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Impact of the Job Creation and Worker Assistance Act of 2002 on Ship Leasing
by Jeffrey Taylor, Founder, Executive Caliber
I love Congress. I watch them intently and learn a lot about how they manipulate outcomes so that both parties can look good. Republicans want to look good for big business and Democrats want to look good for everyone else.
Several months ago, the House of Representatives passed H.R. 3090 on a Thursday. The Senate approved it on a Friday and George signed it on Saturday. Talk about political pressure to move quickly.
First introduced in July 2001 as the Economic Security and Recovery Act of 2001, it is now called The Job Creation and Worker Assistance Act of 2002 (note: similar provisions – different name).
The Politics of OPEC pricing in the Middle East
By Professor Dr. Morris Mottale – Franklin College, Switzerland
The American intervention in Afghanistan and the intensification of the Israeli-Palestinian War ever since the 9/11 attack against the United States brought another cycle of anxiety about reliable and steady oil supplies. Some oil producing countries such as Iraq and Iran floated the idea of curtailing oil production to punish the United States for its support of Israel. Meanwhile, in the month of April of 2002, political turmoil and a failed coup d’etat in Venezuela left analysts in consuming countries and oil consumers puzzled about the direction of that country, a leading oil producer and one of the founders of OPEC. In the same month, Saudi leaders visiting President Bush assured the U.S. no oil boycott was forthcoming to buttress the Arab cause against Israel. After all, Saudi Arabia and the United States are, ostensibly, allies.
To judge from the president’s statements it seemed everybody in the world was going to be grateful for the magnanimous Saudi disposition toward America and the West. Continue Reading
Highlights From Freshly Minted
FM April 4, 2002
A COUPLE SHIPPING BANKS COUPLE
After the State of Hamburg made it clear last year that, at the right price, the 51% stake in Hamburgische Landesbank was up for sale, everyone in Germany has been waiting for an announcement. As LB Kiel already owned the other 49% and had an option to buy the remainder, it was no surprise when the two banks announced that an agreement had been reached. This will, on paper and by our estimates, create the world’s largest shipping bank with between $15 and $20 billion of shipping exposure.
The two banks have been working as two completely separate lenders. The merger, which will become effective on January 1, 2003, will allow the new bank to participate in the top bracket of the ship finance market and could be the largest lender to traditional shipping in the years to come.
With LB Kiel’s strong market presence in Scandinavia, where HLB has been lacking in presence and HLB’s very strong market presence in the Far East, the merger seems to have few overlapping areas of expertise. We expect the bank’s shipping division to be located in Hamburg and would be surprised if Mr. Michael Encke were not left in charge of the new bank’s shipping interest.
Marine Money Launches Tanker Index
Recently we got a callfrom a loyal reader of Freshly Minted (FM) noting that while the data regarding the “New York Liquid Bulk Peers Share Performance” chart that has appeared in most editions of FM of late and has evolved over the year to include more and more data, was interesting but “What does it really mean”. Well, that reader knows who they are and in fact most weeks we get a call from this person and we love and encourage further feedback.
The initial response to the question of what the data means was one akin to “Make of it what you will.” We have produced estimates on a range of tanker companies and were hoping to give a basic knowledge of some of the share performance of the companies noted. However this combination comment/question resonated. While each contingent part of the data has relative and varying degrees of importance with each company, and is therefore a valuable piece of information, why have all the data and not at least try to benchmark it? Continue Reading
The stock market’s evaluation of management decisions: The case of mergers and acquisitions in public liner shipping companies.
By Stephen X. H. Gong and Photis M. Panayides, Department of Shipping and Transport Logistics, Hong Kong Polytechnic University
Introduction
The liner shipping industry has been undergoing an unprecedented drive for consolidation in recent years primarily effected through a series of high profile mergers and acquisitions.
Mergers and acquisitions may not only have longterm strategic and economic effects; they may also impact directly and immediately on the value of the company as they induce a particular reaction in the stock market with the consequent increase or decrease in share price. A measure that can be used to determine such an impact is the stock market price reaction of the company around the event (announcement) day.
