Marine Money has concluded the collection of data for its 2008 shipping banker survey and would like to sincerely thank all who have participated. We are currently concluding work on our annual shipping portfolio league table and would like to thank the following banks for their cooperation and contribution to the development of a transparent and well-informed ship finance industry: Bank of Ireland, Bank of Scotland, Bremer Landesbank, Calyon, Commerzbank, Danish Ship Finance, Danske Bank, Deutsche Bank, Deutsche Schiffsbank, DnB NOR, Dresdner Bank, DVB, Helaba, HSH Nordbank, HVB, JP Morgan, KfW, Lloyds TSB, Natixis, Nordea and RBS. If you don’t see your bank’s name on the list, think it belongs there, and haven’t been in touch with us this weekend, please send an email to nhuvane@marinemoney.com ASAP to ensure you are included. Both survey and portfolio data will be released in the upcoming May issue of Marine Money.
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The Wall Street Journal this week reported that NOL and Hapag-Lloyd parent TUI have retained JP Morgan and Deutsche Bank, respectively, to advise on a possible tie-up that would create one of the world’s largest container shipping enterprises. Such a venture would inevitably involve Singapore state investment company Temasek, which owns 69% of NOL.
Sources in the maritime industry declined comment on the possibility, but reports suggest that potential scenarios include a share swap or a merger between NOL and Hapag-Lloyd directly, with neither Temasek or TUI directly involved in the deal. Analysts pin NOL’s price tag at about $4 billion, a 20% premium to the company’s current market capitalization. They also note that NOL’s trade at a multiple about 20% lower than TUI’s.
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carisk | Categories:
Freshly Minted,
The Week in Review | February 14th, 2008 |
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While shipping stocks are no longer booming, the underlying shipping markets remain healthy. Jonathan Chappell and his team at JP Morgan are looking for near-record tanker rates at the end of 2007 to drive up 1Q08 EPS for tanker stocks and also believe that the tanker spot markets will hold up better than expected going forward. On the dry side, Urs Dür at Lazard sent out a note this week to correct common investor misunderstandings regarding the BDI, noting that it is not correlated to near-term world trade. He also expects Chinese iron ore price negotiations to be completed by March 2008, which combined with low inventories in China should lead to near-term improvements for dry bulk freight rates. Omar Nokta and his team at Dahlman Rose note that the tanker market could see some support as AG March cargoes come into the market this week while also observing that the dry bulk market has gained some positive momentum, though this has yet to be reflected in stock prices.
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carisk | Categories:
Freshly Minted,
The Week in Review | February 14th, 2008 |
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Last week D/S Norden (“Norden”) held its first Capital Markets Day in New York at the prestigious Four Seasons Hotel. The event was hosted by Mr. Ivar Hansson Myklebust, EVP and CFO, and Mr. Martin Badsted, VP & Head of Corporate Secretariat. As this was the premier event in N.Y., the crowd was relatively small but high powered and included, among others, key New York shipping analysts Natasha Boyden of Cantor, Doug Mavrinac of Jefferies, Glenn Muller from JP Morgan and Michael Webber from Wachovia. Others in the audience included investors as well as Peter Shaerf of AMA.
The company allocated three hours for the presentation and Q&A session and we are struggling how to distill the in-depth presentation and do it justice. Objectivity is also an issue as we are ardent admirers of the company’s rather unique market approach and strategy. With that said, here are our key takeaways and our favorite slides from their presentation.
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Written by:
carisk | Categories:
Freshly Minted,
Market Commentary | January 31st, 2008 |
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In early 2004, it became clear to us that 2005 would be the most active year of consolidation among shipping companies in history. Our belief was underpinned by the fact that shipping companies were generating loads of cash from both operations and the capital markets, the fundamentals for the shipping industry looked set to remain strong and shipyards were operating at or near full capacity. So, armed with loads of cash and good prospects, it is natural to expect that companies would look to reap operational and financial synergies and leverage through growth, and that that growth would come in the form of corporate deals rather than single vessel purchases. And that is exactly what has happened in virtually every sector of the international shipping industry.
