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

Never Enough – Hapag-Lloyd Extends Bond Issue

Based upon the very strong reception for its previous $700 million issue of Euro and Dollar bonds, it comes as no surprise that Hapag-Lloyd announced on Monday the offering, in a private placement, of an additional EUR 150 million of 9% Senior Notes due 2015. This brings the total raised to in excess of $900 million. The notes will be issued under the original indenture dated October 8, 2010. This incremental amount further aids in the continuing clean-up of the balance sheet.

Doesn’t Get Better – Hapag Lloyd Offering Upsized and Trades Up at the BreakImproving Leverage While Increasing Liquidity – Teekay Tanker Follow-On

Initially targeting $500 million in a two tranche offering of Euro and Dollar bonds, Hapag Lloyd benefited from strong investor appetite and upsized it’s offering by EUR 145 million ($200 million) an increase of 40%. In terms of final numbers, Hapag issued EUR 330 million of 9.5% 5-year Euro notes and $250 million of 9.75% 7-year Dollar notes.

The Euro notes and Dollar notes were issued at 99.5% and 99.37% respectively to yield 9.55% and 9.875%. At the break, both senior notes traded up at around 103.5%.

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A Rising Tide Not Only Lifts All Boats, But Also Allows a Recapitalization and Perhaps Even an Exit

Last week, Hapag-Lloyd began marketing a $500 million bond issue in Europe and the U.S. to qualified investors, as part of a debt re-structuring, which will most importantly, stabilize the company’s balance sheet. The company intends to issue $500 million in the aggregate of senior unsecured notes, which will consist of a combination of dollar denominated notes due in 2017 and Euro denominated notes due in 2015. The notes will be guaranteed on a senior basis by “Albert Ballin” Holding, the shareholding entity. Initially, the proceeds of the notes will be escrowed and released only upon the receipt by the company of a minimum of $290 million of proceeds from the K-sure financing (Ex-Im financing, guaranteed by the Korea Trade Insurance Company, for the acquisition of 6 x 8,749 TEU containerships to be built at Hyundai).  More details, based upon the preliminary prospectus and market talk, are provided in our Guts of the Deal herein.

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Earnings Season Continues

We continue to admire our analyst friends, who four times a year have to pore through the company financial reports, analyze them and update their models to fine tune their calls. With the greater disclosure there is much work to be done during these periods and we are happy to leave it to them. We, on the other hand, prefer to give the earnings releases a quick review in search of items of interest to us, which we think provide broader general insights both to the companies themselves as well as the industry. What follows is a selection of these items.

Eagle Amends
Within its 2nd quarter earnings release, Eagle Bulk Shipping (“Eagle”) disclosed that it had amended its revolving credit facility and entered into a management agreement with its former main shareholder.

In its third Amendatory Agreement to its credit facility, Eagle and Royal Bank of Scotland (“RBS”) have agreed to reduce for the second time the amount of availability under the facility. Originally the facility was for $1.6 billion which amount was reduced in December 2008 to $1.35 billion. With the current amendment, it has been further reduced to $1.2 billion. The facility, which matures in July 2014 continues to be interest only until July 2012, when availability begins to decline with the commencement of four semi-annual reductions of $56.25 million with the balance due at maturity. The facility currently accrues interest at LIBOR + 2.50%, with undrawn portions bearing a commitment fee of 0.7%. The cost of interest has become expensive, having nearly doubled from prior periods. It now represents ~22% of EBITDA up from 13%.

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Food for Thought

Sea-Asia 2009 kicks off in Singapore this week and Marine Money Asia had the pleasure to participate in the series of conferences to hear from industry leaders on where they think the markets may be heading. We present some notes from the event.

Li Zhen, Assistant President of Sinotrans Group is in the opinion that it will be difficult for many private shipyards particularly in Jiangsu, Zhejiang and Fujian provinces to secure special support from the central government. State-owned shipyards are the main beneficiaries from the government’s assistance programme.  Continue Reading

Loose Lips Sink Ships

It has been a very frustrating week. We have talked to bankers who have indicated that they are in fact working on M&A deals but whether they are constrained from discussing them or are just simply fearful of jinxing them, we cannot unearth any detail. Among previously identified deals, Tufton’s distressed fund is rumored to be near closing its first deal and the TUI and Hapag Lloyd deal seems to be back on track. The good news however is that there is activity. We remain on the case and, of course, would welcome a quiet hint.

Hapag-Lloyd Ponders Its Future

As questions about Hapag-Lloyd’s future continue to circulate, we thought it worth a refreshed look at how the deal came about and where it might be going. Hapag-Lloyd parent TUI’s interests have long been split between its core tourism business and a fairly substantial container shipping business, representing EUR 449 million and EUR 197 million respectively in 2007 underlying EBITDA. TUI bolstered the shipping side of its business with the $2.3 billion acquisition of CP Ships in late 2005 that was also the catalyst for a $1.8 billion bank refinancing, handled by HVB, Deutsche Bank and Citi, and a EUR $1.75 billion bond issue handled by HVB, HSH, Citi and RBS.
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The Week in Review

While there are rumors of a number of IPOs in the works, volatility and uncertainty has all but brought the US equity markets to a stop, and we don’t expect to see much more done over the summer. Bank debt has not proved as much of a problem for shipping. Most recently this week Deutsche Bank and HSH Nordbank acted as MLAs on a $753.1 million loan for E. R. Schiffhart GmbH & Cie KG to finance ten capesize bulkers currently under construction in Korea by the Hyundai Group with delivery expected throughout 2010. BNP Paribas, Commerzbank and Dresdner Kleinwort joined DB and HSH as arrangers while Deutsche Schiffsbank came in as a co-arranger for the deal, which finances 71% of the $1,056 million project cost and covers both pre and post-delivery financing. Notably Ralph Bedranowsky of Deutsche Bank and Harald Kuznik of HSH both hailed the deal as an example of “the global shipping market…returning to reasonable, market-consistent valuations…”
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The Week in Review

Summer is upon us and, while not as busy as last year, there is still quite a lot going on. This week Global Oceanic Carriers decided to call it a day for its public listing in London while Svithoid Tankers announced a rights issue in Sweden. Aries Maritime meanwhile concluded its review of strategic alternatives and chose to maintain its independent public listing. Bocimar announced a joint venture with Conti7 for six handysize newbuildings while the Shipping Corp of India entered into a JV with the state run Steel Authority of India. Double Hull Tankers rebranded itself and broadened its mandate with a name change to DHT Maritime, reflecting both the impending phase-out of any tankers that are not double hull and the company’s interest in timely and selective acquisitions that include vessels other than tankers. Speculation continues to flutter about the potential acquisition of Hapag-Lloyd by NOL from TUI for somewhere in the realm of $6 to $8 billion plus. Last but not least Bank of America signaled a recommitment to the shipping sector with the initiation of coverage on four shipping companies.