Shipping Bonds Take Speed amid Market Turmoil

More shipping companies in Asia are taking a closer look at the variety of bond instruments, ranging from conventional straight bonds to more innovative “dim sum bonds” and perpetual bonds, despite the uncertainties and volatility revolving around the global economy.

Following the successful closing of China Shipping Development’s RMB 3.95 billion (USD 602 million) convertible bond issue in August, another major Chinese conglomerate is planning to tap the bond market in a big way. China COSCO Holdings – the flagship listed entity of COSCO Group is planning to raise not more than USD 2 billion worth of bonds. There are however some distinct differences in strategy between the two largest shipping companies in China. Unlike China Shipping Development whose bond offering was made available exclusively to Chinese domestic investors, China COSCO has clearly international investors in mind. The company will be setting up an offshore wholly owned subsidiary for the offering and provide corporate guarantee for the bonds, subjected to the approval of shareholders. Continue Reading

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

USD 1.2 billion MOL bonds On the Horizon

Japanese mega carrier Mitsui O.S.K. Lines (“MOL”) has applied for approval from the Ministry of Finance to sell up to JPY 100 billion (USD 1.2 billion) worth of bonds. If this comes into fruition, it will be the first shipping bond issuance by a Japanese shipping company since January 2010.

Even though R&I has assigned a high preliminary rating of “AA-” for the bonds and re-affirmed MOL’s issuer rating of “AA-”, the credit rating agency has expressed concerns with the acute earnings fluctuations in the company’s container shipping business and the worsening oversupply situation in the dry bulk sector. “If MOL is slow to improve its financial base due to weak earnings and cash flows, it will be difficult to keep the current credit rating,” it said in a statement. Continue Reading

More Mega Bonds

Following Mitsui O.S.K. Lines’ JPY 50 billion double bond issue in June, Nippon Yusen Kaisha (“NYK Line”) is the next Japanese mega carrier that will be tapping the local domestic market for financing. NYK Line will issue two sets of bonds worth a total of JPY 60 billion (USD 625 million). The first bond issue has a maturity of 5 years and pays a stunning annual coupon of just 0.968%. The second offering has a longer tenure of 10 years but carries a higher coupon rate of 1.782%. Both offerings are managed by Mitsubishi UFJ Securities, Mizuho Securities and Nomura Securities.

Rating & Investment Information (“R&I”) and Japan Credit Rating Agency have assigned ratings of AA- and AA to the bonds, but both rating agencies maintain a negative outlook on the industry. R&I said in its report that even though the dry bulk market has been recovering since May, NYK’s losses in regular liner services have grown while the earnings from the car carrier and tanker services have deteriorated sharply. The credit agency noted that NYK’s ambition in becoming an integrated logistic provider will allow the mega carrier to develop an earnings structure that is less susceptible to the fluctuations in the marine transport industry. But until that materializes, the air cargo business will continue to drag down NYK’s earnings in the short run. Nonetheless, a high credit rating has been assigned to the bonds and the issuer, taking into account NYK’s solid client base, strong operating expertise and its proactive cost reduction measures in streamlining its liner and air cargo businesses. Continue Reading

Conversation with President of U-Ming Marine Transport, Mr C K Ong

Every year, Marine Money ranks the world’s public listed shipping companies and we are very pleased to see a strong Asian showing this year with U-Ming Marine Transport (“U-Ming Marine”), Mitsui O.S.K. Lines, Precious Shipping and Courage Marine in the top 10 spots. We were very fortunate to have a chance to speak to Mr C K Ong, President of U-Ming Marine Transport for this exclusive write-up when he was in New York City to receive the award.

As a new entrant to our universe of 100 public shipping companies this year, U-Marine Marine finished 2nd in overall performance and 7th in the credit rankings. The management taken to heart the main lesson of shipping, which is recognizing its volatility.” With that in mind, it manages the company to protect the downside knowing it will survive to enjoy the fruits of the cycle. Since its listing in 1990, the company has not incurred a loss, even in the most difficult markets and has throughout that period regularly paid a dividend. Continue Reading

Fun Raising Continues

As economists struggle to reach a consensus on whether the global economy has indeed begun a sustainable recovery or this is simply a slower pace of contraction, investors are just befuddled by the strength and endurance of the present stock market rally. But one thing is for sure, shipping companies are wasting no time in taking advantage of this broad-based improvement in market sentiment.

In Japan, Mitsui O.S.K. Lines (“MOL”) issued two series of secured straight bonds – bonds number 11 and bonds number 12 last week and raised over JPY 50 billion (USD 528 million). The first tranche of five year JPY 30 billion bonds carries an annual coupon of 1.278% while the second ten year JPY 20 billion tranche pays investors 1.999% annually. The funds will be used to repay existing borrowings and for the redemption of commercial paper. Both Rating & Investment Information and Japan Credit Rating Agency have assigned AA- to the bonds, acknowledging that the company’s well diversified earnings have a strong capacity to recover in a market turnaround. The bonds, although unsecured, come with a negative pledge. At the same time, the company is said to be in the market for a three year JPY 15 billion (USD 156 million) loan with SMBC as the sole bookrunner. The loan is priced at 30 bp over 6-month TIBOR (Tokyo Interbank Offered Rate). MOL expects some signs of recovery in summer this year and is implementing its JPY 40 billion group-wide cost reduction measures to secure stable long term profits. The ability to secure incredibly low cost funding and execute rapid fleet reduction will prove to be critical for the company emerge stronger in face of the crisis. Continue Reading

Alternative Financier Provides Equity

Completing its first investment, since it was established in 2007, Maritim Equity I invested EUR 11.25 million to purchase 75% of the equity in the M/S John Wulff, a 92,500 DWT mini-Cape. The ship company owner John-Peter Wulf owns the other 25% personally. The vessel is being constructed by the Chinese Yangfan Group and is scheduled for delivery in August 2010. Upon delivery, the vessel will enter into a five-year charter with Mitsui O.S.K. Lines at $32,000 per day.
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