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Iran Sanctions: Navigating Through Vagueness
By Bruce G. Paulsen, Esq. and Benay L. Josselson, Esq., Seward & Kissel LLP1
The U.S. Government recently took aggressive steps against shipping companies and others doing business with Iran. Those companies were sanctioned for, among other things, facilitating the development of petroleum resources and refined petroleum products by Iran under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA” or the “Act”). CISADA was enacted on July 1, 2010 to add to and amend the Iran Sanctions Act of 1996 (“ISA”). For much of its first year, CISADA went largely unenforced, but that changed on May 24, 2011, when the U.S. Government unleashed a wide array of sanctions on both foreign and U.S. companies, with a specific emphasis on the shipping business.
CISADA is an attempt by the U.S. government to legislate internationally. The White House, preferring to develop its Iranian sanctions regime through the U.N., did not favor Congress acting in the international arena and thus did not favor CISADA when it was debated in Congress. However, CISADA passed both houses of Congress with veto-proof majorities, and the President signed the bill on July 1, 2010. At first, it appeared that the White House had little appetite to enforce the Act, with little enforcement activity in 2010 and none directly affecting the shipping business. Those engaged in Iranian trade, perhaps, developed a sense of security during this period. When the U.S. Government took action this May to enforce CISADA, those who had not prepared were taken by surprise. Iran is a big market for the shipping industry – the temptation to ignore the law and remain in that market is significant. Below we will look at CISADA itself and discuss the risks that go with it.
Orphan Adopted With Added Benefit of a Back-Door Listing of Ocean Rig Shares
Pair the brilliance of Mr. Economou with the ingenuity of Evercore Partners and problems become opportunities. On Tuesday, DryShips Inc. announced that it had agreed to acquire the outstanding shares of OceanFreight Inc. for a total consideration per share of $19.85 consisting of $11.25 in cash and 0.52326 shares of common stock of Ocean Rig UDW Inc., valued at the July 25th closing price of NOK 89 ($16.44) on the Norwegiaqn OTC. OceanFreight’s shares closed Monday at $9.47, implying a premium of 110%. The offer is not subject to any financing contingency as the cash portion will be paid from DryShip’s existing cash and the shares will come from outstanding shares currently owned by the DryShips, reducing its ownership from 78.3% to 75.9%.
Iran Sanctions Increase Counterparty Risk
By Bruce Paulson & Ellen Lafferty, Seward & Kissel LLP
Over the last few weeks, the U.S. Government’s focus on Iran sanctions – and the nexus of that focus with the shipping industry – has dramatically increased. The U.S. Government has taken aggressive steps in enforcement of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”) – a law which was enacted on July 1, 2010 and amended and supplemented the Iran Sanctions Act of 1996. CISADA seeks to limit Iran’s development of petroleum resources and refined petroleum products and applies to both foreign and U.S. companies.
Public Shipping: The Ultimate Multiplier
By Gary Wolfe, Partner, Seward & Kissel LLP
My task is to try to assess the multiplier effect that the initial public offering (IPO) of a company originally owning one vessel could produce.
There are so many different parties involved with an IPO. Each of them, in turn, has its own multiplier effect.
Let us assume that our vessel is one of a number of vessels, say five vessels, that are owned by a vessel owning company (the IPO Company) that is going public in the United States. Let us further assume that the IPO Company is incorporated in the Marshall Islands and operated from either Greece or Norway. Those are the two most likely jurisdictions for the sponsors of shipping IPO’s and operators of vessels.
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FINANCING JONES ACT VESSEL ASSETS
By H. Clayton Cook, Jr & Patrick E. Ogle, Seward & Kissel LLP
Editor’s Note: In his Marine Money January 2003 article “Lease Financing for Vessels in the Coastwise Trades,” Mr. Cook examined the origins and status of the then non-citizen lease financing controversy. In his Marine Money July/August 2004 article “Why German K/G Funds Can Now Lease U.S. Flag Assets,” he reviewed standards imposed by the Coast Guard’s February 4, 2004 Final Regulations and predicted significant lease financing opportunities for qualified non-citizen financial institutions in the U.S. coastwise trades. In this article, Mr. Cook and Mr. Ogle review the history and use of the Maritime Administration Title XI loan guarantee and CCF tax deferral programs. They conclude that these programs can be used by non- citizen owner-lessors today to achieve significant reductions in vessel financing costs for projects in U.S. coastal waters.
