NEXI steps up support for Japanese shipbuilders

It has been a busy September for Nippon Export and Investment Insurance (“NEXI”), having participated in two ship export transactions. In the first transaction, a group of lenders, comprising Japan Bank for International Cooperation (“JBIC”), Sumitomo Mitsui Banking Corporation and BNP Paribas Tokyo Branch, have agreed to extend loans of JPY 9.4 billion (USD 122.6 million) to Korea’s Hanjin Shipping for the financing of four Kamsarmax bulk carriers. The ships will be built by Tsuneishi Shipbuilding in Japan. In a typical ECA arrangement for Korean shipowners, JBIC and commercial lenders will disburse the loan through Korea Development Bank and NEXI will underwrite the buyer’s credit insurance for the loans provided by the commercial banks.

In the second transaction, NEXI provided a USD 27.5 million buyer’s credit insurance for a loan to a Singaporean subsidiary of Wallenius Lines AB, a major shipping company in Sweden, for purchase of a pure car & truck carrier (“PCTC”) built by Mitsubishi Heavy Industries. The loans are provided by JBIC and the Bank of Tokyo-Mitsubishi UFJ (“BTMU”). PCTCs are designed to carry a spectrum of vehicles including automobiles, trucks, buses, and tall construction/heavy machinery. And just on Wednesday, NEXI participated in a loan provided to Mundra Port & Special Economic Zone limited, Indian subsidiary of Adani Enterprises for the purchase of a tugboat built by Kanagawa Dockyard. JBIC and BTMU were the participating lenders. Continue Reading

Bonds Frenzy Continues in Korea

Historically low interest rates have encouraged investors to chase after high yielding assets and many shipping companies have taken advantage of this low interest environment and strong investor demand for yield to lock in cheaper cost of funds, either to refinance existing debt or build up cash positions. This is especially pronounced in China, Japan and South Korea.

In Korea, the domestic bond market continues to serve as a major source of liquidity for shipping companies. The country’s four largest shipping companies – STX Pan Ocean, Hanjin Shipping, Hyundai Merchant Marine and SK Shipping have collectively raised USD 1.56 billion since the beginning of this year, and this amount could well exceed the total bond issues raised in 2010. Continue Reading

Hanjin Shipping Completes USD 150 million Convertible Issue

Last Wednesday, South Korean carrier Hanjin Shipping raised USD 150 million from the sale of five year convertible bonds. The bonds were launched with a base issue size of USD 150 million, with a USD 50 million upsize option that can be exercised within the first 30 trading days. Sole bookrunner J.P. Morgan did not exercise the upsize option immediately, even though the book was said to be comfortably covered by demand particularly from Europe.

The coupon and conversion premium were also fixed at attractive levels for the investors, at 4% coupon and a 20% premium, suggesting the investor sentiment remains price sensitive. The convertibles were initially marketed with a coupon and yield ranging from 3.5% to 4% and a conversion premium between 20% and 25% premium over the closing price of its shares on July 6. Continue Reading

Asian Shipping Bond Volume Falls 46% in 2010

In 2009, bonds came back in financing vogue for the shipping industry, with total volume in Asia reaching a record USD 7.6 billion. But a few questions have since been lingering at the back of our minds: “Will this trend continue in 2010? And have the investors gotten too far ahead of themselves and forgotten about the painful corporate bond defaults in 2000/2001?”

As we compile our list of shipping bonds concluded in 2010, some interesting findings are revealed. Total shipping bond volume in Asia has surprisingly declined at a larger pace than expected, down by close to 46% to USD 4.1 billion last year from USD 7.6 billion the year before. But before we hastily conclude that the access to bond money is fast disappearing, the sharp decline can partly be attributed to a number of market specific reasons. Continue Reading

Credit Agricole Asia Participates in “Lets Together Shipping Fund”

Credit Agricole Asia Ship finance Limited, the agent for Credit Agricole Corporate and Investment Bank, as senior lender, and The Korea Development Bank, as junior lender, have provided USD 78 million pre and post delivery financing to two Panamanian single purpose companies established under the Korean “Lets Together Shipping Fund” structure for the acquisition of two 115,000 DWT bulk carriers.