The Biggest Gets Bigger
In the latest and most dramatic example of this phenomenon, A.P. Moller-Maersk launched a takeover bid this week for 100% of the shares in Royal P&O Nedlloyd in the largest container shipping M&A deal ever. The takeover bid values P&O at Euro 57 per share, which represents a 41% premium to the then-current price and a 45% premium to the price over the last six months. The bid is also a whopping 130% over the rights issue price on the deal that received Marine Money’s Deal of the Year Award this year and values the company at 1.6x FY05E. Although we expect Royal P&O Nedlloyd shareholders and P&O shareholders, who own 25% of Royal P&O Nedlloyd, to vote in favor the deal, the European Commission may require Maersk to sell off certain routes in order to consummate the deal legally, which could in turn spark a series of smaller M&A deals.
Randy Sesson at Goldman Sachs is representing A.P. Moller on the transaction, JP Morgan is representing Royal P&O Nedlloyd and Citigroup is representing P&O.
Valuation Metrics – AP Moller Set to Get P&O for Free
The transaction is an important one for both AP Moller and the container market in general. As you can see from the graph on the first page, the deal solidifies AP Moller’s position as the world’s largest carrier by taking out the number 3 player and propelling itself to a size that is set to be more than double that of its next largest competitor. On the industry level, the good news is that it shows APM’s bullishness about the outlook for the market, even despite the enormous post-panamax containership order book and some gloomy forecasts by analysts. The loss of P&O from the Grand Alliance will have a negative impact on fellow members NYK, OOCL and Hapag-Lloyd, as Grand Alliance has historically been an effective competitor to Maersk although we can hope that the rationalization of tonnage might ultimately help lessen the blows of looming overcapacity. In a research note, Citigroup container shipping analyst Charles de Trenck said he thinks the deal might raise the ante for other container lines, perhaps suprring NOL to acquire Wan Hai Lines, which has loads of ships on order. De Trenck also surmises that Evergreen could potentially be hurt, so we would expect this transaction to cause a spate of mergers and acquisitions.
Like any truly good M&A deal, this one is beneficial to everyone involved. Shareholders in Royal P&O Nedlloyd get a great valuation for their shares at a time when many think the market might start to weaken. If they want to remain exposed to the industry, they can use their tender proceeds to buy shares in AP Moller. And for AP Moller, the deal is fantastic. With synergies of around $350 million and AP Moller’s P/E valuation of 10x, the company’s share price should increase by the entire purchase price of the new company. Adding in the $400 million of earnings that Royal P&O Nedlloyd is expected to generate in 2005 will bring the number to $4 billion. Put another way, one could make the argument that AP Moller is getting Royal P&O Nedlloyd company for free!
Rumor has it that Star Cruises is looking to list subsidiary NCL to raise as much as $250 million, though the company denies that it has plans to do this by the yearend. If the deal does materialize, we expect that JP Morgan, who has raised immeasurable amounts of capital at very key times for the company, will probably be the underwriter.
In yet another stunning example of the liquidity that exists in the global bond markets and the investor appetite for anything having to do with commodities, Noble Group priced $700 million bonds last week through sole bookrunner JP Morgan with a spread over Treasuries of 225 basis points. The unsecured notes have a 10-year term and are non-callable for the first five years.
As for use of proceeds, $364 million of the net proceeds will be used to repay debt (with an average cost of 3.8%), and the balance of $315 million will be used for general corporate purposes, which we assume could include strategic acquisitions. The net result of the deal is that the company will term out its debt, eliminate all short-term principal maturities and gain a massive hunting license, which, in conjunction with the extraordinary amount of free cash the company is generating, will create a meaningful amount of buying power.
Like many companies involved in the trading and transportation of resources and energy, Noble has enjoyed phenomenal growth in recent years. EBITDA jumped from $46 million in 2002 to $85 million in 2003 to a whopping $348 million in 2004. In 2004, EBITDA/Interest expense was 7.8x and total debt to EBITDA was 2.6x. Despite the incredible growth and lightly leveraged balance sheet, Noble still trades at a significant discount to DryShips on a cash flow basis.
