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Another (Deep?) Pocket of Liquidity
Using DnB Nor’s Kristin Holth’s analogy, we discovered another pocket of liquidity with more than spare change. Seabury Group is one of the largest independent investment banks dedicated to the transportation industry with offices in the U.S., Europe and the Far East. Initially, focused on the airline business, Seabury has expanded its footprint to include marine, trucking and logistics.
Make Me Whole!
Banks in the United States have long operated under a set of rules called Know Your Customer. The current liquidity crisis has turned the table requiring borrowers worldwide to know their lenders. The law of supply and demand has raised the cost of funding prohibitively and as banks try to raise funds daily to meet their obligations they are faced with the unknown.
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Where is China in the Ship Demand Cycle…Take a look at their Energy Demand
By Joel McCormick
With China’s banks bursting with domestic savings, foreign banks could be squeezed out of energy- related shipping projects by as much as 40 or 50 basis points—and foreign institutions will have to be more creative in structuring deals, using tax lease and other vehicles, to get in the game, cautions a Hong Kong- based shipping banker.
Arnold Wu, BNP Paribas’ Hong Kong-based Asian head of shipping services told Marine Money that China’s first liquefied natural gas (LNG) terminal to be built across the border from Hong Kong in southern Guangdong province is being almost entirely underwritten by Chinese banks. Beginning 2005, the terminal, the first of a projected three along the China coast, is slated to begin receiving LNG from Australia’s Northwest Shelf delivered by transport franchise holders COSCO and China Merchants. Continue Reading
Guide To Tax-driven Finance Schemes
By Christoph Toepfer of Toepfer Transport
T he shipping industry is a highly capital intensive business. This is one of the reasons why, over the last 10-15 years, more sophisticated structures have been developed for the financing of ships, including off-balance sheet and leasing structures. Through these financial structures, the primary users of the vessels (e.g. container lines, oil majors etc) have increasingly become disconnected from their ownership.
In the case of container lines, they have operated in highly competitive markets with very small profit margins, often incurring losses. Capital requirements grew and to achieve economies of scale many lines have had to undertake such expansion with their own capital resources. Technical innovation and economies of scale have resulted in ever larger vessels being required; vessels which previously had not existed and therefore had to be built new. Hence, container lines have either been obliged build and finance these new types of vessel themselves or provide employment guarantees to third party investors in the form of long term time charters. In order to maintain the greatest operational flexibility and leave long term asset ownership and residual value risk to others, the lines have also used these financing schemes for smaller vessels.
The low return on capital from ship owning activities has increasingly led the oil majors to leave vessel ownership to others with the additional benefit of distancing themselves from the liability for pollution. As a result, oil majors have substantially reduced their owned fleets in favour of chartered tonnage in recent years.
Staggering Growth in the Sizzling Desert
by Kevin Oates
To get an idea of what Dubai is like right now, consider the following statistics:
• UAE growth was measured at 7% in 2003, estimated at 3.6% in 2004 and forecast for 4.5% in 2005.
• Jebel Ali was the first Free Zone in the 1980s; there are now more than 30 such zones in the Middle East.
• Estimates put planned aggregate Middle East regional investment in the energy sector, to meet demand growth, at $150 billion.
• Estimated capital required for oil projects by 2006 is $41 billion, for gas projects $19 billion and for petrochemical projects $13 billion.
• The container throughput in Dubai has grown from 1.16 million boxes in 2001 to 2.61 million boxes in 2004.
If you have ever visited Dubai, then the skyline alone should be enough to give you an indication of the amount of investment going on. New buildings are being constructed continually, each one bigger and better than the previous. Whole islands and landmasses are being created from the sea, destined to be home to luxury residential, leisure and commercial communities.
With so much going on, it was not surprising that our First Annual Marine Money Ship Finance Conference, held in the magnificent Grand Hyatt hotel in Dubai on 2nd February, was a great success. Over 167 shipowners, shipping bankers and shipping service executives spent the day with us. All the major players from Dubai and the region were represented, as well as local and international financiers. In terms of figures, over 60 representatives of shipping groups were there, 12 local and regional banks or financial institutions and over 15 foreign lenders.
