Links
Bullish still, just slightly less so
It was the fact that Asia, with all its growth, demand and development, are coupled for better or worse with Europe and the US that cast some pall over the enormous proceedings at the St Regis. With opening speaker, Dr. Marc Faber of the hugely respected Boom, Doom and Gloom report mockingly calling Fed bankers “geniuses” for wishing they could push interest rates negative, worrying over commodity wars spreading from conflict in the Middle East, while advocating for every personal portfolio to hold a little gold as paper money value is controlled by evil governments the start was dark.
One didn’t know really whether to laugh, cry or rail against incompetent and self-promoting Western politicians. Dr. Faber’s style is so thoughtful and entertaining one would probably smile as he executed you.
Bankers spoke the new conservatism we are all familiar with. Available Asia funding will clearly flow to Asia first.
But it got brighter with offshore, LNG and even a panel of hugely well capitalized drybulk owners nearly giddy with potential ahead. And the hallways and deal rooms were always full with animated clusters of deal makers.
It was abundantly clear that capital markets are temporarily closed though speakers urged advance preparation for the moment they may open again.
Private equity, discussed by a panel led by ICON’s Tobias Backer, featured a spirited debate between Tiger’s Julian Proctor and gave some prospect for investment.
But Damian Adams, Partner at Watson, Farley & Williams here in Singapore, quantified the funding needs which for some will clearly be a problem and for others an opportunity, when he told the audience, “as far as shipping is concerned, estimates of the extent of the capital shortfall in the shipping sector are $30 billion over the next 3 years and of the overall financing requirements of the industry, a staggering $200 billion.
Whichever figure you happen to believe it’s a lot.
As for the ability for private equity to close this gap, consider that in 2009 the 25 biggest lenders to the shipping sector had a total of $333 billion worth of outstanding loans.
Compare this to the combined investment of US private equity firms in the shipping sector in 2009 and 2010, which amounted to $3 billion, less than 1 percent of the amount of debt.
Even though that gap has closed slightly as the result of the write down of existing loan portfolios, tightening of lending criteria and increase in private equity investment, it doesn’t take a rocket scientist or a high school math student for that matter to work out that private equity alone is not going to get us there.”
We will be providing more coverage on the event in next week’s Marine Money Asia. Stay tuned.
Pride of the Inland Sea. Marine Money on Shikoku Island with 200 close friends!
Arriving on Shikoku Island on Japan’s inland sea today is to take a step into a different world. As Inatomi san of SMBC said at the start, ‘its been a center of trade for more than 1,000 years.’
It is a place where community works together for the general good, family matters and the beautiful mix of mountains, fertile coastal plains and productive industry along the coastline blend naturally.
The region is home to 800 big ships. 1000 by next year if all goes as planned! A yard like Imabari delivers 100 ships a year – all Rolls Royces!
Don’t get us wrong there are plenty of challenges facing one of the world’s great maritime clusters – yards face a fall off of future orders, local banks so important to the support of the giant Japanese operators off balance sheet fleet financing option have portfolios swollen with shipping exposure and its owners the famous Shikoku owners, are dealing with fixed price long term charters, yen denominated loans and a brutally weak dollar.
But for all those challenges at Marine Money’s 5th Japanese Finance Forum, the mood was upbeat, maybe not bullish, but certainly not grim.
Continue Reading
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 20th 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
The Inevitable – Taxes and Restructuring
President Obama’s Proposed International Tax Changes – Will They Truly Achieve Economic Stimulation
Tamara Moravia-Israel of Ernst & Young was forthright in views of the President’s proposed changes in international tax law. It is not good for shipping. And there is a question as to whether it will in fact create jobs, stimulate the economy and increase competitiveness as is suggested. First, the “check the box” regime is proposed to be reformed in that foreign eligible entities with a single owner could be disregarded for federal US tax purposes only if: (1) they are organized in the same country in which the owner is organized or created, or (2) a US person wholly owns them (except for tax avoidance cases). The implications of this are potential conversion of first-tier (for tax avoidance) and second-tier (or lower) foreign disregarded entities (FDEs) to corporations that may have US tax implications. Ms. Moravia-Israel suggests that the current check the box regime allows US multinationals to be on somewhat of a level playing field with its foreign competitors. An additional proposed change by the Obama Administration is the deferral of deductions. That is, there will no longer be allowed a deduction for foreign expenses on the US return unless the foreign source income associated with said foreign expense is recognized for US tax purposes. However the biggest threat comes from the Levin Bill, which Congress is potentially currently considering. In effect, the bill puts forth that a foreign corporation is treated as managed and controlled in the US if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the US. If the foreign corporation is considered to be managed and controlled in the US, it is treated as a domestic corporation for US tax purposes. This goes against the traditional determination of nexus, which has historically been the location of board meetings.
