Groda Reneges on FSL

The true risk in shipping trusts is the creditworthiness or counterparty risk. On Tuesday, First Ship Lease (“FSL”) announced that Groda Shipping has requested to re-deliver two product tankers, each currently under a seven year base term bareboat charter contract with FSL until November 2014. Employed under long term COAs with Russian energy firm Rosneft Oil Company, the two vessels contribute 15% out of FSL’s annualised revenue of USD 101 million and the pre-mature termination of the contracts will impact cash flow and distributions negatively.

FSL disclosed that Groda Shipping is required to pay lease rental on a monthly basis in advance and has made payment for only one vessel in May. Groda Shipping will no longer make full payments for either vessel from June 2010 onwards. On the brighter side, FSL pointed out that it has the assignment of the long term COAs between Groda Shipping and Rosneft and a cash security deposit of USD 3 million per vessel, which works out to be close to 5 months of charter hire. All eyes are now on the approach the trustee manager will be adopting towards the lessee who had made a clear intention to renege on the contracts. FSL says it is currently in discussions with Groda Shipping and exploring available legal and commercial options.

Written by: carisk | Categories: Asia, Shipping Trust | May 6th, 2010 | Add a Comment

To Russia with Love & Back! – Update from the 1st Russia Ship Finance Forum

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.