Links
High Yield Drama
(Highlights from Freshly Minted)
High Yield Drama Amer Court Victory: Court says “no” to competitors takeover bid
In what even opponents are calling a victory for Ravi Mehrotra, Judge Gonzalez denied the Motion by Coco Vroon and Christian Siem’s Aston Financial to appoint a Trustee for Amer. The appointment of a Trustee was sought in order to swiftly proceed to a cancellation of the manager’s contract and an auction of the ships.
Specifically the court noted the following while rendering the judgment:
BASEL II AND THE COST OF CAPITAL
By David Osborne, Partner, Watson, Farley & Williams (London)
The Basel II proposals on bank capital adequacy put forward by the Bank for International Settlements (BIS) are far-reaching and will have a profound effect on ship finance. There is, however, considerable uncertainty as to how the proposals will be put into effect and it is likely that what has so far been published will be subject to change. There are a number of issues, based on the materials published so far that have still to be more fully addressed and there are potential anomalies and “fault lines” which it is hoped will be ironed out. This article briefly summarizes the existing Basel regime in relation to regulatory capital, highlights certain aspects of the Basel II proposals and attempts to predict some of the effects of the implementation of those proposals in their current form.
U.S. Flag Ship Financing
(Highlights from Freshly Minted)
JP PRICES SALCHUK DEAL AT LIBOR MINUS 5
As we went to press, Marine Money heard some of the best news ever out of the Title XI office in a long time; JP Morgan sold $172.5 million in bonds to finance Tote’s 2 new ro/ro vessels the first of which will be delivered from NASSCO at the end of 2002. We say that it’s good news because this deal involves a good company that is investing in the US maritime industry, the use of a government guarantee program to provide 87.5% financing for a solid project, and a very creative execution by a US investment bank. JP sold the deal in two traches; one tranche was $120m of 25- year fixed rate notes and the other was $52m in twelveyear floaters. The floaters came in at LIBOR minus 5 and the fixed rate piece came in at about 6.3%!!! In addition to the high leverage, low pricing and long term, we think JP did some extremely clever structuring to increase demand for the paper. Knowing that there was a lot of money parked in money market funds that are not permitted to make investments with a duration of more than one year, JP made the floaters puttable (ie able to be put back) to the company within each year thereby allowing money funds to buy the Salchuk bonds. Well done by all.
Banking Institutions Handing Out Money!
By Jay Charles Goodgal, Partner, Castalia Partners LLC
Banking institutions seeking more returns, higher fees and greater margins from shipping is nothing new. However, a new or revived twist on this approach to increase “profits” is the formation of private equity funds to invest the bank’s own capital. When I first started investing in shipping, in 1986, a wise shipbroker provided insight into shipping, “Caveat Emptor”. It appears that banks need to be reminded of the pitfalls, rather than the “pot of gold at the end of the rainbow”.
This is not to say that shipping cannot provide equity investors with attractive returns, we believe it can. However, the process and approach that is taken by equity investors towards making an investment in shipping, particularly a direct investment/ownership in ships, is substantially different than a lending decision by a commercial loan officer.
WHY MICHAEL PARKER DOESN’T SLEEP
By Matt McCleery
The Citi never sleeps, and apparently neither does Michael Parker. In 2001, Mr. Parker directed Citigroup’s Global Shipping & Logistics division like an orchestra conductor – drawing out the diverse talents of far flung soloists by stitching together client needs, industry expertise, diverse financial products, and sometimes, we repeat sometimes, even providing capital!
The table that accompanies this article speaks volumes about what Citibank is, and isn’t, these days. Here are some of the highlights from where we sit. Citibank doesn’t like to deals that involve less than nine numbers – that’s right – hundreds of millions. There are a few eight-digit deals, like the ones for TMM and V Ships, but those are undoubtedly a cross sell to clients with whom they enjoy lucrative relationships. In the case of TMM’s baby securitization, Citibank also handles their larger banking and capital markets needs, which are massive. In the case of V Ships, we imagine Citibank has been given “value added” services such as cash management and FX, for the ship managers whopping 600 vessel fleet. Providing the dry powder for V Ships acquisition of Acomarit, which was subsequently sold to and bought back from ING, likely fell into the category of being courteous to a good client. As for the $20 million bond deal Citibank arranged for Great Eastern, you can rest assured that the offering proceeds took out Citibank bank debt, or served some other purpose.
EXCITEMENT BY DEFAULT: The Unlikely Privatization of SCI
By Matt McCleery
Privatization is a tempting concept; rushing headlong into developing countries and scooping-up assets, franchise value and brand name for pennies on the Dollar is the sort of stuff that makes investment bankers, shipowners and other vultures drool.
