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

Written by: carisk | Categories: Asia, Equity | December 31st, 2009 | Add a Comment

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

Written by: carisk | Categories: Asia, Bonds | December 31st, 2009 | Add a Comment

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

Written by: carisk | Categories: Asia, Bonds | December 17th, 2009 | Add a Comment

No Surprises This Quarter Either

On Wednesday, Dealogic released its Bookrunner and MLA Tables for Syndicated Shipping Loans for the 9 months 2009. As expected, total volume and transactions were well down from the prior year. Total deal volume was $25.6 billion in 85 transactions compared to $72.2 billion in 263 transactions over the same period in 2008, confirming what we hear anecdotally. In percentage terms, the nine-month decline was 64.5%, which was less than the quarter over quarter reduction of 73.9% suggesting relief is not yet in sight.

Looking at the changes in the tables from the first half of the year, there was movement in the bookrunner table (figure 1) as Mitsubishi UFJ jumped from 8th place to 1st on the strength of two NYK deals booked at the end of September. This pushed SMBC into 2nd place. In a similar fashion, ING moved from 9th to 3rd on the back of the Bluewater transaction, while BofA Merrill Lynch, which was not even in the top 20 came out of nowhere to finish in 9th place based upon the Tidewater transaction. DnB NOR and Mizuho rounded out the top five finishers. The data is particularly striking in that 9 banks made the top 20 having done only a single transaction.

Written by: carisk | Categories: Freshly Minted, The Week in Review | October 8th, 2009 | Add a Comment

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

Written by: carisk | Categories: Asia, Bonds | September 13th, 2009 | Add a Comment

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

Written by: carisk | Categories: Asia, Mergers & Acquisitions, Restructuring | August 13th, 2009 | Add a Comment

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

Written by: carisk | Categories: Asia, Conferences, Market Commentary | April 9th, 2009 | Add a Comment

Not to Be Missed

Despite the difficult environment, a veritable who’s who of the shipping community descended on the Jefferies 5th Annual Shipping, Logistics & Offshore Services Conference on Tuesday and Wednesday.

We must confess that walking in at the uncivilized hour of 8 AM to a sparse crowd and seeing Jefferies Magic Eight Balls gave us pause. Was Hamish making a market statement or was he merely giving investors a new forecasting tool? Our conclusion was probably both.

Written by: carisk | Categories: Freshly Minted, Market Commentary | September 18th, 2008 | Add a Comment

A.P. Moller Bids for P&O Nedlloyd

In early 2004, it became clear to us that 2005 would be the most active year of consolidation among shipping companies in history. Our belief was underpinned by the fact that shipping companies were generating loads of cash from both operations and the capital markets, the fundamentals for the shipping industry looked set to remain strong and shipyards were operating at or near full capacity. So, armed with loads of cash and good prospects, it is natural to expect that companies would look to reap operational and financial synergies and leverage through growth, and that that growth would come in the form of corporate deals rather than single vessel purchases. And that is exactly what has happened in virtually every sector of the international shipping industry.

The Biggest Gets Bigger

In the latest and most dramatic example of this phenomenon, A.P. Moller-Maersk launched a takeover bid this week for 100% of the shares in Royal P&O Nedlloyd in the largest container shipping M&A deal ever. The takeover bid values P&O at Euro 57 per share, which represents a 41% premium to the then-current price and a 45% premium to the price over the last six months. The bid is also a whopping 130% over the rights issue price on the deal that received Marine Money’s Deal of the Year Award this year and values the company at 1.6x FY05E. Although we expect Royal P&O Nedlloyd shareholders and P&O shareholders, who own 25% of Royal P&O Nedlloyd, to vote in favor the deal, the European Commission may require Maersk to sell off certain routes in order to consummate the deal legally, which could in turn spark a series of smaller M&A deals.

Randy Sesson at Goldman Sachs is representing A.P. Moller on the transaction, JP Morgan is representing Royal P&O Nedlloyd and Citigroup is representing P&O.

Valuation Metrics – AP Moller Set to Get P&O for Free

The transaction is an important one for both AP Moller and the container market in general. As you can see from the graph on the first page, the deal solidifies AP Moller’s position as the world’s largest carrier by taking out the number 3 player and propelling itself to a size that is set to be more than double that of its next largest competitor. On the industry level, the good news is that it shows APM’s bullishness about the outlook for the market, even despite the enormous post-panamax containership order book and some gloomy forecasts by analysts. The loss of P&O from the Grand Alliance will have a negative impact on fellow members NYK, OOCL and Hapag-Lloyd, as Grand Alliance has historically been an effective competitor to Maersk although we can hope that the rationalization of tonnage might ultimately help lessen the blows of looming overcapacity. In a research note, Citigroup container shipping analyst Charles de Trenck said he thinks the deal might raise the ante for other container lines, perhaps suprring NOL to acquire Wan Hai Lines, which has loads of ships on order. De Trenck also surmises that Evergreen could potentially be hurt, so we would expect this transaction to cause a spate of mergers and acquisitions.

Like any truly good M&A deal, this one is beneficial to everyone involved. Shareholders in Royal P&O Nedlloyd get a great valuation for their shares at a time when many think the market might start to weaken. If they want to remain exposed to the industry, they can use their tender proceeds to buy shares in AP Moller. And for AP Moller, the deal is fantastic. With synergies of around $350 million and AP Moller’s P/E valuation of 10x, the company’s share price should increase by the entire purchase price of the new company. Adding in the $400 million of earnings that Royal P&O Nedlloyd is expected to generate in 2005 will bring the number to $4 billion. Put another way, one could make the argument that AP Moller is getting Royal P&O Nedlloyd company for free!