Keynote addresses were given by Mr Sultan Ahmed bin Sulayem, the Executive Chairman of the Ports Customs and Free Zone Corporation, and by Mr Yusr Sultan, Board Member of GEM and CEO of Terminals, Shipping and LPG, Emirates National Oil Company. The words that come to mind from both addresses are optimism, opportunity, pride, potential and quality. Dubai is going places, and not least because the government and major private players in shipping have plans for greater things to come. A UAE flag, to be recognised internationally as a state flag, is on the agenda. Such an achievement could only serve to pull even more local investment into shipping.
Local and regional shipping companies including Emarat Maritime LLC and Emirates Ship Investment Co. presented the initiatives they have taken to reap the potential rewards that stem from Dubai’s unique shipping environment. We were privileged to hear an enlightening presentation by IRISL (IR Iran Shipping Lines), a company with 87 vessels, more being built and expansion plans for another 40 vessels by 2007. IRISL cannot always get foreign finance because of the lack of an Iranian national credit rating by the international agencies. To get around this, IRISL has set up a company in Germany that will own vessels, fly acceptable flags and be able to attract the type of investment and banking interest its parent requires, a solid and creative example of forward thinking.
Dubai Maritime City gave us an update on their plans to create a unique shipping service environment on land currently being reclaimed from the sea. The area will house a shipyard and repair yard, commercial space for all types of shipping activities, a maritime academy, a marina and state of the art office space for shipping companies. It is planned to be ready by 2007!
National Bank of Fujairah and DVB Bank AG held an intriguing discussion about their different approaches to lending in the region. Both have a great deal to offer, and the point was emphasized that there is every opportunity for local and international banks to link up and complement each other’s strengths, thereby providing optimal service to the region’s shipowners.
Our final session, titled alternative finance, included a discussion by our anchor sponsor, Tufton Oceanic, about Islamic Finance, a new and huge potential source of finance to our industry. The session also featured a talk by CAT Finance, which baited the audience with discussions about building ships in the region and getting suitable finance.
Dubai makes things happen was a slogan used by one of our speakers. Well, we at Marine Money are convinced of this, and our second annual Marine Money Gulf Ship Finance Conference is already booked for 1st March 2006, at the Grand Hyatt Hotel. Hope to see you there!
Bank Debt in 2006: Public Companies Take on Dry Powder & Lenders Wander the World
If the international ship finance business is a body, comprising complex system of vital organs, then commercial bank debt is its heart – and as you can see from looking just about every single transaction highlighted in this special issue of Marine Money - nothing functions without it.
Whether you are talking about XL Capital’s $1 billion investment grade credit wrap for CMA-CGM, Top Tankers sale/leaseback in Korea, Odfjell bonds in Norway, Quintana’s acquisition of Metrobulk or the dozens and dozens of public and private equity deals living and breathing in New York these days, the reality is that the financial returns needed to create virtually every capital structure in the global shipping industry are nourished by leverage - and that leverage comes from the bank debt market.
And so long as transaction activity is increasing in size and complexity, as it has been for years, we think that the market for bank debt will become even more vibrant. Continue Reading
Doing Business After the Credit Catharsis
Bank debt has long formed the sturdy foundation of the shipping capital markets. Exotic instruments come and go, but the ship mortgage and the syndicated bank loan remain and thrive. Typically banks fulfill their role quietly, helping clients to grow and modernize their companies without fanfare. At times, perhaps, they help a little too much. Continue Reading
Market Commentary
Consolidation: Just the Beginning?
Villy Panayotides, Chairman of Excel Maritime, told the Financial Times this week that further consolidation “is looming” in dry bulk shipping and specifically that publicly listed shipowners were obliged by their fiduciary duties to “at least to consider takeover offers.”Mr. Panayotides called the Excel-Quintana merger “pioneering” in that it is unusual to find such high-quality companies up for sale. He said that Excel’s strategy going forward would be to “be a major consolidator in the shipping market” in the coming years. He cited as proof of the need for consolidation in dry bulk that Greeks control about a quarter of the world’s dry fleet, amounting to about 4,400 ships, which are in turn controlled by about 1,100 different companies.
What is particularly interesting to watch for in that, as a result of the fact that vessel prices are stickier than share prices, in the current market public companies are in a position where their fleets are available at a discount to private fleets. Even if their management teams are aware of this disconnect, they are as Mr. Panayotides noted still obligated to consider takeover offers that come at a premium to their share price, even if it is a discount to the value of their vessels. Continue Reading
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