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 | February 12th, 2009 |
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We hope not. But last week D/S Norden A/S (“Norden”) entered into an agreement to manage five Handymax and Panamax dry cargo vessels formerly owned/controlled by Britannia Bulk. Through the intervention of Nordea Bank, the following vessels have been privately sold to an investor group, which transaction included financing from Nordea:
Norden will assume responsibility for both technical and commercial management of the vessels on behalf of the new owners.
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The Week in Review | November 20th, 2008 |
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Moving from the theoretical to the concrete, the following examples illustrate the real cost of today’s crises:
Genco Bites the Bullet
On Tuesday, Genco Shipping & Trading (“Genco”) made the correct but painful decision to cancel the previously announced acquisition of six dry bulk newbuildings, including three Capesize and three handysize vessels, from Lambert Navigation et.al., at an aggregate purchase price of $530 million. As part of the agreement, the sellers will retain the deposits totaling $53 million. The three Capesize vessels and three Handysize vessels are being constructed in the Daehan and Jinse shipyards in South Korea, with deliveries commencing in the 4th quarter 2008 (two Handysize) through 2009.
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The Week in Review | November 6th, 2008 |
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As the BDI dropped below 1,000 for the first time in 6 years on Tuesday, the shares of Britannia Bulk also collapsed with the news of both operational and financial difficulties. Caught in the unexpected downdraft of a market collapse at warp speed, Britannia’s flexible chartering-in strategy could not be unwound in time creating huge losses. As of June 30th, the number of chartered-in vessels was 59 and, according to the news release, the company increased its chartered-in capacity during the 3rd quarter. It was during this same period that demand for dry bulk capacity decreased significantly with a commensurate decline in charter rates. Consequently, the rates achieved during the quarter were far less than those paid to secure the vessels, creating a negative spread. As worrisome as the chartered-in position is, this was a non-controllable event.
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The Week in Review | October 30th, 2008 |
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Last Friday, Moscow, Russia was the center of the international ship finance industry with Sovcomflot’s annual banker meeting on Thursday – with over 80 international and domestic ship finance bankers – and Marine Money’s ship finance forum the following day attracting over 160 delegates. Not to forget the energy minister of Norway’s visit to the Kremlin and the U.S. Minister of Energy’s visit to Russia this week in an effort to explore the opportunities of Russia’s promising energy industry.
Following Sovcomflot’s banker meeting and cultural session, Marine Money and Sovcomflot had their joint dinner for over 100 speakers and bankers at the new Gorki restaurant, making it one of the best speakers’ dinners in a long time. Music lover and CEO of Sovcomflot Mr. Sergey Frank had organized the music entertainment with live music from one of Russia’s most popular groups, setting the stage for a great night filled with Russian food and vodka.
The forum was the first of its kind in Russia, and comes as a result of the increasing interest from the international banks to finance Russian shipping companies. Today the four big Russian shipping companies – Sovcomflot, Novoship, FESCO and Primorsk – all have access to the international banks, but there are still another 50-60 Russian shipping companies who do not get international financing. The forum was established largely to investigate if this can be done in the future. The answer is that came out was “Yes, but…” The but specified that as a prerequisite, the Russian companies need to acknowledge the following:
• Vessels must be non-Russian flag to ease the banks concern in case of default
• Shipping companies should have an offshore structure
• Vessels should have long-term employment with international, or preferably known Russian, charterers
This doesn’t leave a lot of Russian aside from the management and the seafarers handling the ships. Then again, Russians are known for their skilled and loyal maritime management and the maritime skills of their seafarers, the result of several hundred years of shipping tradition.
At the forum, the commercial bankers’ panel admitted that this is why they are comfortable and happy to do business with the four big shipping companies who adhere to the noted conditions, and it is clear that it is attention to these that is needed for the other smaller companies if they wish to attract international finance.
In addition to this, we must remember that the country risk of Russia has improved substantially, and down the road the international banks might even be comfortable financing Russian flag vessels, granted that the Russian state reduces the well-known complexity of its tax laws. We learned that Russia is contemplating setting up a Russian International Ship Registry similar to that of Norway and Denmark, so the process is in motion, but how long it will take is yet to be seen.
Overall, the forum was a great start for what is expected to be a great opportunity for ship finance deals to come. The co-chairman, Mr. Ivar Hansson Myklebust of Nordea Bank, drew a comparison to Brazil and how the oil majors have not only attracted international finance for themselves, but also introduced the banks to the local shipping companies. Not too long ago, there were very few international banks comfortable doing business there, but today, as we know, this picture looks very different. With Russia sitting on an estimated 1/4 of the world’s oil and gas reserves, the establishment of solid companies such as Gazprom, Lukoil, Rosneft, and Transneft, and the credibility of the larger Russian shipping companies, we hope the way can be shown for the other Russian shipping companies to attract the international finance many need grow take their businesses to the next level. We look forward to next time, when we can see how this has developed.
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People & Places | May 26th, 2005 |
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