Shipping Bonds Take Speed amid Market Turmoil

More shipping companies in Asia are taking a closer look at the variety of bond instruments, ranging from conventional straight bonds to more innovative “dim sum bonds” and perpetual bonds, despite the uncertainties and volatility revolving around the global economy.

Following the successful closing of China Shipping Development’s RMB 3.95 billion (USD 602 million) convertible bond issue in August, another major Chinese conglomerate is planning to tap the bond market in a big way. China COSCO Holdings – the flagship listed entity of COSCO Group is planning to raise not more than USD 2 billion worth of bonds. There are however some distinct differences in strategy between the two largest shipping companies in China. Unlike China Shipping Development whose bond offering was made available exclusively to Chinese domestic investors, China COSCO has clearly international investors in mind. The company will be setting up an offshore wholly owned subsidiary for the offering and provide corporate guarantee for the bonds, subjected to the approval of shareholders. Continue Reading

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

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

STX Group Mulls China Listing

STX Group is paving the way for a potential listing of its shipbuilding units in China. The new holding company STX Dalian Holdings will take control of STX Dalian Shipbuilding, STX Dalian Heavy Industries and STXDalian Marine Engineering, with plans of an eventual listing either in Shanghai or Hong Kong in 2011. Last year, STX Dalian Shipbuilding secured a 9 year loan of RM 2.85 billion (USD 417 million) from China Construction bank and another unnamed Chinese bank at 6.14%. 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

An Update on Stimulus Packages

Over the past year, the massive economic stimulus packages put together by policymakers around the globe have been grabbing the headlines, most notably from the United States, China and Japan. According to the latest estimates from IMF, Asian governments have pledged to pump over USD 950 billion into their economies through increased expenditure, tax cuts and cash hand-outs. And if we look closer at the figures, we would notice that fiscal stimulus in Asia is larger than other parts of the world. China, Japan, Singapore, South Korea, Taiwan and Malaysia have all announced fiscal packages of more than 4% of GDP, twice as large as US’s stimulus this year.

Many governments in Asia have come up with plans to lend a helping hand to the shipping or shipbuilding industry – sectors that they consider to pivotal to their country’s economic well being. Continue Reading