This article summarizes the findings of a recent study which we conducted, with a focus on the stock prices reaction of four listed liner shipping companies which engaged in mergers and acquisitions (M&A).
OUR OWN PRIVATE ENRON: Reflections on the End of the Shipping Junk Bond Era
By Sydney P. Levine, President, Shipping Intelligence, Inc., New York
Constructing a meaningful sentence containing the words “Enron” and “shipping junk bonds” seems like a challenge in some obscure parlor game. The two situations seem to be drawn from different universes. On the one hand a publicly held company in an industry that didn’t exist a few years ago, and on the other hand an industry primarily in private hands that is older than recorded history. But I think that the two situations, different in so many ways, are fundamentally similar.
I started thinking of this unlikely comparison after reading of the recent dismemberment by the bankruptcy court of the Millenium Seacarriers fleet. Millenium was the last of the shipping junk bond issues and its demise may mark the end of their rise and fall cycle. Continue Reading
WHICH CHARTER YIELDS THE BEST RETURN?
Assumptions
Vessel Price $72.5 million
Gearing Ratio Variable
Equity Investement $10.9 million
Debt Amount $61.6 million
Margin Variable
Libor 3.5%
Balloon 30%
Tenor 8 years
T/C Rate $27,000 pr day
OPEX 5-8 $7,300 pr day
OPEX 1-5 $6,800 pr day
Residual Value 32.5 million
As with Mr. Uttmark’s preceding article we at Marine Money use hypothetical examples to show what we think are important factors that should go into any decision maker’s analysis before making a call to do one or the other. This time around we have decided to take two very important variables that should be factored in every time one looks at a particular project. In this example we use a VLCC newbuilding but the lessons learned from this number crunching exercise is applicable to any other vessel, old or new.
VICTORY!
Equity is a call [option] on the assets”
—Professor Raymond H. McGrath (1939 – 2001)
This article is dedicated to the memory of Professor Raymond H. McGrath who taught in the Department of Shipping, Trade and Finance at The City University Business School, London. Professor McGrath expertly explained BlackScholes. His memory lives in the hearts of his students, and through the quality of our endeavours.
From the Editor: BIG DECISIONS
Each month it seems that, even if we did not try to accomplish such, Marine Money has an underlying theme. In fact this Editor does not even like themes too much: try to concentrate too much on one subject and one lacks the broad perspective to be creative within a single subject. This particularly applies to shipping where everything overlaps: everyone knows everybody, shipyards build many types of vessels, ports handle many types of cargoes, brokers have clients big and small, owners often have diversified fleets and all in the industry have to make huge, empirically and subjectively, decisions to stay afloat, excuse the industry pun.
No other image can be more representative of the scope of shipping decisions than Loews/Papachristidis taking delivery of four ULCCs this year, the first of which was delivered this March. Pictured on the cover, we covered the ULCC market in the March 28th Freshly Minted (our weekly online service).
FINDING EQUITY INHAMBURG
Equity is the Holy Grail in the shipping business; it is a magical form of capital that can be leveraged to create and wipe-out value. The challenge for you shipowners, of course, is that you need a heck of a lot of it to gain a seat at the green felt table known as shipowning. If you haven’t been gifted equity by a parent or made it elsewhere, there are still various ways to get your hands on shipping equity. You can manufacture it with excessive valuations and address commissions; you can rent it from a mezzanine fund, you can raise it from investors, or your can create it by securing highly leveraged financing on the back of a creditworthy charter obligation. The options sound vast, but these days it’s a lot easier said than done!
In our view, the single place that we know of to source equity and highly leveraged finance at reasonable prices/terms is in the German KG Market. Combine retail equity with tax breaks and a slug of cheap German bank debt, and you have an old school shipping opportunity. Our enthusiasm for ship financing in Germany is precisely why we are hosting our First Annual Ship Finance Forum Hamburg on April 11th. From banks to KG houses to shipowners, shipbrokers to investors, lawyers to flags to class, this event is an outstanding opportunity to grow your business. We’ll see you there!!!
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