Standard Chartered Shows Strong Momentum in Leasing

It was barely a year ago when Standard Chartered Bank introduced its ship leasing services, but all signs are already pointing to the continued popularity of this form of financing. Headed by industry veteran Sander Scheepens, the ship leasing team has been busy since its inception in October 2010, having closed seven transactions of over USD 700 million. Today, the bank’s ship leasing portfolio is made up of 21 ships, across various asset classes including dry bulk carriers, tankers and offshore supply and service vessels. Of the total leased fleet, 15 vessels are currently under-construction and 6 in the water. The ships are contracted on operating leases of between 7 to 12 years, mostly with existing clients of the bank who are based in Asia.

According to Mr. Scheepens, the sentiments have since changed and there is a “feeling of crisis” in the current market. “A year ago, people were careful but the panic was over. Container shipping companies were posting record profits and there was moderate confidence in the dry bulk sector. Today, markets are under a lot of pressure again. Therefore companies are starting to look at other financing options, given that bank debt may be less available than before. We are getting more leads, but that doesn’t mean it is easier to do transactions,” he said. Continue Reading

CMB Leasing Signs Leasing Agreement with Hunan Ocean Shipping

China Merchants Bank (“CMB”) Leasing has signed a RMB 800 million (USD 124 million) leasing agreement with Hunan Ocean Shipping for the financing of four 76,000 dwt panamax bulk carriers to be built at CSSC Guangzhou Huangpu Shipbuilding. The transaction is said to be groundbreaking, as this is the very first time that a bank-affiliated ship leasing company has agreed to acquire ships directly from shipbuilder. The ships will be subsequently bareboat chartered to its lessee upon delivery. Hunan Ocean Shipping currently owns 16 vessels of over 203,000 dwt.

One is Not Enough – FSL Goes Back to Torm

Having whetted its appetite two weeks ago, First Ship Lease Trust (“FSL”) announced that it had acquired from a subsidiary of TORM A/S its second LR2 product carrier, purchasing the M/T TORM Marie, a sister ship to the earlier acquired TORM Margrethe, for the same USD 46 million. Both vessels, which have a deadweight capacity of 109,672 DWT, were built in 2006 at Dalian Shipbuilding Industry. As was the case with the first vessel, the TORM Marie will also be bareboat chartered back to TORM for 7 years, but “on slightly better terms” than the Margrethe. In its weekly report, Martin Korsvold of Pareto suggests the rate is ~USD 16,000/day. The bareboat is similarly structured with recourse to TORM, a purchase option at maturity, an EBO at or after five years and three one year extensions. This vessel is also expected to be delivered this month.

The latest acquisition will also be financed with drawdown of USD 23 million from its existing revolving credit facility together with the proceeds of a just concluded fully underwritten private placement, which raised SGD 20 million (USD 16 million) and cash liquidity. Oversea-Chinese Banking Corporation as the underwriter and placement agent was able to complete the private placement and sold 56 million new FSL units at SGD 0.35 a piece. The issue price represented a discount of 6.4% to the volume weighted average price of the units traded on the Singapore Exchange on the day preceding the time the placement agreement was signed.

Far East Horizon Unmasks Ship Leasing Ambition

Large public listings are usually accompanied by great fanfare, but one particular company with huge ambition to become a significant capital provider to the shipping industry evaded our radar and concluded its low profile IPO in March. When Far Eastern Horizon (“FEH”), the financial leasing unit owned by the Sinochem Group went on its roadshow for its Hong Kong listing, investors were quick to place enough orders to cover the entire book.

Investors clearly liked FEH’s pedigree parentage. Not only was the controlling shareholder one of the largest state-owned conglomerates in China and a Global Fortune 500 corporation, three other strategic and reputable investors – KKR Future Investments (an affiliate of KKR Asian Fund), Techlink (an affiliate of Government of Singapore Investment Corporation) and TML (an affiliate of CICC Fund) were already significant shareholders in the company prior to the IPO. The three parties had ploughed in USD 160 million in FEH in September 2009 and their investments added weight to the company’s credentials. Six cornerstone investors Sun Hung Kai Properties, Value Partners, Hillhouse Capital, Prime Capital, Owl Greek Asset Management and OZ Management Fund committed a total of USD 250 million to the offering, accounting for 38% of the total deal size. Continue Reading

Boxes Financed!

Orchid Container Finance, a company under major container box lessor Florens Container Corporation S.A., has secured a five year USD 198 million term loan at 185 bps above LIBOR for the sale and lease back of steel dry bulk containers and general purpose containers. The Singapore office of Watson, Farley & Williams were the advisers to the lenders ING Bank N.V., Singapore Branch and DBS Bank Ltd, Hong Kong Branch. Headquartered in Hong Kong, Florens Container Corporation is one of the world’s largest container box lessors.