So what will Noble buy? Probably not ships, judging from the fact that the company’s references to shipping are kept to a minimum in the offering document. In fact, Noble seems more interested in providing financing to shipowners willing to buy vessels and charter them to Noble than it does buying ships for its own account, and it is possible that some of the balance sheet power will be used for this purpose.
In stark contrast to the recent shipping IPOs, here is how Noble describes itself: “We are a leading global diversified natural resources merchant. We source, market, transport and deliver a wide selection of industrial raw materials, agricultural products and energy products. We believe we provide a value-added service in the commodities supply chain by efficiently linking producers and consumers on a global basis, integrating each step of the supply chain from sourcing to delivery. Our role as a merchant, coupled with our expertise in logistics services, gives us the flexibility to operate at any level of the supply chain based on our clients’ needs. We focus on specific geographical regions, products and services where we perceive we are able to add value by more efficiently managing the linkages of supply and demand. We have also developed complementary ancillary services which, combined with our hedging, insurance and financing capabilities, allow us to arrange turnkey solutions for our clients.”
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carisk | Categories:
Bonds,
Freshly Minted | March 24th, 2005 |
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It appears as if the equity in Horizon Lines will be turned over yet again – for the third time in as many years. Leading Jones Act container shipping and logistics company Horizon Lines has filed an S-1 with the U.S. SEC in its bid to raise up to $287.5 million through its initial public offering. The company is looking to be listed on the NYSE under the symbol HRZ. Joint bookrunning lead managers on the deal are Goldman, Sachs & Co. and UBS Investment Bank, while co-managers are Bear, Stearns & Co., Deutsche Bank Securities and JP Morgan. The deal comes as private equity firm Castle Harlan, which purchased Horizon Lines in July 2004, seeks to cash out on some of its massive $663.3 million investment while maintaining a controlling stake in the company, which is well-positioned strategically in all three of the non-contiguous U.S. Jones Act markets as well as Guam. Castle Harlan extracted about $80 million of its original investment in the company through the issuance of a zero coupon bond in late 2004, and this deal will likely represent a total return of invested equity.
A Little Something for Everyone
By way of review, the Carlyle Group of Washington, D.C. had bought Horizon from CSX Lines for around $375 million in 2002 before selling the company to Castle Harlan for over $650 million in 2004. While the trade press reported that Carlyle nearly double its money, that statistic refers to the enterprise value of the company and assumes the firm used its own money. In actual fact, assuming Carlyle put up 20% of the equity on the original deal, then the private equity firm would have turned its $75 million initial investment into $350 million, or a return of about 460% on its equity.
On the surface, the deal looked reasonably priced even from Castle Harlan’s perspective at 7.3x. However, significant deductions for drydocking expenditures brought the multiple to 11-13x, placing the purchase at the upper end of the reasonable range, but still not shocking considering how sacrosanct the Jones Act is. But then, using the metrics behind the $140 million price Kvaerner Philadelphia newbuildings fetched from Matson with a 40-year amortization period, Horizon Lines’ vessels can be valued at about $35 million each, reasonably closer to what Castle Harlan paid for them before even considering the steady stream of earnings the vessels bring. Less than a year later, Castle Harlan has already extracted $80 million from Horizon through a bond offering and stands ready to issue almost $290 million worth of shares.
Horizon –a Cash Cow for Goldman Sachs
But when you look at risk adjusted returns, the sure winner is the investment bank that has been involved every step of the way, Goldman Sachs. Horizon has been a true cash-cow for the firm as they bought the company for Carlyle, then sold the company to Castle, then did two bond offerings for the company for Castle and are now bookrunner on the equity offering.
What’s Left?
Like most deals, there are “pros and cons” to the Horizon transaction. The “pros” are that the company has a privileged position in a U.S. Jones Act trade, which limits competition to companies that have U.S. built ships that are owned at least 75% by Americans, fly the U.S. flag and have U.S. crews. Horizon is one of only two providers of its services in the Hawaii and Guam markets and the largest such provider in Guam – two stable and growing, albeit slowly, markets.
And then there are the “cons”, Horizon has been bounced between two private equity firms who have extracted a lot of equity over the last three years and have not replaced any of the company’s 28-year-old vessels. The proceeds of this deal will pay back the founders and reduce debt, which will theoretically create buying power assuming they can arrange like kind debt facilities, but at some point there will be some major capital expenditures to be made even though the company states that each of its ships has a 45-year useful life.
