Unitholders Approve PST Delisting

Pacific Shipping Trust (“PST”) is a step closer to making history as the first shipping trust to be listed and delisted from the Singapore Exchange. In early October, parent company Pacific International Lines proposed to buy up the remaining 40 percent shares in PST. PIL offered 43 US cents in cash per unit, representing a 14.7 per cent premium over the last-traded price of 37.5 US cents at the point of the announcement.

On December 16, 2011, PST unitholders voted in favour of the delisting that was conditional upon an approval of at least 75 per cent of the total number of issued units held by the unitholders present and voting, on a poll, either in person or by proxy at the extraordinary general meeting (“EGM”), with not more than 10 per cent objecting. At the time of offer, PIL was already holding in excess of 75% of the total number of units at the time of offer. The challenge was to convince minority unitholders that the offer price was fair and the delisting was to their interest. Continue Reading

Swiber Tests Market Demand for Perpetuals

Lacking of good alternatives to park cash in, high net worth individuals in Asia who want to remain invested in today’s volatile market are turning to corporate bonds and potentially perpetual securities for higher yields. And Singapore listed Swiber Holdings wants to take advantage of this positive market development. Last week, the offshore oil and gas services provider started marketing its proposed offering of SGD 50 million (USD 39 million) perpetual preference shares with an indicative 8% dividend. This follows shortly after the successful closing of its plain vanilla SGD 60 million (USD 47 million) 5% one year debt raised under its SGD 500 million Multicurrency Medium Term Note Programme, established by sole bookrunner DBS Bank in July 2010.

This time, Swiber is selling perpetual preference shares in lots of minimum SGD 250,000 to private bank clients. Investor demand for this relatively new investment instrument was reportedly lukewarm, despite the fact that the shares pay investors an annual dividend of 8% and an extra 2% dividend if the shares are not called in the third year. In the event of default, further protection comes from an additional 2% dividend to the investors and the option to convert into ordinary shares if the company defers a second dividend payment or defaults on dividend payment. Continue Reading

Courage Marine Completes Dual Listing

Last Friday, Taiwanese dry bulk owner Courage Marine completed its dual listing process in Hong Kong, six years after its IPO in Singapore. Although no additional proceeds were raised through this exercise, the management believes that the dual listing would provide ready access to these different equity markets in Asia Pacific region when the opportunity arises. More than 60% of the company shares were transferred over to the Hong Kong Stock Exchange prior to the dual listing. China’s second-biggest publicly traded brokerage Haitong Securities was the appointed securities house for the secondary listing.

Courage Marine owns and operates nine dry bulk vessels, including one Capesize vessel, four Panamax vessels, two Handymax vessels and two Handysize vessels with a total carrying capacity of approximately 577,000 dwt.

Pacific Shipping Trust Seeks Delisting

The Singapore shipping trust sector suffered a major setback this week after forerunner Pacific Shipping Trust (“PST”) announced intentions to voluntarily delist from the Singapore Exchange. PST was listed way back in May 2006 amid fanfare and was touted as a new attractive asset class in the form of a “maritime annuity” for investors. But after years of lacklustre share performance and lukewarm investor appetite, its parent company Pacific International Lines (“PIL”) has decided it is time to call it a day.

PIL cited the need for greater operating flexibility as one of the reasons for PST’s delisting. PST’s growth potential has been hampered by the need to benchmark any potential acquisition against its distribution yield and making sure that any acquisitions are accretive to unitholders. This is difficult to accomplish in reality because the distribution yield is a function of the prevailing trading prices of the units and the lacklustre share performance over the years has made it challenging for the shipping trust to source for yield accretive transactions. At the same time, the amount of debt that PST can take on for each acquisition is limited by and subject to credit, debt service and prudence considerations. The delisting will also eliminate the costs of compliance with the listing rules and regulations, allowing PST to focus its resources on its business operations. “PST as a non-listed entity will have greater operational flexibility to pursue opportunities and make investment decisions without being constrained by market-based yield expectations, market sentiment and price volatility,” PIL said. Continue Reading

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

CIMC Raffles and China Merchants Energy Shipping Eye More Equity

The volatility in the stock markets has not dampened the spirits of Chinese shipbuilder CIMC Raffles and major Chinese international oil tanker operator China Merchants Energy Shipping to tap more equity.

CIMC Raffles is proposing to undertake a non-renounceable non-underwritten one for two rights issue to raise gross proceeds of approximately USD 102.6 million. The rights shares will be offered at USD 0.50 a piece, which is 46.2% discount to the company’s net asset value per share of USD 0.93 as at 31 December 2010. Proceeds will be used to repay bank borrowings and lower its gearing ratio, improve facilities at its existing shipyards, and fund working capital requirements. 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

A Shrewd Move? Dongfang Shipbuilder Lists on London AIM

On Monday, news of Dongfang Shipbuilding Group’s debut on the London AIM took the market by surprise, in a deal put together by nominated advisor and broker Northland Capital Partners. Even though the Chinese shipbuilder did not raise any new capital in the public listing amidst all the gloom, this transaction certainly merits some attention. Why would a company list without raising any money, especially during this period of uncertainty?

There are pragmatic reasons for the small Chinese shipbuilder to list on the London AIM. Perhaps the most obvious reason would be that it gives the shipbuilder the ready access to capital markets in the future. As capital becomes increasingly scarce and Chinese lenders prefer to support its larger competitors, some analysts argue say it is astute for a small shipbuilder like Dongfang Shipbuilding to start laying down the groundwork and expand its funding options. Continue Reading

Anchor Ship Fund Pushes Ahead with Second Ship Fund

The current uncertain economic environment has not derailed the ambition of Japan’s largest ship fund manager to launch its second ship investment fund. According to a recent article by Bloomberg, Anchor Ship Investment Co, which is backed by Mizuho Securities and Dai-ichi Life Insurance, could more than double its fleet to as many as 50 vessels.

Anchor Ship is putting together its second ship investment fund of about JPY 200 billion (USD 2.6 billion) that will take a different investment approach by shifting its focus from operators to Japanese owners. The fund is looking into the feasibility of co-investing with individual shipowners, by jointly setting up special purpose company (“SPC”) to own the vessel. The owner can subsequently bareboat charter the vessel from the SPC, manage and operate the ship and fulfil the time charter commitment with an operator. The financing of the vessel will come from equity contributed by both parties and bank debt. This structure essentially provides shipowners with an alternative funding solution, especially to those who had ordered their ships at high prices. The second fund is also receptive to idea of taking over ships that are cancelled by shipowners, but that will require the cooperation of all the parties including operators, banks, shipbuilders and in some cases the trading houses. And in an effort to diversify its investment portfolio, the fund manager is not ruling out possible investments in offshore assets such as floating production, storage and offloading (“FPSO”) units and drill ships.

Anchor Ship launched its first ship fund of JPY 200 billion or USD 1.6 billion in May 2007. The maiden fund focused mainly on acquiring large vessels that are on long term bare-boat charters of around 10 years with blue-chip Japanese and foreign operators, and has posted annual returns in excess of 5% since its inception even against the backdrop of a rising Japanese yen against the dollar. The fund had an initial IRR target of 10 – 20%. Anchor Ship has invested in 24 vessels, out of which 12 vessels comprising four container vessels, five tankers, a car carrier, one liquefied petroleum gas tanker and a bulk ship are currently on the water. The remaining 12 vessels, including three container ships, two capsize dry-bulk vessels, three panamax and four handysize will be added to the fleet in the near future. Its customers include Japanese shipping lines Nippon Yusen and Kawasaki Kisen Kaisha.