COSCO Holdings Raises RMB 4 billion Domestic Bonds

Investors have appeared to leave China COSCO Holdings’ recent fiasco over charter party disputes behind them, as evident from the successful closing of company’s latest jumbo bond offering. The listed flagship and subsidiary of China Ocean Shipping (Group) Company sold RMB 4 billion (USD 626 million) seven year medium term notes (“MTN”), with lead manager China International Capital Corporation and co-lead Bank of China, just a month before 2011 came to a close.

Investors might be forgiving, but the terms of this piece of new debt were less favourable, compared to a similar MTN issue the company concluded in 3 September 2010. The RMB 5 billion MTN issue in 2010 was not only larger in size, but also offered investors a much lower coupon of 4.35% for a longer 10 year tenure. The latest unsecured notes offer investors an annual coupon of 5.45% for seven years, suggesting that even large state-owned companies in China are not immune to the wider difficulties in the capital markets. Proceeds of the latest bond issue will be set aside for working capital and the key terms of the issue are shown in the Guts of the Deal table accompanying this article. Continue Reading

China Rongsheng Inks Another Massive Credit Facility

On Monday, Hong Kong listed China Rongsheng Heavy Industries Group Holdings signed a strategic collaboration agreement worth RMB 30 billion (USD 4.7 billion) with China Development Bank in the Chinese city of Nanjing. A large chunk of the facility will go towards its offshore engineering division. We note that Rongsheng has signed many similar corporative agreements with numerous Chinese lenders including China Exim, Bank of China, China Everbright Bank, China CITIC Bank and Agricultural Bank of China since August 2010, of at least total of over RMB 129.5 billion (USD 20.2 billion!).

We also have more details on Rongsheng’s recently completed USD 220 million offshore syndicated loan. Sole book runner Credit Agricole took up the biggest slice in the loan of USD 40 million while four lead arrangers Societe Generale, Aozora Asia Pacific Finance, Bank of East Asia and Bank of Tokyo-Mitsubishi UFJ committed USD 30 million each. Cathay United Bank chipped in USD 20 million. Italian bank Banca Monte Dei Paschi di Siena, Taiwanese lenders Chang Hwa Commercial Bank and Hua Nan Commercial Bank, as well as Metropolitan Bank and Trust in Philippines rounded up the syndication and contributed USD 10 million each. The loan offers the lenders a margin of LIBOR plus 130 basis points and is guaranteed by China Exim Bank.

China Rongsheng Heavy Secures USD 220 million Syndication Loan

Hong Kong listed Chinese shipbuilder China Rongsheng Heavy Industries has successfully closed its first ever overseas dollar denominated syndicated loan transaction of USD 220 million, led by bookrunner Credit Agricole. The successful closing of facility has strategic importance to non-state owned shipbuilder, given the tighter regulations and capital controls imposed by the central government on the Chinese lenders. The Import-Export Bank of China (“China Exim”) played an instrumental role in this syndicated transaction as a guarantor for the facility and according to sources, over 10 overseas banks participated in this deal.

The latest and maiden foray into the international syndication market marks an important milestone in its history as the shipbuilder seeks to diversify its funding sources and reduce its exposure to RMB loans. No other non-state owned shipbuilder in China has been as successful as Rongsheng when it comes to securing debt from the Chinese lenders. In 2010, Rongsheng entered into a number of strategic cooperation agreements with Bank of China, China Eximbank, Agricultural Bank of China and China Everbright Bank with a total credit line of up to RMB 118 billion (USD 18.5 billion)! In June, Rongsheng also inked a RMB 11 billion (USD 1.7 billion) credit line from China CITIC Bank.

Chinese Ship Finance – On Hold?

By Nigel Ward, Partner, Norton Rose LLP

In 2008/9 the Chinese banks were looked to as the only remaining hope for international ship finance – the last pool of bank debt that could be harnessed to replace the withdrawing European banks and to satisfy the capital requirements of owners with existing new building orders in the shipyards of the world. Just as many other countries, but on a larger scale, China responded to the global financial crisis by injecting significant liquidity into its domestic market.

A large part of that liquidity was funnelled through the public sector banks and much of it was deployed in support of infrastructure projects sponsored by regional and municipal authorities, to pump up domestic consumption and to fund state owned enterprises in support of export  manufacturing, business investments and the acquisition of strategic resources abroad. Continue Reading

Asian Liners Get Their Game On

Soaring bunker prices have motivated container liners to re-examine their strategy with a renewed focus on operating efficiency, cost reduction and high fleet utilisation. When market leader Maersk Lines announced its plans to pay USD 1.9 billion for 10 new generation 18,000 TEU vessels, it totally changed the rules of the game and has to some extent prompted other major carriers to look into ordering larger and fuel efficient vessels. Today, there appears to be some form of consensus among liner companies that they would need big ships that are over 10,000 TEUs to ply the Asia Europe trade by 2015 and possibly the Trans-pacific trade by 2020 to stay in the game. At the same time, some liner companies have also expressed their intention to build and own vessels to replace chartered-in vessels, so as to maximise their ability to manage excess capacity. During the shipping downturn, liner companies have realised that the decision to layup or sell vessels becomes much easier if they own the ships themselves.