So it’s really no surprise that there has been a lot of excitement over the Government of India’s plan to sell off 51% of the share capital of Shipping Corporation of India Ltd. (SCI) through a strategic sale with transfer of management control. In fact, pretty much anyone and everyone active in ship finance has considered becoming involved in the great SCI spin-off. As we go to press, local and foreign shipping companies are linking up with each other, financial advisors from Singapore to New York are dusting off pitch books for buy side and sell side mandates and just about everyone is reserving airlines seats on flights bound for Delhi.
Editor: Amnesia or Deja Vu?
Its not like we did not tell you so but last month this editor did note that “between the writing of this and the issue being delivered…something huge will occur”. Well multiple big stories hit with gusto. Some shipping related and some with an ancillary effect but still important.
Of particular interest is the fact that the US gross domestic product actually grew in Q4 2001. Granted this was due to stronger than expected consumer demand fostered by companies slashing margins in order to stay afloat and a 10% increase in government spending post the events of September. But nevertheless, the result was a positive surprise that nobody predicted to happen so early. Last month this Editor did predict that the US economy would recover in the second quarter 2002 and lead the rest of the world out of recession. This looks even more likely today, barring some meltdown of the Yen, than just a few weeks ago – and the shipping markets often lag a recovery by four to six months.
Trends in Traditional Financing
By Russel Shields, Managing Director, HSBC Bank
This is an adaptation of a presentation given at the Marine Money Hong Kong Ship Finance Forum, November 26, 2002
Before addressing the subject directly, I need to build a little history and reflect a little on the industry itself which gives rise to the need for the provision of financial services. This is an industry which needs to be treated with huge respect given the size of the capital investments involved, the cyclicality of the markets, and the penchant of shipbuilders, ship owners and ship financiers to oversupply the market when times are good. There has been many a valuable lesson learnt, many a text written, and many a dollar earnt and then lost in this glamour industry, which in reality is not really about wealthy ship owners and their toys, but about the hard business decisions which have to be made continually to keep afloat literally and financially.
Some History
The shipping finance markets have developed over many years from their roots in Europe where the majority of business continues to be transacted. The history of modern day international shipping in Asia and Hong Kong is quite young compared to Europe. In 1960, Hong Kong owners barely owned 1m dwt of ships and only since then did the regional owners acquire ocean going tonnage for international trade. In the 13th Century, Marco Polo’s ship which returned him to Venice was financed by non other than the Mongolian Emperor, Genghis Khan. In the early 15th Centur y, The Emperor of the Ming Dynasty financed the construction of the “Bao Chuan” or the Treasure Ship which was 138metres long and displayed the might of China to its southern neighbours.
Flawed Container Transport Business Models
By Charles de Trenck, SalomonSmithBarney/Citigroup, Hong Kong
This paper is an adaptation based on presentations given in 2001, including the Marine Money Hong Kong conference in November 2001.
Containerized transport is a high-growth volume business (7-8% long- term growth versus 2-3% bulk cargo). Container shipping is run by organized, internationalized firms that are able to benefit from economies of scale to a far greater extent than bulk transport.
So you’d expect efficient division of labor and rational economic behavior within the transport organization to run a business with the ultimate aim of maximizing shareholder and owner returns. Not so.
The main reasons for the failure of industry thus far, in our view, are the following: Continue Reading
Safeguarding Your Maritime Investments
By Richard Westbury
Terrorism has clearly become the primary threat of the 21st century. Excluding South America’s terrorism, in particularly Colombia, there is a terrorist problem along the whole of the Southern Mediterranean right the way to the Philippines. Previous risk management methods and procedures that seemed effective prior to 11 September 2001 are potentially no longer appropriate to enable companies to continue their operations economically, efficiently and safely, with minimum risk. More than just the entire world-wide airline industry was put at risk after 11 September. Shipping and its associated enterprises – ports and terminals – are clearly vulnerable targets for terrorist action. The attacks on the Achille Lauro in the Mediterranean in 1985, the USS Cole in Aden in 2000, and The Silk Pride in Sri Lanka in 2001, demonstrated the interest of terrorists in shipping as high-profile targets. Accordingly, the new political realities have altered the seascape for the maritime industry.
With operations over two-thirds of the world’s surface, the maritime industry has many diverse standards governing its daily routines and global procedures. Throughout its history, it has had to contend with piracy, but it is only during the past 20 years that it has had to contend with terrorism. The goals have shifted from illicit profit to political hegemony. Therefore, any maritime enterprise seeking a solution to the risks of terrorism must access expertise in a new and broader range of fundamental competencies:
The Official Guide To Marine Finance Providers
Shipping Index