BACKGROUND
In Europe and the United States, the past decade has seen increasing public attention to a set of traffic congestion, air quality and petroleum usage issues associated with truck and other motor vehicle traffic, and to the use of an alternative water transportation as mode. More recent attention has been given to the carbon footprint issues raised by expanding electrical generation needs, and to a variety of alternative energy sources that have included off-shore wind power generation.
The European Union and the United Kingdom have addressed their motor vehicle problems with the Motorways of the Sea and Marco Polo programs and similar water transportation alternatives. In Europe and the U.K., programs for offshore wind farm development have been adopted, targeting production that will meet 20 percent of on-shore electrical needs by 2020. And, offshore wind farms in operation confirm the progress made in meeting these objectives. However, in the U.S. these subjects remain as topics for discussion and debate.
Public Companies and Unrealistic Shareholders – How to survive 50% yields
By Gary Wolfe, Partner, Seward & Kissel LLP
Perhaps the most amazing consequence of the recent precipitous drop in the drybulk markets and the related drop in the stock prices of the publicly traded drybulk companies has been the extraordinary yields at which the full and high dividend payout companies are now trading. As of this writing, Yahoo Finance shows one of the full dividend payout companies as trading at a 73% yield while one of the partial dividend companies is trading at “only” a 60% yield.
In this context, some investors have demanded assurances from the full and partial dividend payout companies that their dividends are “sacrosanct”. At the same time, when the prices of their shares have fallen as much as 90%, company managements have begun to ask themselves why they should not take their companies private.
The common, unstated factor, in both the amazingly high yields currently prevailing in the market and the attraction of going private is that shares of publicly traded drybulk and container shipping companies are trading at a fraction of net asset value (NAV). That is what makes them potential targets for either going private or unfriendly acquisitions. The “absurd” relationship of NAV to current cash flow is also reflected in the high yields that the full and partial dividend payout companies are producing.
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Athenian and Viking Confab
In front of a packed crowd at the New York Helmsley, the Hellenic-American and Norwegian-American Chambers of Commerce held their 14th Annual Joint Shipping Conference under the catchy title “Are the Bulls and the Bears Right?”
The day started off with derivatives, a tough topic for early in the morning. Nevertheless, the presenters pulled it off and kept everyone interested. To start off Robert Shaw of Mystras Ventures gave a great overview and primer on freight derivatives. In particular, he emphasized their importance of derivatives for hedging but noted that freight volatility and correlation with other commodities has attracted financial players into the market, a recurrent theme.
“FORGET OPA, MEET SARBOX” REVISITED
By Gary J. Wolfe, Seward & Kissel LLP
Remember Sarbanes Oxley, the new set of U.S. securities laws applicable to publicly traded companies? While many in the investment community are still in the “I can’t believe it happened stage,” others are starting to enter the “How will I ever comply?” stage. Since Sarbanes-Oxley was adopted last summer, draft regulations, proposed regulations, requests for comments and amendments to proposed regulations have poured out of the regulators: The Securities and Exchange Commission (“SEC”), New York Stock Exchange (“NYSE”), Nasdaq National Market, and the American Stock Exchange. With all of this overlap, it is hard to keep track of just what is or will be required, and when.
The picture, however, is becoming clearer: Many, if not most of the SarbanesOxley requirements will not apply to publicly traded ship owners, because they are foreign companies not managed from the United States. Such companies include Frontline, Stelmar, TEN, Nordic American, Knightsbridge, Ultrapetrol, Excel Maritime, Golar LNG, Torm and Teekay. The way to recognize these companies is that they file annual reports with the SEC on Form 20-F. The SEC term for such companies is “foreign private issuer.” The other companies, those that are managed from the United States and file their annual reports on Form 10-K, will find that they already meet many of the new requirements. In fact, due to the nature of shipping as a relatively straightforward and transparent industry (at least in terms of calculating revenues and knowing how the market is affecting different owners), the publicly traded shipping companies should find that they will have little trouble in meeting those Sarbanes-Oxley requirements that will apply to them.
New Corporate Governance Requirements
With the adoption by the New York Stock Exchange of “final” rules that are presently before the SEC for approval, the situation is becoming clearer. Let us see what new corporate governance requirements will apply to companies such as OSG, OMI and General Maritime (all of which file annual reports on Form 10- K), and Frontline, Stelmar, TEN and Teekay (all of which file annual reports on Form 20-F). The chart shows which corporate governance requirements will apply and when.
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