Links
TITLE XI FINANCING AND U.S. MARITIME POLICY
By Mark P. Schlefer, Esq.
The Congress has established five promotional programs to achieve an adequate merchant marine. They are: long-term financing under Title XI of the Merchant Marine Act, 1936 (the “Act”); cabotage; capital construction funds; the Maritime Security Program; and cargo preference. There is also 200 per cent ten-year declining balance tax depreciation.
The Title XI program deals with most of the important aspects of the economics of American shipping and shipbuilding; it is also readily subject to criticism, because it involves the government taking risks. It is easy to second guess a risk- taker if the risk eventuates.
The U.S.-Flag Merchant Marine
The five programs have failed to achieve the objectives. In the cabotage trades, only the oil companies, Tote in the Alaska trade and, to a limited extent, Matson in the Hawaii trade are in the process of renewing their fleets. Hawaii is served by about a dozen antiquated steamships, which should have been scrapped years ago. The same is true of the Puerto Rico trade. Most of the 47 subsidized ships under MSP are ancient tonnage. The bulk cargo preference trades, except for two new foreign-built ships, are served by old ships, generally built in foreign yards. These failures call for study and specific recommendations for corrective action. Continue Reading
“FORGET OPA, MEET SARBOX” REVISITED
By Gary J. Wolfe, Seward & Kissel LLP
Remember Sarbanes Oxley, the new set of U.S. securities laws applicable to publicly traded companies? While many in the investment community are still in the “I can’t believe it happened stage,” others are starting to enter the “How will I ever comply?” stage. Since Sarbanes-Oxley was adopted last summer, draft regulations, proposed regulations, requests for comments and amendments to proposed regulations have poured out of the regulators: The Securities and Exchange Commission (“SEC”), New York Stock Exchange (“NYSE”), Nasdaq National Market, and the American Stock Exchange. With all of this overlap, it is hard to keep track of just what is or will be required, and when.
The picture, however, is becoming clearer: Many, if not most of the SarbanesOxley requirements will not apply to publicly traded ship owners, because they are foreign companies not managed from the United States. Such companies include Frontline, Stelmar, TEN, Nordic American, Knightsbridge, Ultrapetrol, Excel Maritime, Golar LNG, Torm and Teekay. The way to recognize these companies is that they file annual reports with the SEC on Form 20-F. The SEC term for such companies is “foreign private issuer.” The other companies, those that are managed from the United States and file their annual reports on Form 10-K, will find that they already meet many of the new requirements. In fact, due to the nature of shipping as a relatively straightforward and transparent industry (at least in terms of calculating revenues and knowing how the market is affecting different owners), the publicly traded shipping companies should find that they will have little trouble in meeting those Sarbanes-Oxley requirements that will apply to them.
New Corporate Governance Requirements
With the adoption by the New York Stock Exchange of “final” rules that are presently before the SEC for approval, the situation is becoming clearer. Let us see what new corporate governance requirements will apply to companies such as OSG, OMI and General Maritime (all of which file annual reports on Form 10- K), and Frontline, Stelmar, TEN and Teekay (all of which file annual reports on Form 20-F). The chart shows which corporate governance requirements will apply and when.
Nordic American Tankers: Lessons Learned from The Dividend Yield
By Andreas Vergottis
Ever since its inception, Nordic American Tankers and, for that matter, its similarly structured peer Knightsbridge Tankers have traded at a premium valuation that other plain vanilla tanker companies could only dream of. Table 1 shows that the historic average Price to Book ratio of NAT and Knightsbridge has exceeded 120 cents/dollar. By contrast, the average peer group rating has been a paltry 89 cents/dollar.
The valuation discrepancy becomes even more glaring if one takes into account that NAT and Knightsbridge ships are in the books at prices that exceed the prevailing market levels for reasons which will be explained shortly. Table 2 shows a more refined comparison between the ratings of the peer group companies based on Enterprise Value (EV)/ Fleet Value. This valuation yardstick adjusts for deviations between book and market values and also for differences in the gearing of the companies. It allows comparison of peer group valuations on a more apples-to-apples basis.
Based on Table 2, NAT and Knightsbridge have traded at a premium of about 50 cents/dollar over the most comparable peer group. The story remains the same whatever valuation yardstick one decides to use. On both asset and earnings based multiples, NAT and Knightsbridge have commanded enviable ratings.
Golar Concludes Equity Offering
By Matt McCleery
It’s often been said that opportunistically timing the shipping markets and capital markets simultaneously is impossible – maybe, but Golar LNG has done it. Golar shares are up a breathtaking 74% while its price-to-book value has soared to an unprecedented 3.28x and its P/E is at an internet-sounding 24x.
