HMM Seals USD 500 million Debt Facility

Hyundai Merchant Marine (“HMM”) has demonstrated that even during times of economic uncertainty, reputable ship owners with good track records are still able to tap the banking market. Last Tuesday, HMM concluded a USD 500 million syndicated debt facility led by DNB Bank. Other participating lenders include ABN AMRO, Credit Agricole, Korea Finance Corporation and Korea Development Bank. The facility will be used by HMM to fund the construction of five mega container vessels being built at Daewoo Shipbuilding & Marine Engineering which are scheduled to be delivered throughout 2014.

DNB says the latest transaction underlines the bank’s continued commitment to shipping throughout the cycle. In an earlier report, J.P. Morgan analyst Sofie Peterzens pointed out that the bank is well positioned to absorb potentially higher shipping losses from a profitability and capital perspective. With only 7.7% of total lending to shipping, a well diversified loan portfolio and LTVs averaging 60-75%, Ms Peterzens believes that DNB’s exposure to the sector is manageable.

KAMCO – A White Knight for Korean Shipping

There are many intrinsic reasons for governments in Asia to formulate policies to support their domestic shipbuilding industry, either through direct loans to the yards or their clients. The shipping sector, however, has in sharp contrast, failed to benefit in the same way, with the exception of South Korea. As a resource-poor country, South Korea recognizes shipping as strategically vital to the nation’s economic wellbeing. During the Asian financial crisis in the late 1990s, cash strapped Korean shipping companies sold 112 ships at distressed prices to foreign buyers and as a result, the country had to grapple with the repercussions from the loss of its national fleet. This painful lesson has strengthened the nation’s determination not to allow history to repeat itself, at a time when shipowners are once again facing huge challenges on multiple fronts including a weaker demand due to the current acroeconomic uncertainly, capacity glut across all vessel types and rising bunker costs.

Armed with the mission to assist in the restructuring or liquidation of distressed assets, Korea Asset Management Corporation (“KAMCO”) has been playing a vital role in alleviating domestic shipping companies from a liquidity crisis. In 2009, the state-run financial restructuring agency established a maritime fund, designed to help shipping companies reduce their capital costs on their vessels. Since then, KAMCO has acquired 27 vessels of over USD 720 million directly from the shipping companies. This strong (and unprecedented) support for the shipping sector has allowed South Korean shipping companies to weather the after-effects of the Lehman crisis. 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

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

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

GMF Launches Badaro #14

Global Maritime Financing (“GMF”) has successfully closed its latest ship fund under the Ship Investment Company (“SIC”) Act in South Korea. This could well be the first SIC created since the financial crisis broke out in 2008. Market reports suggest that the fund Badaro No. 14 Ship Investment Co. raised 72 billion won (USD 63 million) and acquired a newbuilding 180,000 DWT Capesize bulk carrier at Sungdong Shipbuilding & Marine Engineering. The vessel upon delivery in May 2011 will be chartered to Hyundai Merchant Marine under the bareboat charter hire purchase (“BBCHP”) structure.

40% of the financing comes from a junior loan provided by local institutional investors and underwritten by Mirae Asset Securities while the remaining 60% is satisfied by a 5 year senior loan from Calyon (now rebranded as Crédit Agricole Corporate and Investment Bank). Korea Exim Bank provided the refund guarantee for the newbuilding. Continue Reading

A Silver Lining in the Bond Market

For the fortunate few, there lies the silver lining in the bond market. Records were shattered in 2009 in the Asian shipping bond arena with over USD 7.26 billion in new issuances. This is a historical high which represented an over 350% increase from USD 1.59 billion in 2008. Clearly, the need for capital has never been stronger as companies grit their teeth against the harsh operating environment.

Transactions in the Asian shipping bond market ran the gamut from the simplicity of straight unsecured issues to the complexity of Islamic debentures. Korean shipping companies top the list, by issuing bonds with 1-3 year maturity and interest rates of 7-8%. Hyundai Merchant Marine, Hanjin Shipping, STX Pan Ocean, SK Shipping, Korea Line and EUKOR Car Carriers have all tapped the bond market more than once this year, having raised over USD 2.9 billion in total. Top Korean issuer HMM raised KRW 1.06 trillion (USD 899.9 million) through eight bond issuances between February to November this year. Continue Reading

Bank Debt Returns to Normalcy?

One of the major concerns on the minds of many would be the pile of toxic collateralized mortgage paper that remains on banks’ balance sheets and this will continue to restrict the banks’ ability to extend new credit. Likewise, shipping banks face the same tricky task of valuing the shipping assets on their books based on current market prices. Basel II requires banks to set aside more capital to riskier assets whenever the security cover reduces, and this could potentially limit capital for lending. The process of writing down book values has yet taken place and moving forward, it is absolutely crucial that bank losses on shipping remain limited or the industry could risk losing a number of lenders. There has already been a material contraction in ship lending capacity among major shipping banks.

2009 has been a busy year for the ship financiers, not so much for lending but more in terms of restructuring and workouts. Lending terms as one would expect have become more stringent in 2009 and not only has the advance rate been lowered to 50-60%, banks prefer shorter tenors between 3 and 5 years. This is in stark contrast to the 10 to 12 year tenors banks were offering shipowners during the shipping boom just a couple of years back. Bankers call this a return to basics. Continue Reading

Asian Shipping Bond Issuances Hit USD 7.3 Billion In 2009

With bank debt being still hard to come by, the bond market for shipping companies in Asia continues to be active with transactions that ran the gamut from the simplicity of straight unsecured issue to the complexity of Islamic debentures. Bonds have become an extremely important source of capital for both shipbuilders and shipping companies in Asia and many are still working hard to seize this fund raising opportunity before any sudden changes in investors’ risk appetite. 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