Believe the Story or Bet on the Come

Yesterday, Jefferies held its Annual Shipping Conference and, according to Hamish Norton it was a record turnout with over 400 delegates and 40 companies represented. When we were queried about the mood, we hard pressed to provide an answer. There was neither excitement nor was their panic. The closest comparison we could come up with was window shopping. The presentations for the most part were excellent, but the audience appeared detached. Had they seen it all before or was the action taking place behind the scenes in the break outs and one-on-ones? Nonetheless, in line with our thesis, the tanker presentations seemed the most crowded. Genmar, for example, was sold out while the non-U.S. listed companies and service industries garnered the least attention. But then again this was a NY shipping crowd.

The state of the sectors was irrelevant, as all presenters found reason for optimism, well placed or not. Dry has clearly been on the rise, with speakers touting 40% non-deliveries and record scrapping. While on the wet side, consensus suggests 2012 will also be difficult, but the glass is half full with opportunities expected to arise as a result. Lastly, the container ship lessors seem to have blinders on banking on the liners’ liquidity and ability to access capital as losses compound even as they try to get rate increases.

We provide some of our favorite vignettes below.

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A Wisp of Spring

While sitting home in the midst of a blizzard and with the knowledge that the omniscient Punxatawny Phil announced on Ground Hog Day that we still have 6 more weeks of winter, we know, nonetheless, that spring will inevitably come. Yesterday we attended the morning session of the Hellenic/Norwegian-American Chambers of Commerce 16th Annual Joint Shipping Conference and we felt similarly that the winter of ship finance may also break. While the tone wasn’t exactly upbeat, there certainly were no dirges being sung and it, in fact, appears by their comments that the bankers may be ready and able to return from their year plus long sabbatical. But as Nikolai Nachamkin of DnB and the conference co-chairman would remind me, I am getting off topic.
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London calling. London calling.

…. more education about shipping is key to attract investor appetite in London.

Marine Money returned to London after a long absence to host a wonderful 1st annual conference on 21st January 2010.  This was the first of 14 Marine Money conferences for 2010 and we got off to a cracking start.  Over 180 delegates and speakers attended with about one third coming from overseas.
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Full House in Athens – Part 2

By Kevin Oates

…in the longer term shipping should correct but quality, transparency and financial strength are key to survival.

Despite the tough market and the general lack of ship finance, Marine Money’s Greek Ship Finance Forum again filled the seats in Athens.  With 310 delegates and speakers and some 40 more for the TEN Ltd lunch, there was plenty gossip and exchange of views at the 11th Annual conference held on the 8th of October 2009.

The event had started with a speaker’s dinner the previous night co-hosted by Navios Maritime Holdings and was to end in the early hours of the following morning at the Capital Party co-hosted by Capital Product Partners LP at a well-known Athens nightclub.  Even if the market is tough, we still know how to enjoy ourselves.

Back at the conference, our day began with Guy Verberne, a leading economist at Fortis Bank (Nederland) telling us that the economic recovery has come and it may well be sustainable.  China, he says, has plenty foreign reserves to prolong it’s stimulus package for as long as it needs and he sees no meaningful cutbacks from the stimulus packages of western governments, at least through 2010.  A risk is a double dip in 2011 if we get too bogged down in debt.
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Less Buzz, but…………More Business

On the outside, this year’s Jefferies Conference was subdued with less buzz than previously. However, it was a marked improvement to last year’s event, which coincided with the collapse of Lehman Brothers. Then the shipping markets were still good but all eyes were focused on the Bloomberg screens awaiting developments, while discussions revolved around whether or not to buy gold. Today was different. The economy seems to be improving while the shipping markets struggle. Shipping’s main source of capital, bank debt, is rationed while the equity markets are offering hope. Today was the day for public shipping companies to plead their case to investors. It was all about business.

We know that the presentations are the interlude and that the real action takes place behind the scenes during the one on one meetings as investors and companies engage in speed dating. Yet even in the public venue, we saw a clear dichotomy between the haves and have not’s. The rooms were packed for those companies with large market caps, liquidity and share volatility. For investors these days, slow and steady does not win the race. Nevertheless, the good news was that all the companies had meetings, although some had more than others. But all agreed the meetings were of high quality and now included a new class of investor – the opportunity fund.