What we are referring to is the fact that in late July, New York and Oslo-listed Golar LNG raised $57 million in equity (10% of its outstanding shares and 20% of shares not controlled by insiders) through what the company called a “directed equity offering to institutional investors.” As we understand it from talking to joint lead managers Orkla Enskilda and Fearnley Fonds, the new shares, which were sold à la Frontline 2001 (ie, with a few phone call and no prospectus), were picked up by accounts in Norway and America. received larger allocations. We’ve provided a table of Golar’s largest US and Norwegian investors below. As you can see, even the big U.S. investors have relatively small holdings in Golar, probably because the company has never done an underwritten equity issue in the U.S and is not followed by American analysts. Much of the float that is not controlled by insiders resides in accounts controlled outside America or in private hedge funds not required to disclose their holdings. The newly issued shares, which were priced off of a 52-week high closing price of NOK 73, were issued on August 1st and theoretically will be eligible to trade in both Oslo and New York immediately.
K-SEA TO IPO WITH JEFFERIES, LEHMAN, UBS & MCDONALD
By Matt McCleery
In Mid-August, we learned that U.S-based K-Sea Transportation had filed to sell 3.5 million common units in an IPO structured as a Master Limited Partnership to raise $68 million by selling 41% of the company. We expect to see a deal in late September.
K-Sea, which had net income of $14.4 million on revenues of $80 million in fiscal 2002, and provides transportation of refined products using tugs and barges in the northeastern United States. Proceeds will be used to reduce indebtedness, and the company has applied to be listed on the New York Stock Exchange under the ticker “KSPN.” Lehman Brothers, UBS Investment Bank, McDonald Investments Inc., Raymond James and Jefferies & Co Inc. are listed as underwriters for the sale. We view this transaction as a preliminary step toward the exit strategy of the private equity firm that controls the company.
As our readers may know, we are big supporters of using the master limited partnership structure for shipping deals – and the valuation table below tells you why. A master limited partnership is simply a publicly traded version of a limited partnership, whereby two or more partners conduct a business jointly and in which one or more of the partners is liable only to the extent of the amount of money the partner has invested. Typically, limited partners do not receive dividends, but enjoy tax benefits which are considerable for US taxpayers who invest in US assets such as those owned by K-Sea. The selection of underwriters, especially Raymond James and McDonald Investments, tells us that the deal will be distributed to individual, or “retail,” investors.
SEABULK PURSUES ARBITRAGE IN THE CREDIT MARKETS
By Matt McCleery
Seabulk International, which is controlled by lead underwriter Credit Suisse First Boston Private Equity (5 1%) and Carlyle/Riverstone (25%), headed back into the bond market in early August and issued $150 million of 10- year unsecured high yield bonds. In addition to Credit Suisse First Boston, which was sole lead book-running manager, Banc of America Securities LLC and RBC Capital Markets were co- lead managers and Merrill Lynch & Co had a piece of the economics as well. As the pricing table indicates, Seabulk achieved outstanding execution on the deal, especially in light of its single B rating.
Why did they do it? The deal is a refinancing. Seabulk used proceeds of the offering to repay $144.2 million of its five-year $180 million term loan (LIBOR + 500bps) /revolver (LIBOR + 450bps) arranged by Fortis and NIB Capital in September 2002. The company used the remaining $200,000 to pay fees and expenses associated with amending that credit agreement. Concurrent with the offering, Fortis, NIB and Bank of Scotland issued a commitment letter to Seabulk to provide the company with an $80 million five-year revolver of which $30 million was deemed drawn, as that is the amount that remaining outstanding after the offering. The $18 million sale/leaseback that Seabulk concluded with Transamerica and Nordea in April 2003 for a UT 755 was not be involved in these transactions. The projections in the offering memorandum assumed that the deal would price at 9%, which was 50 basis points low.
So what is this really all about? One school of thought was that Seabulk and its private equity-led board of directors simply arbitraged the capital markets to capture better terms at a time when the company needs free cash to renew its fleet. Seabulk’s bank debt was priced at about 500 basis points over LIBOR and its bonds were just slightly pricer. While it is true that in today’s low base-rate environment the all-in floating rate is only 6% versus the 9.5% the company will pay in the bond market, Seabulk’s new bonds are fixed for 10 years. Who knows, since the Federal Reserve recently said short rates will stay low, perhaps CSFB put together a swap arrangement to bring the notes back to floating, or at least shorter in term, as Citibank did when CP Ships issued bonds last summer. Another perspective came from some market observers who said things like “the banks are feeding this company to the dogs once again.”
Book runner League Tables 2Q03 – SO Far, SO Good
It’s been a very good year for shipping bankers, at least so far. As you can see from the Dealogic tables below, 36 broadly syndicated deals were closed in the first half of the year, with $6 billion in fresh financing raised.
Average syndicated loan size of $166 million is almost exactly on par with our multi-year average. Of course you won’t see some of the powerhouse names on this list, like Royal Bank of Scotland and the various German banks that control no less than 50% of all shipping debt. That’s because those institutions tend to do more bilateral lending and may not even report the syndicated deals that they are involved with.
