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

STX Pan Ocean Issues Bonds for the 4th Time

Last Friday, news came out that STX Pan Ocean had raised 200 million worth of convertible bonds together with appointed bookrunner Goldman Sachs International, co-lead manager Tong Yang Securities and co-manager BNP Paribas Capital (Asia Pacific). Based on our records, this would be STX Pan Ocean’s fourth bond issuance in 2009 but the latest offering marks a clear deviation from the previous domestic straight bond issuances. This time, STX Pan Ocean has tapped the pool of global investors, riding on the positive sentiments both in the stock and dry bulk markets. Freight rates in the dry bulk sector have been surprisingly robust over the past three months with the BDI bursting through the 4,000 mark last Friday.    Continue Reading

Let Us Get Together

The Korean shipping finance market remains challenging but it is heartening to note one Korean financial institution is thinking out of the box and supporting its core clients. On the second day of Marine Money Asia Week, we had the pleasure to listen to Mr. Dong Hae Lee, Head of Shipping Finance Team at the Korea Development Bank (“KDB”). Mr. Lee told the audience that Korean shipping companies continue to suffer losses from operations which have led to several cases of corporate restructuring and liquidation in the country. But the good news is there are several avenues for Korean owners and operators to strengthen their balance sheets now.

For the big boys, self help is important. Korea Line, Hanjin Shipping, STX Pan Ocean, Hyundai Merchant Marine, SK Shipping and Eukor Car Carriers have raised over KRW 2.93 trillion (USD 2.5 billion) from the domestic capital markets. And if the shipping company has secured Contracts of Affreightment (“COA”) earnings from the big freighters such as POSCO, KOGAS and KEPCO, asset-backed securitization and asset-backed loans can be arranged by the banks to enhance the operator’s liquidity position. In terms of sale and leaseback structures, both KDB and Korea Asset Management Corp (“KAMCO”) have introduced shipping funds to provide further financial support to the shipping industry.  Continue Reading

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

Export Finance Money Looks At Newbuildings

New York listed Overseas Shipholding Group has secured a USD 389 million, 12 year secured facility from the government owned Export-Import Bank of China (“China EXIM bank”), in the bank’s first loan facility extended to a US company. The borrowings will be used to finance three VLCCs and two Aframax crude oil tankers built in China.

In another transaction, the Export-Import Bank of Korea (“KEXIM”) has extended a USD 142 million pre and post delivery term loan facility for two new VLCC vessels being built at STX Shipbuilding and Marine Co., Ltd to be chartered to STX Pan Ocean Co., Ltd. The transaction team consisted of partner Chris Lowe and associate Chien Herr Lee of Singapore office of Watson, Farley & Williams LLP. Continue Reading

Fun Raising Continues

As economists struggle to reach a consensus on whether the global economy has indeed begun a sustainable recovery or this is simply a slower pace of contraction, investors are just befuddled by the strength and endurance of the present stock market rally. But one thing is for sure, shipping companies are wasting no time in taking advantage of this broad-based improvement in market sentiment.

In Japan, Mitsui O.S.K. Lines (“MOL”) issued two series of secured straight bonds – bonds number 11 and bonds number 12 last week and raised over JPY 50 billion (USD 528 million). The first tranche of five year JPY 30 billion bonds carries an annual coupon of 1.278% while the second ten year JPY 20 billion tranche pays investors 1.999% annually. The funds will be used to repay existing borrowings and for the redemption of commercial paper. Both Rating & Investment Information and Japan Credit Rating Agency have assigned AA- to the bonds, acknowledging that the company’s well diversified earnings have a strong capacity to recover in a market turnaround. The bonds, although unsecured, come with a negative pledge. At the same time, the company is said to be in the market for a three year JPY 15 billion (USD 156 million) loan with SMBC as the sole bookrunner. The loan is priced at 30 bp over 6-month TIBOR (Tokyo Interbank Offered Rate). MOL expects some signs of recovery in summer this year and is implementing its JPY 40 billion group-wide cost reduction measures to secure stable long term profits. The ability to secure incredibly low cost funding and execute rapid fleet reduction will prove to be critical for the company emerge stronger in face of the crisis. Continue Reading

Heard from the Grapevine

Market rumours have suggested that STX Pan Ocean has successfully issued unsecured KRW 150 billion (USD 100 million) straight bonds domestically. The 18 month bonds carry a fixed interest rate of 8.2 percent, payable every quarter.

In Vietnam, the government has granted approval for the state-owned Vietnam Shipbuilding Industry Group (Vinashin) to issue VND 3 trillion (USD 171.6 million) of local bonds and USD 400 million dollar denominated bonds. Vinashin has reportedly started discussions with rating companies including Standard & Poor’s in preparation for the bond issue Continue Reading

Helping Hands

Over the past three months, we have seen policymakers around the globe introducing massive economic stimulus packages, most notably from the United States and China in response to the rapidly deteriorating global economic outlook and tightening credit conditions. Some market watchers have criticised policymakers and regulators for taking a more reactive stance rather than being proactive and preventive and have argued that the timing of policy initiatives is as important as the measures themselves. Without the support of coherent and decisive policy initiatives, even companies with sound business models are facing cash drainage in today’s extremely challenging macro environment as economic activities plunge beyond any reasonable expectations.

As President Obama takes power, he is clearly aware of the urgency to put his recovery plan in place to break free from the “vicious cycle” where rising unemployment leads to reduced consumer spending and in turn more lay-offs. We remain hopeful that the recently approved USD 786 billion dollar stimulus package will be able to jolt the US economy back to life through hefty infrastructure investment and tax cuts. Echoing the words of President Obama, there is no perfect plan, but a failure to act decisively will only deepen this crisis. Continue Reading