Banking Crisis? Not an Issue for BW Group or NOL

2012 is broadly expected to be challenging for both shipping lenders and borrowers. As long as the Euro debt crisis persists and continues to worsen, capital will become increasing scarce. Even shipping companies at the top of the pyramid are busy strengthening their balance sheets and making sure that they have adequate funds to meet capital expenditure requirements in the coming years.

One of the world’s leading maritime companies BW Group has successfully completed a USD 1.5 billion seven-year revolver in mid-November. According to market sources, the proceeds will be used for refinancing and the participants are largely from the previous revolving facility. Pricing is said to be “slightly higher” than the previous revolving facility, although it remains highly competitive in today’s tight market conditions. 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

Reaching The Light At The End Of The Tunnel

A breakfast meeting with a well respected shipping analyst from an investment bank this week was filled with pleasant surprises. Among which is the growing interest of institutional investors in the container shipping sector. “Last year, I can count with my fingers the number of institutional investors who agreed with my view that there is significant capital appreciation for containers. Now, not many disagree with me,” he relayed. Quick reviews on the market reports available on the sector appear to be supporting his observation.

A headline from the latest Alphaliner Weekly Newsletter reads: “Container freight rates on the main export trades out of China have risen by 24% over the last three months, providing some relief for shipping lines as they seek to return to profitability in 2010. The rate of recovery is much faster than expected, although rates on some of the short-sea sectors are still depressed.” Analysts at DnB NOR sounded optimistic, albeit more cautiously. They recognized the growth in world GDP over the next few years and operators’ ability to control capacity but at the same time, warned that the size of the idle fleet could overshadow demand. CIMB in Malaysia expects the carriers in the Transpacific Stabilization Agreement to attempt another round of increase during the May/June negotiations and believes that Asia-Europe spot rates are now profitable for most carriers. And perhaps, our friend is the most bullish among them all, maintaining his view that containers could surprise by posting incremental profits in the second half of this year. 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

NOL Rights Issue

With the strong support from state-owned Temasek Holdings, Neptune Oriental Lines (“NOL”) announced on Monday that its USD 985 million rights issue has been fully taken up. Looking closer at the numbers, over 97% of the total rights shares were subscribed by the existing shareholders (including Temasek), and the remaining will be allocated to shareholders who had applied for additional rights shares. The excess applications of 81 million shares represent 7.3% of the total rights issue or 2.58 times of the rights shares that were previously not taken up. NOL says preference will be given to the rounding of odd lots, and the Directors and substantial shareholders (including Temasek) will rank last in priority. The success of this massive offering will not be possible if not for Temasek’s commitment in underwriting the entire rights issue. DBS, HSBC, JP Morgan and Morgan Stanley were the lead managers of this issue.

In the latest report on NOL, J.P. Morgan says there is “limited downside to NOL” due less concerns about its balance sheet risks following its recent rights issue but there is better value in OOIL given the former’s cheaper valuations and longer term upside from its property development business in China.

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

Waivers And More Waivers

Not unsurprisingly, the difficulties in the marketplace are becoming more evident as the number of waivers of covenants increases in the public sphere. However, we understand that it is on the private, or dark side if you will, where the heavy lifting, at least in terms of restructuring, is taking place. The appropriate analogy might be the bare-knuckle storm below the calm sea of the public genteel discussions. Nevertheless, these exercises may be nothing more than band-aids should the market not improve. We certainly understand the cautious approach taken with respect to the public companies given the ramifications. The question remains as to what impact the private discussions might have on the public. We watch and wait as the parties stake out their positions.
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The Week in Review

While there are rumors of a number of IPOs in the works, volatility and uncertainty has all but brought the US equity markets to a stop, and we don’t expect to see much more done over the summer. Bank debt has not proved as much of a problem for shipping. Most recently this week Deutsche Bank and HSH Nordbank acted as MLAs on a $753.1 million loan for E. R. Schiffhart GmbH & Cie KG to finance ten capesize bulkers currently under construction in Korea by the Hyundai Group with delivery expected throughout 2010. BNP Paribas, Commerzbank and Dresdner Kleinwort joined DB and HSH as arrangers while Deutsche Schiffsbank came in as a co-arranger for the deal, which finances 71% of the $1,056 million project cost and covers both pre and post-delivery financing. Notably Ralph Bedranowsky of Deutsche Bank and Harald Kuznik of HSH both hailed the deal as an example of “the global shipping market…returning to reasonable, market-consistent valuations…”
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The Week in Review

Summer is upon us and, while not as busy as last year, there is still quite a lot going on. This week Global Oceanic Carriers decided to call it a day for its public listing in London while Svithoid Tankers announced a rights issue in Sweden. Aries Maritime meanwhile concluded its review of strategic alternatives and chose to maintain its independent public listing. Bocimar announced a joint venture with Conti7 for six handysize newbuildings while the Shipping Corp of India entered into a JV with the state run Steel Authority of India. Double Hull Tankers rebranded itself and broadened its mandate with a name change to DHT Maritime, reflecting both the impending phase-out of any tankers that are not double hull and the company’s interest in timely and selective acquisitions that include vessels other than tankers. Speculation continues to flutter about the potential acquisition of Hapag-Lloyd by NOL from TUI for somewhere in the realm of $6 to $8 billion plus. Last but not least Bank of America signaled a recommitment to the shipping sector with the initiation of coverage on four shipping companies.

Sparks Fly Between NOL and TUI

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.