The story is not exciting, but it is solid. So long as the sacrosanct U.S. Jones Act is not altered and the maintenance and replacement of the company’s fleet does not prove to be a problem. And it certainly makes sense for Castle Harlan, who has no particular need to maintain much more than a controlling stake in the company, and who also can hardly hope to follow in the footsteps of Carlyle and watch the company double in value once again over the next two years.
Written by:
carisk | Categories:
Equity,
Freshly Minted | March 10th, 2005 |
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Nordic American Raises $173 million,
JP Morgan Bearish
Nordic American Tanker Shipping priced it’s 3.5 million share follow-on offering today at $49.50 per share, raising $173 million not counting 545,000 shares reserved for over-allotments. Bear, Stearns & Co. and UBS investment Bank are acting as joint bookrunning managers on the deal while DnB NOR Markets is serving as co-manager. The proceeds from the deal are to be used to repay any amounts borrowed under the company’s senior secured credit facility and to go towards the price of two suezmax tankers that NAT had previously agreed to purchase.
Early in the morning of the day the offering priced, JP Morgan issued research reports initiating both Nordic American and fellow tanker yield-play Knightsbridge as Underweight.
Nordic American Tanker Shipping priced its 3.5 million share follow-on offering today at $49.50 per share, raising $173 million not counting 545,000 shares reserved for over-allotments. Bear, Stearns & Co. and UBS Investment Bank are acting as joint bookrunning managers on the deal while DnB NOR Markets is serving as co-manager. The proceeds from the deal are to be used to repay any amounts borrowed under the company’s senior secured credit facility and to go towards the price of two suezmax tankers that NAT had previously agreed to purchase.
Early in the morning of the day the offering priced, JP Morgan issued research reports initiating both Nordic American and fellow tanker yield-play Knightsbridge as Underweight.
Written by:
carisk | Categories:
Equity,
Freshly Minted | March 3rd, 2005 |
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Robin Das – Departs WestLB, Joins HSH Nordbank AG
In a move nicely timed to correspond to our 4th Annual Ship Finance Forum – Hamburg held today, our friends at HSH have hired Robin Das as the Head of the newly created Structuring and Development unit in the Shipping Department effective February 22, 2005. Robin Das is, of course, known to many of you from his days at JP Morgan and WestLB. This move is a significant one for HSH, which has the largest shipping portfolio in the world with about $20 billion in drawn and undrawn facilities. Robin’s role in the massive bank, a combination of Hamburgische Landesbank and LB Kiel, will be to offer “complex finance structures”. For example, the Bank has already financed three LNG carriers as sole underwriter during 2004. According to the release, “Structuring and Development” is a service provider for the other units in the Shipping Department of HSH Nordbank and is responsible for developing innovative financial products. “Structuring and Development” will focus on larger, complex and structured finance products for the Shipping Department’s customers, thereby supporting its other units by systematically broadening and diversifying its product base for the benefit of its customers.”
In a move nicely timed to correspond to our 4th Annual Ship Finance Forum – Hamburg held today, our friends at HSH have hired Robin Das as the Head of the newly created Structuring and Development unit in the Shipping Department effective February 22, 2005. Robin Das is, of course, known to many of you from his days at JP Morgan and WestLB. This move is a significant one for HSH, which has the largest shipping portfolio in the world with about $20 billion in drawn and undrawn facilities. Robin’s role in the massive bank, a combination of Hamburgische Landesbank and LB Kiel, will be to offer “complex finance structures”. For example, the Bank has already financed three LNG carriers as sole underwriter during 2004. According to the release, “Structuring and Development” is a service provider for the other units in the Shipping Department of HSH Nordbank and is responsible for developing innovative financial products. “Structuring and Development” will focus on larger, complex and structured finance products for the Shipping Department’s customers, thereby supporting its other units by systematically broadening and diversifying its product base for the benefit of its customers.”
Written by:
carisk | Categories:
Freshly Minted,
People & Places | February 24th, 2005 |
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