At Marine Money’s conference in March, Kenneth Cambie, Executive Director and CFO of Orient Overseas International (“OOIL”), told delegates that he believes that container shipping is entering a watershed and it will be clear over the next six to nine months who is in the game and who isn’t. He reckoned that those players with the access to capital will be ordering larger ships and preparing themselves for 2015. The spate of newbuilding orders and the seeming lack of capacity discipline among liner companies have sparked market concerns, but while we leave the arguments and controversies to the industry experts, we agree with Mr. Cambie that the access to capital has become increasingly important to survival and in this aspect, Asian liner companies have the competitive advantage.  Continue Reading

Tapping Export Finance – The Danish Way

Over the past year, Danish owners have been extremely successful in tapping export credit agencies to help finance a part of their orderbooks in Asia. In a transaction that has recently come to light, J. Lauritzen had signed a USD 267 million export credit financing agreement with BNP Paribas last November. The transaction was structured by the French bank, who also managed to rope in two other mandated arrangers, Société Générale and Bank of China.

The ten year facility was also backed by China’s Export Credit & Insurance Corporation (“Sinosure”), which agreed to provide buyer’s credit insurance on 95% of the commercial exposure for the ten year loan. Proceeds will be used to finance the acquisition of five product tankers and two gas carriers that are currently being constructed at Guangzhou Shipyard International and Yangzhou Kejin Shipyard respectively. The Singapore office of Watson, Farley & Williams LLP advised the syndicate of international lenders. Continue Reading

Asian Shipping Bond Volume Falls 46% in 2010

In 2009, bonds came back in financing vogue for the shipping industry, with total volume in Asia reaching a record USD 7.6 billion. But a few questions have since been lingering at the back of our minds: “Will this trend continue in 2010? And have the investors gotten too far ahead of themselves and forgotten about the painful corporate bond defaults in 2000/2001?”

As we compile our list of shipping bonds concluded in 2010, some interesting findings are revealed. Total shipping bond volume in Asia has surprisingly declined at a larger pace than expected, down by close to 46% to USD 4.1 billion last year from USD 7.6 billion the year before. But before we hastily conclude that the access to bond money is fast disappearing, the sharp decline can partly be attributed to a number of market specific reasons. Continue Reading

ECAs Continue to Take the Centre Stage

In a market where the availability of commercial debt remains rationed, Export Credit Agencies (“ECAs”) supported financings continue to be an important funding source in many major shipping transactions.

Last month, the Japan Bank for International Cooperation (“JBIC”) concluded two loans agreements with K Line Offshore for the financing of one anchor handling tug supply (“AHTS”) vessel and one large platform supply vessel (“PSV”). Established in October 2007 to expand the group’s upstream energy resource development-related business, K Line Offshore is 95% owned by Japanese mega carrier Kawasaki Kisen Kaisha. Continue Reading

Manage Your Expectations

A lot has been written in these pages about Chinese banks and their growing influence in the global ship finance landscape. But beneath the many widely publicized stories of foreign shipowners securing millions of dollars from the Chinese banks, one cannot help but wonder if the Chinese banks are really well on their way into becoming major providers of global ship finance and if so, how long this process will take.

It is generally accepted that the financial crisis in the West might have just provided Chinese banks a unique opportunity to play a greater role in global ship finance. In 2007, the ship finance market was highly competitive, driven by a large number of international banks, mostly European. But the picture has changed dramatically over the past four years as a result of the global financial crisis. Today, several of these large shipping banks are adversely affected by the crisis and many are still rebuilding their balance sheets. “In 2010, Western banks are still dealing with the legacy of the downturn. Funding rates remain significantly higher than pre-crisis and uncertainty
remains about asset values and earnings rates,” pointed out Russell Beardmore, Regional Head of Shipping Finance from Standard Chartered Bank at Marine Money’s conference in Shanghai last week. But the question remains whether the Chinese banks are ready and well-equipped to take advantage of these new opportunities presented to them. Continue Reading

Bits and Bobs on China

For everyone interested in China, we found some recent headlines that you might appreciate. Enjoy!

Hui Shang Bank Joins Hands with Dong Fang Shipbuilding: China Exim Bank is certainly not the only financial institution, offering domestic shipbuilders credit support. Based in Anhui province in China, the regional bank has recently provided RMB 250 million (USD 36.8 million) credit to China Dong Fang Shipbuilding. 

Pacific International Lines secures ECA Support: Old news but still relevant news! Pacific International Lines has joined the group of foreign shipowners who has successfully tapped Chinese ECA support. The second largest containership operator in Singapore secured a USD 517 million 10 year buyer’s credit from Bank of China in 2009. The Sinosure backed facility will be used towards its newbuilding orders at Dalian Shipbuilding Industry. This is also Bank of China’s very first ECA backed transaction for a foreign shipowner.   Continue Reading