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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
Aker Offering Successfully Completed; Rigs Ordered
Priced at the tight end, the initial public offering of shares in Aker Drilling ASA was successful completed this week with the book oversubscribed, reflecting strong investor interest. The company issued approximately 189.5 million new shares at a price of NOK 19/share raising total proceeds of NOK 3.6 billion, while creating a company with a market capitalization of NOK 5.4 billion and 1,800 shareholders. Approximately 97.4% of the shares were allocated to institutions with the balance to retail investors and employees. Aker Drilling’s parent, Aker Capital AS, will retain an approximate 40% interest in the company.
Almost There – Aker IPO
Having successfully concluded the bond issue and secured an underwritten commitment for the refinancing of its existing bank debt with a new five year $900 million secured bank loan facility from DnB NOR, Nordea and SEB, Aker Drilling began the bookbuilding period for its IPO last week. The company is looking to raise up to NOK 3.6 billion, with the number of shares issued ranging from 189.5 million to 133.3 million depending on the price. The indicative price range is NOK 19 to NOK 27/share for the offering. Based upon the number of shares post-issue (282.5 million to 226.3 million), the shareholding of new investors would range from 58.9% to 67.1%. Finally, the post-issue market capitalization could be as low as NOK 5.4 billion to as high as $6.2 billion.
A Rude Wake-up Call
Market hearsays turned into wide-spread panic as news of Korea Line’s bankruptcy filing hit the industry on Tuesday. The South Korea’s second largest bulk carrying line filed for a court receivership after its failure to renegotiate a number of loss-making charter arrangements concluded prior to the financial crisis. Alarm bells were also ringing as far away in the United States where several public listed companies have their ships chartered to the beleaguered company.
Among them, probably the most exposed was New York listed Eagle Bulk Shipping. The company has 13 out of its 48 ships on time charter to Korea Line, lasting between six to ten years. In a statement to the stock exchange, the company described its exposure to Korea Line as modest because the vast majority of the charters were fixed at close to current market rates. “To date, none of our charters with Korea Line have been restructured,” it added. In his latest report, DnB NOR’s analyst Glenn Lodden expects many of these time-charter contracts will be renegotiated and the most expensive might be breached. However, he believes that it is unlikely that Korea Line will be liquidated because the company remains “an important part of South Korean infrastructure (iron ore, coal, LNG imports).” Continue Reading
Seoulful Solutions
Korea’s ship finance scene has witnessed a wave of important new developments of the past months. A recent visit to several key Korean financial institutions yielded some interesting insight into how the ship finance market in that country is rapidly evolving and where future opportunities may be under development.
Korea Development Bank (KDB) is rapidly preparing for its privatization in the next year. 110 experienced staff have been transferred from KDB into “grandparent” company Korea Finance Corporation (KoFC). These include Mr. DongHae Lee, who many may know from his previous role as Team Head of Shipping Finance at KDB where he played a key role in developing the Let’s Together Fund as well as in other transactions such as Marine Money 2009 Bank Debt Deal of the Year winners KOGAS I and KOGAS II. Mr. Lee has taken up as General Manager, Global Finance Department at KoFC. He is joined by Mr. Yongsung Yim, now International Finance Team Head, Global Finance Department at KoFC. Continue Reading
Let Us Get Together
The Korean shipping finance market remains challenging but it is heartening to note one Korean financial institution is thinking out of the box and supporting its core clients. On the second day of Marine Money Asia Week, we had the pleasure to listen to Mr. Dong Hae Lee, Head of Shipping Finance Team at the Korea Development Bank (“KDB”). Mr. Lee told the audience that Korean shipping companies continue to suffer losses from operations which have led to several cases of corporate restructuring and liquidation in the country. But the good news is there are several avenues for Korean owners and operators to strengthen their balance sheets now.
For the big boys, self help is important. Korea Line, Hanjin Shipping, STX Pan Ocean, Hyundai Merchant Marine, SK Shipping and Eukor Car Carriers have raised over KRW 2.93 trillion (USD 2.5 billion) from the domestic capital markets. And if the shipping company has secured Contracts of Affreightment (“COA”) earnings from the big freighters such as POSCO, KOGAS and KEPCO, asset-backed securitization and asset-backed loans can be arranged by the banks to enhance the operator’s liquidity position. In terms of sale and leaseback structures, both KDB and Korea Asset Management Corp (“KAMCO”) have introduced shipping funds to provide further financial support to the shipping industry. Continue Reading
Half Full or Half Empty?
China has almost single handedly supported the whole dry bulk market despite the world economic gloom. While the BDI marches forward largely due to the tight Capesize tonnage supply, it remains anyone’s guess if this frantic pace of iron ore chartering will continue to last. Will China’s USD 585 billion stimulus package whet the country’s appetite for commodities when infrastructure project spending picks up steam? Or is this just pure stockpiling speculation and a bear market rally?
In the meantime, there are increasing concerns that China’s recovery may come at the expense of inflating asset bubbles, increasing economic volatility and burgeoning bad bank loans. Latest figures showed that China’s new lending doubled to RMB 664.5 billion (USD 97 billion) in May from RMB 318.5 billion a year earlier and industrial output rose by 8.9% year on year. Ma Jun, chief China economist with Deutsche Bank AG in Hong Kong described the pace of bank lending as dangerous but there are also those who beg to differ. In a recent report entitled “The World’s Largest Local Banks, The Largest in the World”, analysts at Taifook Securities believe that the concerns over asset quality deterioration appear exaggerated. The securities house says the current infusion of credit actually eases the liquidity crunch for many medium sized private enterprises, thereby providing an opportunity for highly leveraged sectors, notably property, to restructure their balance sheets. Whatever the case may be, we expect regulators to scrutinize new lending more closely to deter speculation. Continue Reading
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