As usual, our coverage will focus on points of interest to us. But as it was impossible to cover three tracks, our emphasis, for the most part, was on those unappreciated companies where interest may have waned, whether for lack of coverage or as a consequence of the market sector in which they participate.

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Investing and Investment Banking

The market is depressed. The people are not.
The debt markets exist. But you are looking at a lot less for a short term costing a lot more. A lot of the banks will be properly back into the game by 2010. It will help to have companies based in ship finance exporting countries.

The capital markets exist. The bond market is open at very reasonable rates. The equity markets are open for existing issuers but valuations are poor.

We may have a rebound this year thanks to stimulus plans and fiscal loosening, but the underlying damage is done. Banks will eventually HAVE to account for their losses. The write-downs have to come from somewhere and government debt is hardly the answer. Unless they wait years with the balance sheets impaired.
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Not Just a Warm-up

Prior to the start of the festivities, Teekay Corporation held its successful shareholders meeting. The room was filled with over 100 spectators with another 200 viewing through the webcast. What was extremely interesting to hear from the Teekay delegation was the acknowledgement that they did not recognize many of the people in the room. Fresh blood!

The first session began under cloudy but dry skies an unusual event in New York these days. The room was packed with the audience hoping to glean insights from last year’s deal of the year winners as the architects of the transactions discussed their deals and how they fit in today’s marketplace. The discussion was led by Stephen Peepels of DLA Piper.
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Where the Sun Never Sets

Nora Huvane was kind enough to file the following report from Oslo:

The mood in Oslo today largely matched the weather. A bit wet and chilly for June, but there were some sunspots and hope is high that fairer weather will return. The hearty and well-prepared will survive and prosper regardless – so if you’re planning any investments in shipping, be sure to pack your umbrella.

Marine Money’s 11th annual Norway Ship & Offshore Forum, held with partners DnB NOR and Nordea and in conjunction with Nor Shipping, focused largely on the offshore markets and outlooks. Respected analysts reviewed outlooks for the oil market, drilling, FPSO and FSO and offshore support vessel markets. While there were concerns about oversupply and short-term mismatches in E&P budgets and industry capacity, the general consensus is that long-term fundamentals remain what they have been safely out of the reach of traders, speculators and gamblers and in the long-range budget planning and price targets of well established oil companies. The world population and economy will continue to grow over the long-term, and until a suitable alternative for oil is found so will oil demand growth. Gavin Strachan of ODS Petrodata pointed out that the oil price drop came as 2009 E&P budgets were being set, making oil price irrelevant for the offshore market in the short-term, over the longer term supply depletion on the order of 9% pa without further investment will ultimately drive demand for the offshore industry.
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Finance for Asian Shipping

The availability of ship financing and alternative sources of capital was the central theme revolving Sea-Asia’s conference yesterday. Referring to a slide that illustrates the impact of banks writedowns on their market capitalisations (see below), Dagfinn Lunde, Member of the Board of Managing Directors of DVB Bank SE, pointed out that even though the traditional ship financing landscape has changed dramatically, there is still money available from banks. He told the crowd that DVB, DnB NOR, Nordea, Nord LB, Fortis and some Greek banks are open to different extents and it is possible to put together club deals between USD 100 million to 120 million today. “If you have the words ‘energy’ or ‘offshore’ in your project, even some US banks are still willing to lend,” he added. Continue Reading

Is Shipping Headed Towards a Restructuring Tsunami?

By Hamish Norton and Harold Malone, Jefferies & Company, Inc.

Financial conditions in the shipping industry have deteriorated significantly and are expected to result in broad-based financial restructuring activity. While each situation is unique, many companies are showing early warning signs that they may be entering the restructuring waters (see the table below for a list of some of these signs). Understanding the process and players is an important part of being a proactive restructuring participant. This article discusses the current market environment, provides an introduction to the restructuring process and addresses some possible outcomes.

It is a common misconception that the term “restructuring” is equivalent to bankruptcy. In truth, many restructurings are out-of-court, consensual processes that allow companies to stabilize their business, develop a strategic plan to restore profitability and right size their capital structure. An experienced restructuring advisor with in-depth industry understanding and the ability to access the capital markets can be critical to developing and implementing a solution that maximizes value for all stakeholders. Moreover, early action is key – engaging an advisor before the start of strategic discussions allows companies to evaluate a variety of alternatives that may not be available later in the process.
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