Banking Crisis? Not an Issue for BW Group or NOL

2012 is broadly expected to be challenging for both shipping lenders and borrowers. As long as the Euro debt crisis persists and continues to worsen, capital will become increasing scarce. Even shipping companies at the top of the pyramid are busy strengthening their balance sheets and making sure that they have adequate funds to meet capital expenditure requirements in the coming years.

One of the world’s leading maritime companies BW Group has successfully completed a USD 1.5 billion seven-year revolver in mid-November. According to market sources, the proceeds will be used for refinancing and the participants are largely from the previous revolving facility. Pricing is said to be “slightly higher” than the previous revolving facility, although it remains highly competitive in today’s tight market conditions. Continue Reading

Key Takeaways from Sea Asia 2011

Key Takeaways from Sea Asia 2011

We attended conference sessions for Sea Asia 2011 last week and here are some of the key issues and concerns discussed.

On Container Shipping:

The strategy of chartering-in tonnage to maintain flexibility may not turn out as well as envisaged:

Kenichi Kuroya, President and CEO of K-Line, pointed out that one of the key lessons that the Japanese container giant has learnt during the downturn was the error of chartering in too many vessels. This has created “tremendous difficulty” for the operator in seeking a reduction in shipping capacity in line with market conditions. “We could have lay up or sold the excess vessels if we had owned them,” he explained. Moving forward, K-line will review its fleet of container vessels and increase its ownership to 30% within the next 7 to 10 years. Another 30% of the tonnage will be fulfilled by long term charters and the remaining 30% on short term.

Consolidation is beneficial in theory but difficult to execute in reality:

Thomas Riber Knudsen, Chief Executive, Maersk Line, Asia Pacific Region pointed out that three big liner companies are dominating the market and the rest of the companies are occupying market shares between 2 – 5%. Consolidation is inevitable as smaller carriers find it increasingly difficult to compete on costs. Larger carriers are aggressively pursuing greater economies of scale by ordering larger and more fuel efficient vessels. Randy Chen, Special Assistant to the President, Wan Hai Lines Limited, however, highlighted that there are practical difficulties when it comes to mergers and acquisitions in Asia due to cultural differences and consolidating networks effectively to achieve higher utilization. “How do you consolidate these players with 2% market share each who are essentially Asian liners – Korean, Japanese, Chinese and Taiwanese liners? How easy is it to consolidate the networks of these liner companies?” he questioned.   Continue Reading

Lots of Moving Parts, But a Pure Play at the End – BW Offshore to Merge and Divest

The on-going saga of the merger between BW Offshore (“BWO”) and Prosafe Production may have reached its denouement. Back in July, BWO made a voluntary exchange offer for all the shares of Prosafe it did not own. The offer was conditioned on the outcome of the sale of Prosafe’s turret and swivel business to National Oilwell Varco (“NOV”) for $165 million. If the business were unsold the BWO would offer 1.2 shares in BWO plus NOK 2 in cash for each share of Prosafe. However if the business were sold, the cash portion of the consideration increased to NOK 5.25. Prosafe’s management was unexcited by the offer and stated, using the term of art, that it was evaluating strategic and financial alternatives, as the offer did not reflect the fair value of the company. As a consequence of being in play, the sale of Prosafe’s turret business was put on hold pending the outcome of the BW offer and its disposition remains uncertain today.

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Maintaining Tradition

We were disappointed to learn yesterday that Randee Day’s temporary stewardship of DHT Holdings was coming to an end, although she will retain her position as non-executive director. The new management team will consist of Svein Moxnes Harfjeld, as President and CEO and Trygve P. Munthe as COO. Women will jocularly note that it took two men to replace a woman.

During her short five-month tenure, Ms. Day played key roles in positioning the company for flexible growth through the creation of the existing holding company structure, while coming to terms with dissident shareholders, MMI. The new management team can focus simply on strategically growing the company. Both gentlemen are highly experienced and qualified to awaken what until now has been a quiet cash flow generator. Mr. Harfjeld has held senior positions within the BW Group, including Group Executive Director and CEO of BW Offshore. Munthe most recently served as director with Arne Blystad and prior to that as CEO of Western Bulk, President of Skaugen Petrotrans and CFO of I.M. Skaugen. We expect that the new team is up to the challenge and wish them the best of luck.
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Moments of Truth

One of the great things about the current financial crisis is that it’s clearing away some of the rot created during the good times and allowing the creation of a more solid foundation for future business. One of the clearest barometers of this is how the recently-public companies are reacting to current conditions, behaviors that clearly indicate the difference between simply legality and ethics, as well as a simple lack of foresight.

Though we understand the systems of private equity and public investment, and that investors are driven by their time horizon, be that one day, five days or five years, on behalf of the system we also regret the disassociation of short-term actions and long-term effects on organizations, where all activities are justified based on the value they appear to create in a specified timeframe, even if that value was in actuality borrowed from the future at a very high price. Continue Reading

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.