First Time Cooperation Yields Success for NOCC

This week for the first time Nordea and RS Platou joined forces and together successfully concluded a NOK 200 million senior unsecured bond issue for Norwegian Car Carriers ASA (“NOCC”). The transaction was well received with the books closed when the targeted amount was reached. Sold at par, the bond has a tenor of five years and carries a coupon of 10.5%. Proceeds will be used to re-purchase NOK 4 million in the bond loan EID01 and NOK 42 million face value in the bond loan EID02. After repayment, the outstanding amounts under the issues would be respectively NOK 25.5 million and NOK 28.5 million. The excess proceeds, NOK 154 million, will be used for general corporate purposes. Further details are provided in our Guts of the Deal below.

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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

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

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

Let the Stakeholders Speak

During our conference in Hong Kong, the panel titled “Stakeholders Unite: Owners, Investors & Lenders on What Comes Next” generated a lively discussion on the many issues revolving around shipping today including the role of private equity in shipping, China’s increasing dominance in the global supply chain and the funding gap of the global orderbook. We bring you some of the highlights.    Continue Reading

Japan Focus: MOL, NYK and K-Line

By Matt Flynn

Can Japanese Liners Untangle?

The earnings of the liner divisions of the major Japanese carriers are consistently wreaking havoc. Even at best, the units can be diplomatically be called “swing divisions” as the cycles of the container freight rates push the divisions in or out of the black. The news for container rates in turn then pushes investors in or out of the shares and contributes a large measure to the volatility of the share prices. For decades, the liner divisions have long been under water with 1999 and 2000 the only two profitable years in memory.

“It is easy to understand how (global) liner companies lost money in 2002, I actually find it hard to understand how a few of the companies actually made money,” said one Japanese liner executive in frustration. While none of the three companies are releasing results for this or any other sector, it is fairly widely known that the Japanese liner divisions slipped back into deficit for both 2001 and 2002 despite unprecedented cost cutting campaigns.

Analysts have regularly called for the liner divisions to be spun off into separate companies so the parents can enjoy better investor appetite for equities, and better rating agency assessments of their debt. This is unlikely to happen, primarily because the companies have dedicated so much management effort to cutting costs and also are investing heavily in new containership tonnage.

“The focus is on the liner division to make it as profitable as the car carriers,” said Tadashi Okuda,

finance general manager at MOL, who acknowledging that “Domestic shareholders are fairly comfortable with MOL, but some foreign investors focus on what they perceive is high risk of exposure to liner sector.”

The liner division is a priority focus in FY 2003 for meeting the ambitious plans of MOL next and the success will be crucial in maintaining MOL’s credibility in meeting multi-year profit improvements.

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SOH MEN TURNING JAPANESE?

World-Wide Shipping’s Dr. Helmut Sohmen has pulled yet another stealth share acquisition, this time in Japan. The Hong Kong-headquartered company has acquired a more than 6% stake in Tokyo-listed Iino Kaiun, an old-line industrial carrier with interests in LNG, LPG, VLCCs, smaller tankers and a smattering of bulk carriers. With about 1 00m shares in circulation, the 6% stake acquired in the market cost Dr. Sohmen an estimated USD 10 – 13m.

So far, what we see is that World-Wide is looking at a tie up in kind of an alliance. It is not their intention to pursue a merger, said one official at Iino Line. “Right now their share is so small that we do not see that there would be any immediate impact on our business,” he added. IiWhat claim on assets Dr Sohmen received in return is unclear because the company’s fleet list does not specify Iino Line’s share of 11 LNG carriers. LNG was believed to be a prime attraction of World-Wide’s accumulation of 10% Bergesen shares.

Other Iino Line ships include 14 bulk carriers, eight LPG carriers of 2700 to 80,000 cbm, 15 chemical carriers, and five methanol carriers. Altogether the company claims to hold 78 vessels totaling 2.97m dwt.

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