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Full House in Athens – Part 2
By Kevin Oates
…in the longer term shipping should correct but quality, transparency and financial strength are key to survival.
Despite the tough market and the general lack of ship finance, Marine Money’s Greek Ship Finance Forum again filled the seats in Athens. With 310 delegates and speakers and some 40 more for the TEN Ltd lunch, there was plenty gossip and exchange of views at the 11th Annual conference held on the 8th of October 2009.
The event had started with a speaker’s dinner the previous night co-hosted by Navios Maritime Holdings and was to end in the early hours of the following morning at the Capital Party co-hosted by Capital Product Partners LP at a well-known Athens nightclub. Even if the market is tough, we still know how to enjoy ourselves.
Back at the conference, our day began with Guy Verberne, a leading economist at Fortis Bank (Nederland) telling us that the economic recovery has come and it may well be sustainable. China, he says, has plenty foreign reserves to prolong it’s stimulus package for as long as it needs and he sees no meaningful cutbacks from the stimulus packages of western governments, at least through 2010. A risk is a double dip in 2011 if we get too bogged down in debt.
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The Inevitable – Taxes and Restructuring
President Obama’s Proposed International Tax Changes – Will They Truly Achieve Economic Stimulation
Tamara Moravia-Israel of Ernst & Young was forthright in views of the President’s proposed changes in international tax law. It is not good for shipping. And there is a question as to whether it will in fact create jobs, stimulate the economy and increase competitiveness as is suggested. First, the “check the box” regime is proposed to be reformed in that foreign eligible entities with a single owner could be disregarded for federal US tax purposes only if: (1) they are organized in the same country in which the owner is organized or created, or (2) a US person wholly owns them (except for tax avoidance cases). The implications of this are potential conversion of first-tier (for tax avoidance) and second-tier (or lower) foreign disregarded entities (FDEs) to corporations that may have US tax implications. Ms. Moravia-Israel suggests that the current check the box regime allows US multinationals to be on somewhat of a level playing field with its foreign competitors. An additional proposed change by the Obama Administration is the deferral of deductions. That is, there will no longer be allowed a deduction for foreign expenses on the US return unless the foreign source income associated with said foreign expense is recognized for US tax purposes. However the biggest threat comes from the Levin Bill, which Congress is potentially currently considering. In effect, the bill puts forth that a foreign corporation is treated as managed and controlled in the US if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the US. If the foreign corporation is considered to be managed and controlled in the US, it is treated as a domestic corporation for US tax purposes. This goes against the traditional determination of nexus, which has historically been the location of board meetings.
Fair Exchange
Last week, Navios Holdings (“Navios”) and Navios Maritime Partners (“NMP”) announced the re-structuring of certain arrangements between themselves. First, NMP agreed to acquire from Navios the leasehold rights to the M/V Navios Sagittarius, a 2006 Japanese built Panamax. The purchase price, $34.6 million, will be funded from cash on hand. The vessel is currently chartered out at $26,125, net per day until November 2018 and is expected to generate annual EBITDA of approximately $5.8 million. As part of the acquisition of the leasehold, the new owners have a purchase option beginning in December 2009 at an initial price of $25.9 million and the AA+ European Union charter insurance.
Rashomon – As We See It
It began with the movie “Rashomon” and evolved into a concept. “The Rashomon effect is the effect of the subjectivity of perception on recollection, by which observers of an event are able to produce substantially different but equally plausible accounts of it.” Or as the movie asks, who is telling the truth and what is the truth?
Our version of the script calls for a look at Seaspan’s first quarter earnings announcement to elicit the main takeaways. We then turned to our favorite shipping analysts, including Natasha Boyden of Cantor Fitzgerald, Gregory Lewis of Credit Suisse, Omar Nokta of Dahlman Rose, Douglas Mavrinac of Jefferies, Urs Dür of Lazard and Justin Yagerman of Wachovia, for their views and calls. This becomes a very interesting exercise because, as the analyts tell us, there is no company that is easier to model given their strategy to lock-in costs and fix revenues for the long-term.
