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Exmar and BW Gas Swap
This week Exmar and BW Gas swapped vessels to better position themselves in their preferred sectors. Exmar exchanged its two VLGCs for BW Gas’ midsize fleet consisting of 3.5 mid-size carriers as shown in the chart below:
Delivery is scheduled to occur between August 15th and September 30th and will be accompanied by a cash component of $35 million payable by BW Gas to Exmar. With the transfer of the VLGCs to Exmar, the respective time charters to BW Gas will be novated, while the midsize vessels will continue to perform the existing North Sea LPG contract commitments.
More to Come?
Last Friday, BW Gas conceded. Following a tepid response by the minority shareholders to the rights offering, the Sohmen family plans to take BW Gas private through its investment vehicle, World Nordic, which has recently increased its stake to 94.7%. Additionally, it is giving the minority shareholders, although not obligated to do so under Bermudan law, an exit opportunity by making an offer for the remaining shares.
Although the market for gas carriers has not been kind, the write-off of the bulk of its equity as a consequence of the change in Norwegian tax law was certainly a contributing factor. If the Norwegian court rules in its favor, as it likely should, this will be a classic example of winning the battle, while losing the war.
A Better Idea
Last week we described how BW Gas’ decision to withdraw from the Norwegian tax system and today’s declining asset values had stressed its balance sheet requiring a substantial equity infusion in order to avoid breaching its covenants.
To add some cushion to today’s equity value in order to prevent the potential breach of its equity covenants as well as to deal with the continued turbulence in the financial and shipping markets, BW Gas has entered into an agreement to purchase Bergesen LNG from the company’s main shareholder, World Nordic SE. The total consideration to be paid for the shares of Bergesen LNG, which owns four LNG vessels, is $720 million, which will be paid through the issuance of 273.6 million new shares to the seller at a price of NOK 18.5 per share. The four modern vessels, built between 2006 and 2008, are on time charters for a remaining term of 20.5 years to Nigeria LNG. The vessels will be transferred debt free further bolstering the company’s balance sheet.
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Nordea, DnB, ING Arrange $3 billion Facility for BW Group
Jumbo loans have officially returned with the announcement by BW Group that it has executed a 5-year $3 billion facility with a consortium of 11 banks, which committed a total sum of $5 billion against BW Group’s $3 billion requirement. Nordea, DnB and ING acted as bookrunners of the facility, and they were joined as mandated lead arrangers and underwriters by Svenska Handelsbanken, Swedbank, HSH Nordbank, Danske Bank, Fortis Singapore, OCBC, Deutsche Bank and HSBC.
The Week in Review
The week has been relatively quiet from a transaction standpoint, but sentiment by and large is upbeat. The shipping markets as a whole continue to perform above expectations, and the credit and equity markets functioning smoothly, if not lavishly.
For example, Caterpillar Financial Services this week entered into an agreement to increase Aker Philadelphia Shipyard’s credit line by $150 million. Under the agreement, Caterpillar will fund up to $80 million in construction costs for seven consecutive product tankers, valuing the full agreement at $560 million. Interest payments will be required only during the construction period, and Aker may apply the funding to up to three ships simultaneously. The deal takes care of financing for the remainder of the 12 Jones Act tankers under construction at the yard, which are to be sold to Aker American Shipping for bareboat charter to OSG America. Four these tankers have been delivered, three are currently under construction, and the remainder are to be completed by 2011. Continue Reading
BW Gas Votes on Taxes
Last week, BW Gas responded to the tax authority. First, the company removed a major burden by refinancing the existing $1.5 billion credit facility with a new five year unsecured revolving credit facility from BW Group Limited, the holding company of its main shareholder. The immediate effect of the refinancing will be the removal of the waivers granted on the equity covenants in the existing loan agreement, which had been granted by external lenders following the reduction in the company’s equity as a consequence of the Norwegian government’s decision to retroactively tax shipping companies. The company starts off fresh with a friendly lender with terms and conditions that are competitive with those offered by third party lenders. Continue Reading
Price of Admission
Everyone involved in shipping knows how hard it is to make money and how easy it is to lose it. Shipowners must deal with volatile markets, government regulations, operational problems as well as other risks too numerous to mention. One merely has to look at the 20 or so pages at the beginning of a SEC public filing. And now in an industry renown for not paying taxes, there is tax risk, at least in one country. We have written frequently about the retroactive tax law change to the tonnage tax regime in Norway but the discussion was mainly theoretical. With the 4th quarter reporting season, we are beginning to see the real cost in concrete examples, and it is not a pretty sight.
Many years ago on our first trip to Oslo, we were fortunate enough to have the opportunity to meet with Bergesen d.y., ASA in its beautiful headquarters, Bergehus on Drammensveien. The company, as well as its headquarters building, was an intrinsic part of the fabric of Norwegian shipping, an historic and solid presence. Norwegians were proud of their country and their merchant marine and even flew the national flag on some of their vessels. No, this wasn’t the Ice Age; it was in fact the early 1980s. And despite the heavy costs of remaining in Norway, companies like Bergesen chose to remain there and keep up the tradition. Eventually, the government saw the light and the value of a merchant marine and created the 1996 tonnage tax regime. This made it feasible for companies to stay and compete with companies that chose to fly flags of convenience. The companies opted into the plan, which forgave taxes in exchange for the company’s foregoing the payment of dividends. Earnings were re-invested in the business otherwise they would remain fallow earning little interest.
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