Investing and Investment Banking
The market is depressed. The people are not.
The debt markets exist. But you are looking at a lot less for a short term costing a lot more. A lot of the banks will be properly back into the game by 2010. It will help to have companies based in ship finance exporting countries.
The capital markets exist. The bond market is open at very reasonable rates. The equity markets are open for existing issuers but valuations are poor.
We may have a rebound this year thanks to stimulus plans and fiscal loosening, but the underlying damage is done. Banks will eventually HAVE to account for their losses. The write-downs have to come from somewhere and government debt is hardly the answer. Unless they wait years with the balance sheets impaired.
Continue Reading
The Economy and the Markets
STAY HOPEFUL
Investor sentiment is very often unpredictable and moody, especially today when economic data continues to come in mixed and casts doubts on whether the economic stabilization will be able to materialise into a recovery. And against this uncertain backdrop, it was refreshing to listen to an optimistic voice among the crowd on where the global economy is heading. François Trahan, Senior Managing Director and Chief Investment Strategist, ISI Group started off the Wednesday’s session of Marine Money Week on a positive note by reminding the audience that even though consumer deleveraging has already begun and may well continue for the next decade, equities can rally even during such times if the government is able to offset the consumer contraction. He pointed out that the US stimulus package is still very much in its infancy stage considering the fact that the government has only spent 5% or USD 42 billion out of the USD 787 billion.
Notes from Japan
We had a lot of talk at Marine Money’s 4th annual Japan Ship Finance Forum last Tuesday about strategies on strengthening balance sheets and managing vendor relationships to understanding one’s rights and remedies in contractual disputes. The strong support shown by over 150 delegates is a tribute to the Japanese shipping industry and its ability to manage the global financial crisis and shipping market downturn to achieve long-term success. We present some quick notes from the event. Continue Reading
Japanese Shipowners in Rough Waters
Not too long ago, Japanese shipowners were able to secure cheap financing at 90% financing or even 100% financing from the Japanese banks so long they have a long-term charter with one of three mega carriers. But this is no longer the case today when Japanese banks continue to grow cautious and tighten their lending capacities towards the domestic shipping industry.
During the bankers’ panel discussion at Marine Money’s 4th Annual Japan Ship Finance Forum, Mr. Yohei Ugari, general manager of the ship finance department at SMBC, shared with the audience that Japanese mega banks are no different from their Western counterparts and are constrained by their capital-adequacy ratios. At the same time, Japanese shipowners are facing their own set of challenges especially in generating stable cash flows due to the significant appreciation of yen over the past few months. Traditionally, shipowners in Japan are highly leveraged and have enjoyed the low interest yen denominated loans. But it is also this preference for yen denominated loans that exposes them to considerable exchange rate risks, arising from the mismatch in currencies between revenue and expenses. Continue Reading
Law and Order
On the last Friday of April, the Maritime Law Association of Singapore presented its 2nd Asian Maritime Law Conference entitled “Arrest, Insolvency and Pre-emptive Remedies in a Global Shipping Crisis”. The mood was somewhat sombre with many in the audience believing that the shipping crisis is still far from over. The mix of presenters included speakers from both the East and the West and brought great value and interest. Some of the more interesting takeaways for us, in no specific order, including the following:
- IMF estimates that bank losses from US toxic assets could reach USD 4 trillion. If we compare this figure to the global syndicated loan amount of USD 3 trillion in 2008, this is equivalent to one lost year of financial activities. Continue Reading
Finance for Asian Shipping
The availability of ship financing and alternative sources of capital was the central theme revolving Sea-Asia’s conference yesterday. Referring to a slide that illustrates the impact of banks writedowns on their market capitalisations (see below), Dagfinn Lunde, Member of the Board of Managing Directors of DVB Bank SE, pointed out that even though the traditional ship financing landscape has changed dramatically, there is still money available from banks. He told the crowd that DVB, DnB NOR, Nordea, Nord LB, Fortis and some Greek banks are open to different extents and it is possible to put together club deals between USD 100 million to 120 million today. “If you have the words ‘energy’ or ‘offshore’ in your project, even some US banks are still willing to lend,” he added. Continue Reading
The Official Guide To Marine Finance Providers
Shipping Index
