Bonds Frenzy Continues in Korea

Historically low interest rates have encouraged investors to chase after high yielding assets and many shipping companies have taken advantage of this low interest environment and strong investor demand for yield to lock in cheaper cost of funds, either to refinance existing debt or build up cash positions. This is especially pronounced in China, Japan and South Korea.

In Korea, the domestic bond market continues to serve as a major source of liquidity for shipping companies. The country’s four largest shipping companies – STX Pan Ocean, Hanjin Shipping, Hyundai Merchant Marine and SK Shipping have collectively raised USD 1.56 billion since the beginning of this year, and this amount could well exceed the total bond issues raised in 2010. Continue Reading

STX Pan Ocean Closes USD 510 million Syndication

South Korea’s STX Pan Ocean has secured a USD 510 million 12 year syndicated loan facility with a consortium of nine domestic and international lenders, comprising ABN AMRO, BNP Paribas, China Development Bank, Credit Industrial et Commercial, Deutsche Schiffsbank, DnB NOR Bank, Export-Import Bank of Korea, ING and Standard Chartered.

In October 2010, the company broke new ground and entered into the global pulp transportation market by securing the large consecutive voyage contract with the world’s largest pulp and paper company, Brazil’s Fibria Celulose. To fulfil this 25 year USD 5 billion contract that commences from 2012, STX Pan Ocean ordered 20 pulp carriers from another STX Group company, STX Offshore & Shipbuilding. Proceeds from the latest loan will be used to cover 70% of the total cost in the construction of 16 pulp carriers. Funding for the remaining
four vessels will be secured at a later date.

STX Pan Ocean has been actively raising funds since the start of this year to finance capex requirements through a combination of shipping banks, export credit agencies and domestic corporate bonds. We provide a list of recent transactions in the accompanying table.

High Bunker Prices Hurt 1Q Earnings

In the last few months, bunker prices have risen sharply at the back of upward pressure on oil prices and once again undermine shipowners’ ability to break even on their operating expenses. Last week, STX Pan Ocean, Hapag-Lloyd and Neptune Orient Lines (“NOL”) have all warned investors that ever rising bunker prices will continue to hurt their results, moving forward.

South Korean shipper STX Pan Ocean reported a larger than expected first quarter loss of USD 48.5 million in 2011, due to lower freight rates and high fuel costs. Gross margin was adversely hit by a 36.4% increase in bunker fuel cost, up to USD 341 million compared to the same quarter last year, which can be attributed to the increase in both price and consumption of fuel (see accompanying table).  In its presentation slides, the company said that the high bunker price was a “major negative factor” for the poor 1Q11 results. And even though its long term contracts are tied with the bunker adjustment factor (“BAF clause”) to cover the hikes in the cost of oil, short-to-medium term COAs do not, and hence the company will have to grapple with increases in bunker prices on the latter. Continue Reading

STX Pan Ocean Acquires Heung Kook Bank

In a rather unusual development, STX Pan Ocean has made an offer to acquire all the outstanding shares in Heung Kook Mutual Savings Bank that it does not already own. The largest dry-bulk shipping line in South Korea will be paying KRW 34 billion (USD 31 million) to STX Construction and Bulim Mutual Savings Bank for their 65.6% and 18.8% equity stakes in the Busan based Heung Kook Bank. This will effectively increase the company’s stake in the bank from 15.6% to 100%.

Explaining the reason behind the acquisition, STX Pan Ocean said that the bank will “enhance the efficiency across its businesses and management, and strengthen the competitiveness in ship financing market.” But what this exactly means remains unclear and the market will need more clarity on the potential synergies the shipping company can derive from the acquisition of a local bank. Continue Reading

Asian Shipping Bond Volume Falls 46% in 2010

In 2009, bonds came back in financing vogue for the shipping industry, with total volume in Asia reaching a record USD 7.6 billion. But a few questions have since been lingering at the back of our minds: “Will this trend continue in 2010? And have the investors gotten too far ahead of themselves and forgotten about the painful corporate bond defaults in 2000/2001?”

As we compile our list of shipping bonds concluded in 2010, some interesting findings are revealed. Total shipping bond volume in Asia has surprisingly declined at a larger pace than expected, down by close to 46% to USD 4.1 billion last year from USD 7.6 billion the year before. But before we hastily conclude that the access to bond money is fast disappearing, the sharp decline can partly be attributed to a number of market specific reasons. Continue Reading

Corporate Snippets: There Is Money Out There for Ships!

Even though the ship financing environment is widely expected to be cautiously optimistic this year, recent headlines seem to suggest otherwise.

STX Pan Ocean: Last Friday, the Korean dry bulk shipper announced the company is in the process of establishing six special purpose vehicles for the purpose of financing its ships on order. The company will guarantee the debt owed by these SPVs, amounting to USD 358.6 million. The loan agreements will range between 8 to 12 years. Continue Reading

ABN AMRO Finances Another KDB vessel

ABN AMRO Bank, Singapore Branch has recently provided pre-delivery and post-delivery senior debt facilities to a Panamanian single purpose company established under the Korea Development Bank Shipping Fund Program for the acquisition of a capesize class dry bulk carrier.

The carrier was sold to it by STX Pan Ocean and will be bareboat chartered back to the company on delivery and, subsequently, sub-chartered out to a Hong Kong leasing company. The Singapore office of Watson, Farley & Williams advised ABN AMRO Bank the lenders in this transaction.

Bank of China in Action Again, What’s New

Bank of China has extended a USD 179.55 million buyer’s credit facility to STX Pan Ocean recently in relation to the South Korean shipper’s acquisition of three 17,600 DWT bulkers ordered at Jiangsu New Century Shipyard. Jiangsu New Century Shipyard is one of the largest private shipbuilding groups in China who has built over 100 ships for owners in Denmark, United Kingdom, Germany and Italy. This successful transaction was initiated by Bank of China’s branch in Jiangsu province, upon news of STX Pan Ocean’s difficulty in securing finance for the ships. This year, STX Pan Ocean has earmarked USD 203 million to invest in 6 vessels. Continue Reading

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

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