The ships are being constructed at New Times Shipbuilding Co. Ltd. in the People’s Republic of China and, upon delivery, will be bareboat chartered to Hanjin Shipping Co., Ltd. One ship will be subsequently chartered under a consecutive voyage charter to Korea South-East Power Co., Ltd and the other ship will be subsequently chartered under a consecutive voyage charter to Korea Western Power Co., Ltd. Continue Reading

KAMCO Delivers Impressive Report Card

We are excited to hear from KAMCO Ship Investment Management Corporation (“KAMCO”) that it has signed term sheets for five more shipping funds with a reputable Korean shipping company and for the very first time, a European bank will be providing the senior loans for these newbuildings. KAMCO is expecting to finance 10 more ships and by the end of this year, it will have close to 40 shipping funds under its belt.

During the Asian Financial Crisis in the late 1990s, cash strapped Korean shipping companies sold 112 ships at distressed prices to foreign buyers and the government was determined not to allow history to repeat itself. A year ago, the Ministry of Land, Transport & Maritime Affairs announced that it would spend up to KRW 1 trillion to acquire ships (not more than 15 years old) from local shipping companies in an effort to enhance their liquidity position and more importantly prevent a loss of national wealth. Continue Reading

Step Up Asian Banks

As we fill in our deal tables week after week, we note that anecdotal evidence points towards local banks increasing their financial support to their domestic clients. In Thailand, Thoresen Thai Agencies (“Thoresen Thai”) has secured a USD 200 million three year term loan from a syndication of mainly Thai banks – Kasikornbank, Krung Thai Bank, Export-Import Bank of Thailand (“EXIM Thailand”) and Mizuho Bank, Bangkok Branch. We gathered that the pricing is set at 250 bps above LIBOR and the facility will be used to expand the company’s business in transportation, energy and infrastructure.

Thoresen Thai’s subsidiary Hermelin Shipping is currently in the process of acquiring Unique Mining Services (“UMS”) which is expected to be completed by mid December. The credit line will certainly come in handy if Thoresen Thai is able to make a full acquisition of UMS, estimated to cost at least THB 4.5 billion (USD 135.6 million). Established in 1994 and listed in the Market for Alternative Investment of Thailand since 2004, UMS is involved in the coal trading business through importing coal to the various industrial customers in Thailand. Continue Reading

Government Intervention

By Kate Lawrence

The classic, and contentious, Keynesian argument—whether or not intervention of government policies (and funds) aids in the security and success of markets—seems increasingly mute these days, as the international economic recession has motivated governments to pledge aid, fund stimulus packages, and rethink financial and tax programs for businesses across the board.

In the realm of shipping, the simultaneous economic and credit crises have had significant impact on the ability of certain registers to maintain their viability, calling in to question critical government policy changes as they pertain to industries with strong offshore and overseas bases.
The European Commission’s 2009-2010 Maritime Transport Strategy Communication has stressed the importance of pursuing appropriate government action to ensure the continuous performance of the E.U. maritime transport industry. This includes government support of European registers, which face increasing competition from ‘third country’ companies, which enjoy more the considerable financial and legal backing of their own governments.

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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

Clarification

Last week, we had the privilege to discuss with KAMCO about its shipping funds and here is an update for our readers.

To recap quickly, the KAMCO fund structure resembles the Korean Ship Investment Company scheme that is incidentally modeled after Germany’s KG fund and Norway’s KS fund. Firstly, a ship investment company (“SIC”) is established with equity financing from KAMCO funds, pension funds, insurance companies, investment companies and individuals looking for tax benefits. Depending on each shipping fund, KAMCO’s own restructuring fund along with other investors (if any) will provide 40% junior loans to the SIC set up to own the vessel. Financial investors including Hana Bank and Korea Exchange Bank will provide senior loans of up to 20% of the ship’s market value to the SPC.

With the funds from the SIC and financial investors, the SPC will next execute a sale and bareboat charterback with the shipping company, in most cases BBCHP (Bareboat Charter Hire Purchase) for a minimum of 5 years. The BBCHP model allows rates to be set so that owners can continue to operate ships reasonably in the current environment. Typically, only interest payments are to be made over the life of the loans with a balloon payment at the end. The investors will be exposed to minimal residual and equity risks under the BBCHP structure as the shipping company will be obligated to purchase the vessel at the end of the charter. KAMCO can accommodate bareboat charters in the structure as well, depending on the preference of the shipping company. Continue Reading