Bear in mind, too, that some of the biggest deals of 2003 were not concluded before June 30, 2003. For example, on July 2, 2003 Malaysia International Shipping Corp (MISC), closed a bridge loan with an 8-bank syndicate to fund the $1.1 billion acquisition of American Eagle Tankers Ltd from Neptune Orient Lines. Banks included in that 35 basis point deal were Barclays Capital, HSBC, Citibank, Bank of Tokyo-Mitsubishi, DBS Bank, and BumiputraCommerce Bank, which will also receive credit in the third quarter. Worldwide’s massive $1.3 billion term underwriting is in the works now and will give the second half numbers a lift.
Marine Money Week –Let the Games Begin!
By Matt McCleery
For the past 16 years, Marine Money has had the privilege of introducing the world’s best marine transportation companies to the US Capital Markets and, judging from this year’s 16th annual Marine Money Week, the relationship has never been better. The level of professionalism exhibited by the public shipping companies, coupled with the strong support of industry players and increased investor interest, are coming together to help shipping and the capital markets to turn an important corner – an expansion of valuation multiples that will accelerate consolidation in a way that we have never before witnessed. The sophistication of the presentations was also unprecedented. Lest anyone forget that just a few years ago Teekay overwhelmed the audience with its risk management sophistication by presenting a slide that showed the impact on EPS of each $1,000 move in freight rates – a slide that has become downright tawdry these days!
There is no doubt that we are working in exciting times, and the mood at this year’s event was one of people positioning themselves and their businesses for the new era that is being ushered in. On a more practical level, Marine Money Week often marks the beginning of a slow summer season for deals, but judging from conversations on the dais, in the hallways and during the cocktail parties and dinners, it has not been a surprise to find the 3rd quarter of 2003 as busy as the first two.
Before reviewing the event for those who were unable to attend, I would like to say thanks – to our speakers for their time and energy and professionalism; to our sponsors for being so supportive of what we do and for being such gracious hosts to all of our visitors in New York; to our chairmen, Craig Fuehrer of JP Morgan, Morten Arntzen of AMA and Magnus Fyhr of Jefferies and John Karen of Deloitte & Touche for guiding the long days and managing the tight schedule; to our Events Director Ms. Lorraine Parsons for pulling together a million details; and of course, to the 400 delegates who attended this year. Although 2003 has been a turbulent year politically and economically, the overwhelming response to the event is proof that a healthy market for shipping deals has once again triumphed over all else – a fact that should be both comforting and gratifying to all of us who make our living in the industry.
Introducing Marine Money’s Quarterly Peer Analysis
By Prasanth Prasannakumar
“Who’s making money?” That’s the question we set out to answer in this issue of Marine Money. And it’s a very good segue to the introduction of Marine Money’s quarterly Peer Analysis, an update on our annual Rankings. We have tried to make the list as comprehensive as possible by including all companies which provided us with current financials, but many companies located outside the US are still missing. Our goal is to continue to widen our coverage so as to offer a segment-by-segment analysis; we hope it will enable you to ascertain how your public or private company compares to its competition. Moreover, given the volatility of the shipping markets and the often short- term time horizon of investors, a firm’s performance can vary from quarter to quarter.
Marine Money thinks that total return to shareholders is probably the most vital benchmark when it comes to investors. After all, investors want to see higher dividend yields and capital appreciation. Eventually the market will reward those companies that create wealth for public shareholders, not just insiders. In our quarterly update, we have highlighted what each stock would have returned on a quarterly basis for the first two quarters of 2003.
EarnIngS Per Share
Earnings Per Share (EPS) is the diluted earnings per share appearing on the company’s income statement.
CMB/EXMAR – IN FOCUS
By Andreas Vergottis
The CMB group has witnessed plenty of transaction activity since 1991 when the Saverys family acquired control. At first, such activity was rather opportunistic and some might even say “random.” More recently, CMB’s transactions have been placed under a disciplined strategic framework providing a long term direction towards increased rationalization of activities. A landmark event is the recent demerger of the gas activities from the bulk and tanker operations. In this article, we review the benefits of the transaction activities of CMB, particularly the benefits of the most recent demerger, and conclude that the best may be yet to come for investors in the offshoots of the recent demerger.
CORPORATE EVENT
On Monday June 23rd, with the blessing of an extraordinary general meeting of CMB shareholders held the week before, Exmar was demerged from its parent, resulting in the creation of two separate entities with individually listed shares: Exmar and the remainder of CMB. The activities of the two companies are summarised in the demerger summary below.
The advisors to the transaction were Fortis Bank and UBS, while the brokers were Belgian house Petercam, Fortis Bank and KBC.
The Official Guide To Marine Finance Providers
Shipping Index
