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

Bond Frenzy

Bonds are becoming an important source of capital for shipping companies. Earlier this month, Hyundai Merchant Marine (“HMM”) has successfully issued a KRW 200 billion (USD 169.3 million), 6.7 per cent two year bond. Korea Line has also issued two tranches of 3 year convertible bonds domestically – KRW 50 billion and KRW 40 billion (USD 76 million) respectively. Over in India, Great Eastern Shipping is looking into a Rs 2 billion (USD 43 million) 10 year bond issuance. The bonds will carry a coupon rate of 9.6% and Trust Investment Advisor has been appointed as the arranger.

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

Watson, Farley & Williams LLP Advises in High Profile KOGAS Project Financing

The Singapore office of Watson, Farley & Williams LLP (“WFW”) advised on the high profile Korea Gas Corporation (“KOGAS”) refinancing for three 1999 built LNG carriers.  The 138,200 cbm built LNG carrier “Hanjin Muscat” is on bareboat charter to Hanjin Shipping Co., Ltd, the 138,100 cbm built LNG carrier “SK Summit” is on bareboat charter to SK Shipping Co., Ltd. and the 135,000 cbm built LNG carrier “Hyundai Technopia” is on bareboat charter to Hyundai Merchant Marine Co., Ltd.  All three LNG carriers are operating under long term contracts of affreightment with KOGAS. Continue Reading

Hyundai Merchant Marine Raises $2.4 billion

By Matthew Flynn

The restructuring of Hyundai Merchant Marine may have been the ultimate banker’s Odyssey.

Level a mountain of debt, uproot and replant the car carrier division, tender the container terminals to the giants of the port industry, and disentangle the company from shareholdings with other struggling affiliates. For good measure, sell the roof over the company’s head with the disposal of its headquarter’s building, then do a handful of asset-backed security issues on LNG freight receivables.

At the same time, avoid the sniping from politicians determined to find proof the company illegally transferred funds to North Korea. This history of the company’s involvement with the Hyundai Group’s campaign in North Korea is hard to ignore because it appears to be both the undoing of HMM’s financial security and the source of its current regulatory problems.

Against this backdrop, HMM and their advisors, Credit Suisse First Boston, pulled off one of the most substantial and successful shipping restructuring perhaps in several decades.

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Deal of the Year – 2002 Bank Debt

Determining the bank debt deal of the year is usually the most challenging of all the awards we give. Of the hundreds of revolvers, term loans and refinancing totaling about $40bn done for the shipping industry each year, it is generally very difficult to determine a winner – but this year it was easy.

This year’s Bank Debt Deal of Year award goes to Citigroup, the Korea Development Bank and the Korea Exchange Bank for the $1.05bn facility that they arranged to finance Wallenius Wilhelmsen’s (WW) acquisition of Hyundai Merchant Marine (HMM)’s car carrier business, including the term charters with Hyundai Motors and Kia Motors (HMC/KMC). The NewCo, known as “Korea Ro-Ro”, is to be jointly owned by Wallenius 40%, Wilhelmsen 40% and HMC/KMC 20%.

There were several things we liked about this deal. Perhaps more impressive that its sheer size was the fact that it attracted more funding from foreign lenders than any previous Korean leveraged deal. This Norwegian/Korean transaction was also extremely complex, requiring securitization of cash flow streams into three tranches with multiple security packages and pricing.

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Wilhelmsen & HMM: MERGER IN THE ORIENT

On Friday the 22nd of February, Wilh. Wilhelmsen ASA asked the Oslo Stock Exchange to suspend trading awaiting an announcement. Rumours were buzzing around Oslo that weekend but three main theories appeared; i) the Wilhelmsen family had had enough of life in the public arena and would tender for the roughly 60% of the economics they did not own. ii) The initial talks with Hyundai Merchant Marine had been successful and a takeover of the ailing Korean shipowner’s car carrier fleet would move forward. iii) The Wallenius family was moving out of shipping and was selling their 50% stake in Wallenius Wilhelmsen (WW) to the Oslo listed company. Well it wasn’t the first and the third is still a possibility (we will come back to that a little later).

But the second one is now a reality. Representatives from Wilhelmsen and Wallenius are currently in Seoul, performing due diligence on HMM’s car carrier division.

In this article we will look at the rationale(s) for the buyer and seller to enter into these talks and why we feel that there is more to this story than first meets the eye. Before we take a look at the potential transaction let’s take a look at the players involved and see if we can easily spot the reasoning for such a deal.

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