Apexindo Offshore Taps Ship Finance

Apexindo Offshore has concluded a sale and leaseback transaction with New York listed Ship Finance International (“Ship Finance”). The Singapore subsidiary of Indonesia’s largest independent drilling contractor P.T. Apexindo Pratama Duta Tbk has agreed to sell a 2007 built 375 ft Baker Marine Jack-up constructed at PPL Shipyard in Singapore to Ship Finance International for USD 151.5 million including a USD 5 million seller’s credit. The rig will be bareboat chartered back for a term of seven years.

The rig has been contracted to Total E&P Indonesie since it was delivered from the shipyard and the current charter runs until March 2012 with an option for Total to extend until March 2013. Should Total extend, the initial bareboat charter rate of USD 72,500 will increase to USD 75,000 and the seller’s credit will be paid. At the end of the bareboat, Apexindo will have the
option to purchase the rig for USD 70 million plus an amount equal to 25% of the excess of the charter-free fair market value over the option price.   Continue Reading

Standard Chartered Inks Sale and Leaseback with BLT

On Wednesday, Berlian Laju Tanker completed a sale and leaseback transaction with Standard Chartered Bank’s leasing division, involving four stainless steel chemical tankers. This transaction follows BLT’s recent USD 685 million landmark refinancing facility in which Standard Chartered was one of the six participating banks.

The transaction value of USD 93.5 million entails the lease of four chemical tankers for 7 to 11 year bareboat basis of which three of them are already in operation with the remaining one to be delivered within the coming weeks. Kevin Wong, Finance Director of the Company, remarked in an announcement to the stock exchange that the transaction reflects the company’s unremitting commitment to continuously improve its balance sheet and cement its relationship with Standard Chartered which he described as “a rare bank that combines a strong balance sheet with a depth of knowledge in the shipping industry with a broad financial portfolio.” Incidentally, Standard Chartered was also one of four bookrunners in the company’s rights issue in 2010. Continue Reading

Noble Turns to Leasing

As banks remain cautious in lending, shipping companies are increasingly dependent on the bond market for their capital needs. Leasing is often another option to consider, but it is often perceived to be costlier than other sources of funding. Managing Director and Head of Ship Lease Sander Scheepens at Standard Chartered pointed out in today’s market, this might not necessarily be the case. The weighted average cost of capital (“WACC”) even for well-managed shipping companies today can easily range between around 7-8%, based on an assumed cost of debt of 6%, cost of equity of 15% and an 80%/20% debt-to-equity ratio, which makes leasing a viable financing alternative in comparison.

Key advantages of leasing are straight forward (see accompanying table). Leasing offers 100% financing, allows the transfer of residual risk to the lessor and more importantly, can be extremely flexible in its structure to accommodate to the needs of the lessee. “The capital placement risk for bonds is much higher. The windows in the capital markets open and close very quickly, so you need to be very lucky when you are in the market for bonds. Leasing companies on the other hand are there throughout the cycle,” Mr. Scheepens added. Unlike bonds where companies will have to refinance at full cost at the end of the tenure, companies have a much lower outstanding amount to cope with and enjoy more flexibility at the end of the lease, depending on the leasing structure. There is also no need for companies to deal with value maintenance clauses, material adverse clauses or other covenants prevalent in bank loans. Continue Reading

Lease Your Ship in China?

Given the relative lack of funding support from the domestic banks, is leasing a viable option for the Chinese small and medium sized shipowners? There are over 1,400 leasing companies in China, according to an unofficial estimate, but very few actually have the capacity to deal with big ticket items like ships. However over the past two years, state-owned banks have established wholly-owned leasing divisions. Industrial and Commercial Bank of China (“ICBC”), China Construction Bank, China Development Bank, China Merchant Bank, Bank of Communications and Min Sheng Bank have all ventured into offering ship leasing services, and many of these specialised leasing units offer leasing services not only to ships but to other asset types such as industrial machinery and construction equipment as well. Bank of China Leasing for example is established in Singapore and offers aircraft leasing services.

There have been varying degrees of success. These state-owned leasing arms prefer to carry out leasing transactions with the first tier shipping companies in China to minimise counterparty risk, but interest has so far been limited, bearing in mind that these top clients have no lack of competitive funding support domestically. Some leasing companies have nonetheless found success with the state-owned power generation enterprises in China who have the need for coal transportation. Continue Reading

Let’s Together Shipping Fund

Korea Development Bank has established a KRW 2 trillion won (USD 1.6 billion) distressed asset fund to support the domestic shipping industry. We will be providing more details as well as a highlight on the differences between KDB’s fund and state-run debt-clearing agency Korea Asset Management Corp (Kamco)’s fund in the next issue of Marine Money Asia. Stay tuned.