the first four months of 2009 has been roughly at the same levels as we had seen in 2008.  An explanation for this increased iron ore imports could be from the fact that domestically produced iron ore in China is of a rather poor quality and quite expensive when compared to spot imported prices.  Another explanation could be that of speculators getting into the import market to try and get hold of ‘cheap’ iron ore that would possibly be required under the Chinese Government’s USD 586 billion stimulus plan.  And a third could be the impending conclusion of the iron ore contract price negotiations.

Obviously, when you binge buy and compress imports of a single commodity, carried mainly by Cape size ships, into a very short space in time, you tend to create two issues at the same time. Firstly, you tend to push up freight rates due to the time-compressed/explosive demand growth for that ship-sector. And more significantly, you create queues at loading and discharging ports which tend to reduce availability of spot ships driving prices even higher. Combine this with delayed delivery schedules of dry bulk ships during Q4 08 and Q1 09 and you have the ingredients of a perfect storm especially when you take the number of Cape size ships that have been sent to the scrap-yard during the last 6/9 months. Continue Reading

An Update on Stimulus Packages

Over the past year, the massive economic stimulus packages put together by policymakers around the globe have been grabbing the headlines, most notably from the United States, China and Japan. According to the latest estimates from IMF, Asian governments have pledged to pump over USD 950 billion into their economies through increased expenditure, tax cuts and cash hand-outs. And if we look closer at the figures, we would notice that fiscal stimulus in Asia is larger than other parts of the world. China, Japan, Singapore, South Korea, Taiwan and Malaysia have all announced fiscal packages of more than 4% of GDP, twice as large as US’s stimulus this year.

Many governments in Asia have come up with plans to lend a helping hand to the shipping or shipbuilding industry – sectors that they consider to pivotal to their country’s economic well being. Continue Reading