JBIC offers NYK loan facility

Export Credit Agency, Japan Bank for International Cooperation (“JBIC”) is leading a syndicated loan for mega carrier Nippon Yusen Kaisha (“NYK”) for the acquisition of a LNG carrier. The vessel will be built by Mitsubishi Heavy Industries and will be placed on a long term charter with Tokyo Electric Power Co (“TEPCO”) upon delivery. JBIC has committed JPY 12.6 billion (“USD 162 million”) to the facility, which we understand is not the entire amount. Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp chipped in as participants in this project finance transaction.

The vessel is rumoured to cost NYK JPY 20 billion (USD 258 million). NYK has a 15 year agreement plus an option to extend for another 5 years with TEPCO for the transportation of natural gas into the country.

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 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

JBIC and NEXI Ramp Up Support for Shipping

More foreign owners are turning to government supported export credit agency (“ECA”) financing as an important alternative source of finance in bridging the liquidity gap. The benefits are straightforward. ECA financing provides credit enhancement to lenders, improves their appetite and offers longer tenure and cheaper pricing than wholly commercial sources of funding, but it remains uncertain how long this financing avenue will remain open for shipowners. As for now, the momentum appears to be gaining pace.

This week, Société Générale Corporate & Investment Banking (“SocGen”) and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”) announced that they have jointly provided Danish shipowner J. Lauritzen A/S a JPY 15.53 billion (USD 166.2 million) 12 year senior secured facility for the export of five handysize bulk carriers and one capesize bulk carrier. The vessels will be constructed at Imabari Shipbuilding, Hakodate Dock and other Japanese shipyards. The most interesting feature in this transaction would be the participation of Nippon Export and Investment Insurance (“NEXI”), one of the two Japanese export credit agencies. NEXI will provide buyer’s credit insurance coverage on 97.5% of political risks and 95% of commercial risks for the loan and this is the first time that NEXI has provided export insurance cover for a shipping asset based transaction without the support of Japan Bank of Cooperation (“JBIC”). Continue Reading

The Importance of Self Preservation

In 2009, the equity markets had a roller coaster run, but some shipping companies found windows of opportunity for share placements, often tied to debt reduction. Self help through raising equity capital for balance sheet recapitalization is one way to ride through the difficult times. There had been varying degrees of success and among the most notable would be Neptune Oriental Lines’ (“NOL”) USD 972 million rights issue in June and NYK’s recently concluded JPY 116.4 billion (USD 1.3 billion) global equity offering. 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

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

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

NYK ACQUIRES TAIHEIYO KAIUN

In addition to its double bond issue, NYK has appointed Mitsubishi UFJ Securities to carry out its share swap with financially troubled Taiheiyo Kaiun. On May 28, NYK announced that it will bail out Tokyo listed Taiheiyo through the issuance of new shares and equity-swap arrangements. Taiheiyo is currently an affiliate of NYK and takes pride in managing NYK’s tanker fleet. It was in 2001 when the mega carrier transferred all of its tanker management business to Taiheiyo and took up a nearly 23% stake in the company.  

Trouble started when Taiheiyo diversified into the dry bulk sector during the boom. In order to profit from the sky-rocketing charter rates during that time, Taiheiyo chartered in a number of dry bulk vessels and chartered them out at higher rates. This high risk, high return model churned out profits for the company but losses started to accumulate very quickly when the dry bulk market crashed. In October 2008, an unnamed foreign sub-charterer informed Taiheiyo that it was no longer able to fulfill its contractual obligations for four Panamax/Handymax bulk carriers. To make matter worse, less than 5 months later, South Korea’s Samsung Logix filed for receivership in Korea and made clear that likewise unable to honour its charter contracts concerning two Handymax bulkers. Taiheiyo managed to return one of the six vessels to the owner, but it had to continue paying its charter hires for the remaining five vessels and in an effort to stem the losses, Taiheiyo bit the bullet and paid JPT 7.5 billion (USD 78 million) to the owners as cancellation fees. An unfortunate victim caught in between the charter market breakdown, Taiheiyo sold all its five VLCCs to NYK, but even that could not stop the company from bleeding financially. Taiheiyo has projected a net loss of JPY 5,140 million (USD 53 million) for FY2010. As at March 2009, Taiheiyo owned 6 tankers, 1 capesize and 2 wood chip carriers and manages another 20 vessels, mainly tankers from NYK. Continue Reading