5th Annual Marine Money Gulf Ship Finance Conference, Dubai, 4th March 2009
In a week when stock markets steeply declined and then recovered, when Sri Lankan cricketers were attacked in Pakistan and the world continued it’s crazy momentum, Marine Money with Anchor Sponsor Tufton Oceanic (Middle East) Limited hosted its 5th Annual Marine Money Gulf Ship Finance Conference in the luxury of the Grand Hyatt, Dubai.
Forewarned that things were pretty bad in Dubai and that it would be a struggle to get people to attend, we proudly welcomed 152 speakers and delegates. And it is also significant that half of today’s participants attended our conference in Dubai for the first time. That is a lot of new networking opportunities and it demonstrates that shipping continue to develop in Dubai and the Gulf region.
Seaspan Supporters Step Up
The most recent illustration of this phenomenon has come from Seaspan (NYSE:SSW)’s backers. Co-founder Dennis Washington issued a statement saying: “I believe strongly in the financial model of Seaspan Corporation. The Company has a very modern fleet, prestigious customers and a strong management team. The Company is well-positioned to take advantage of opportunities that may arise in the future.” Then he put his money where his mouth is with the announcement of a $200 million issue of preferred equity.
The company last week announced an agreement to issue and sell Series A Preferred Stock to Dennis, Kevin and Kyle Washington and Graham Porter through respective affiliates. Dennis Washington will be investing $140 million and the others an aggregate of $60 million. Continue Reading
Dead Cat Bounce
A “dead cat bounce” is a figurative term used by traders in the finance industry to describe a pattern wherein a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement, with the connotation that the rise was not an indication of improving circumstances in the fundamentals of the stock. It is derived from the notion that “even a dead cat will bounce if it falls from a great height”. (Wikipedia)
This concept was brought to mind by the recent activity in dry bulk stocks where heavy volumes have been traded and prices have taken substantial leaps in percentage terms. Have the shares bottomed? Or as Urs Dür of Lazard suggests in more sophisticated terms: “…this most recent upturn in the names, with historically high trade volumes, may be based more on anticipation of an upturn than on clear evidence for a fundamental turn.”
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And the Wharf Rat says…
In last week’s “Wharf Rat,” a shipping bulletin written by Urs Dür of Lazard Capital Markets, a different view of BDI was posited. Mr. Dür suggests that investors may be focusing too much on the BDI, which represents only the dry bulk spot market, not the term dry bulk charter market. “While estimates vary greatly, approxi-mately 25% – 40% of the dry bulk fleet is operating spot at any one time…. Thus when BDI moves up or down, it has no near-term impact on the term charter (contract) market for dry bulk ships.”
The Wall Street Journal’s Shipping Analysts Of the Year
For a Wall Street analyst the annual Wall Street Journal Best on the Street rankings is like an AcademyAward, only worth more, certainlyto those investors who bought basis the winning analysts picks.
This year Scott Burk at JPMorgan, but Bear Stearns when his picks were made (JPM acquired Bear Stearns in a sub-prime fire sale last March) came out number one in the Industrial Transportation classification. Doug Mavrinac of Jefferies & Co came in second and Omar Nokta with Dahlman Rose grabbed the third spot.
The Week in Review
While shipping stocks are no longer booming, the underlying shipping markets remain healthy. Jonathan Chappell and his team at JP Morgan are looking for near-record tanker rates at the end of 2007 to drive up 1Q08 EPS for tanker stocks and also believe that the tanker spot markets will hold up better than expected going forward. On the dry side, Urs Dür at Lazard sent out a note this week to correct common investor misunderstandings regarding the BDI, noting that it is not correlated to near-term world trade. He also expects Chinese iron ore price negotiations to be completed by March 2008, which combined with low inventories in China should lead to near-term improvements for dry bulk freight rates. Omar Nokta and his team at Dahlman Rose note that the tanker market could see some support as AG March cargoes come into the market this week while also observing that the dry bulk market has gained some positive momentum, though this has yet to be reflected in stock prices.
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