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Is equity cheap? The case of Chinese transportation initial public offerings
By Mr. Xihe Gong, Prof. Kevin Cullinane, and Prof. Michael Firth, The Hong Kong Polytechnic University
Compared with the developed market economies such as the United States and the United Kingdom, the public listing of Mainland Chinese shipping companies is a relatively recent phenomenon, with most companies entering the stock markets in the 1990s. Hong Kong, on the other hand, has a much longer tradition in trading listed transportation (mostly shipping) companies, with some companies coming to the capital markets from as early as the 1970s; Eastern Asia Navigation Company Ltd., IMC, Wah Kwong Shipping & Investment Company and Orient Overseas Container (Holdings) Limited were among the earliest to be publicly quoted. In recent years, following the global trend of liberalization and deregulation of industries, China has spun off many of its formerly State-owned Enterprises, with the result that many transportation companies have had to resort to the emerging Chinese stock market for its funding needs—(See Page 30) depicts the growth trend for a sample of mainland Chinese and Hong Kong companies over the period 1986-1999. On a worldwide scale, as the transport industry becomes more and more capitalintensive, it is expected that the industry will be more and more reliant on the capital markets for its future growth. According to a Lloyds’ List report (June 1998), as much as 40% of financing for the shipping industry could come from public investors.
An initial public offering (IPO) of stocks is a major event through which a large amount of capital can be raised within a relatively short period of time. Whether or not a company will find public-listing an attractive option depends, among others, on the costs of going public. While direct costs such as legal fees, accountants’ fees, and printing expenses represent a considerable part of the total costs of public-listing, a greater cost is the underpricing of new shares (generally about 15% of total equity offered). Underpricing is deemed to occur when the final offer price of the new shares is lower than the market-clearing price that prevails during first-day trading. If the cost of underpricing is considered to be too high, companies may be discouraged from seeking a public listing. On the other hand, overpricing a new issue may result in the issue being aborted due to lack of demand. It can thus be seen that appropriate pricing of an IPO has an import ant bearing on the ability or willingness of companies to raise funds in the stock market.
Freshly Minted – December 23, 1999
HAPPY HOLIDAYS!
Warm wishes for the holidays and may great health, happiness and fortune be yours through the new millennium. We are very grateful for all of your support in 1999. We will not publish Freshly Minted next Thursday, but will be back with a vengeance on January 3rd!!!
HIGH YIELD
Not much going on in the world of high yield in these waning days of the millennium. Most players are hoping that the “January Effect” will bring more liquidity into the market. Whose friend was the trend in 1999? High Yield Restructurings At-A-Glance: Continue Reading
Freshly Minted – December 16, 1999
BREAKING NEWS
The management of Frontline informed Marine Money today that A.P. Moller, Euronav, Frontline, Overseas Shipholding Group, Inc., Osprey Maritime and Reederi “Nord” Klaus E. Oldendorff have agreed to establish “Tankers International LLC”(Tankers) to pool their Very Large Crude Carrier(VLCC) Fleets. The company plans to commence operations upon receipt of required regulatory approvals which are expected by 15th of February 2000. Tankers will manage a fleet of exclusively modern VLCC’s numbering initially 38 vessels. As the participants take delivery of new buildings and vessels are redelivered from period charters the fleet is expected to exceed 50 vessels by 2002. Tankers is being established to provide customers around the globe with new and improved tools to manage shipping programs, inventories and risk. The Company will offer its customers “one stop shopping” for high quality VLCC tonnage. The fleet size will enable Tankers to provide increased flexibility, contract of affreightment and to become a logistics partner of major customers. Mr. Soren Skou, Vice-President of A.P.Moller is to be appointed Chairman of the board of Tankers International LLC, which will comprise representatives of the participating companies involved. Chartering negotiations will be conducted through London with a chartering representative in New York and Tokyo. Mr. E.Michael Steimler, currently President of Euronav, will be appointed Chief Executive Officer of Tankers London.
Freshly Minted – December 9, 1999
SAVE THE DATE!!!
Dear Ship Finance Friends, after several years of working together on the Annual Ship Finance Forum, Marine Money Magazine and IIR are going separate ways. As a result, we anticipate that there will be two New York ship finance conferences in 2000.
We will continue to hold our annual conference in June, so please save the dates June 20-21. To avoid any confusion, our event will be called Marine Money’s 12th Anniversary Ship Finance 2000, not the Ship Finance Forum. Our conference will be held at The Marriott Hotel at Times Square.
As always, we are committed to bringing you the most valuable program and the best networking opportunity at the most reasonable price possible. Marine Money is totally committed to the ship finance industry. Our interests are your interests and we appreciate your support. Continue Reading
Freshly Minted – November 24, 1999
HIGH YIELD
STENA LINES AB
Battered but Proud
In a most widely anticipated bond holder meeting, Stena Lines’ Bo Severed and Svante
Carlsson came to New York and attempted to assuage concerns over the company’s direction which had become intense following a poorly handled 3Q conference call and a subsequent near 20 point drop in its bond price. The talk prior to the meeting Tuesday at Chase headquarters was all about management’s failure to understand its investors and a possible company decision to restructure. Holders flew in from around the country to listen.
While it was primarily one holders decision to sell that drove the price to the 50s, concern over the Scanlines acquisition and financing; poor transition performance during the end of Duty Free; and, fundamental concerns about the European Ferry business had created a stormy atmosphere.
The presentation was long and detailed and anticipated the issues well (even to bunkers being hedged 75% for 2000 and 50% for 2001!). But the presentation did not fully quell the concerns as question after question (almost 2 hours) pushed management on the issues of liquidity, Scanlines strategy, the speed with which the Duty Free hit might be overcome and really the company’s focus on its core business – Ferries. Continue Reading
Freshly Minted – November 18, 1999
Quote of Note
Richard du Moulin at the Connecticut Maritime Association monthly luncheon,” Something is wrong when the sole source of profits in shipping is from financial institutions losing money.”
HIGH YIELD
HVIDE
Market sources indicate that Deutsche Bank Securities has emerged as restructuring advisor in the Hvide Marine bankruptcy. While we have no details on Deutsche’s role, we imagine they will provide exit financing to take out the $60 million debtor in possession facility provided by BankBoston and Citibank. It looks as though holders of the bank debt will get out whole and bondholders will receive 97% of the equity in the newco. With oil prices
soaring and E&P budgets more promising, Hvide bondholders might actually make money at the end of the day. Imagine that. Continue Reading
Freshly Minted – November 11, 1999
HIGH YIELD
Slow generally and particularly today with the Government bond market closed for Veteran’s Day. Quote of the week comes from a bondholder who told us “We view credit rating actions as a lagging indicator for shipping bonds.”
GOLDEN OCEAN
Bond spread is almost 100%, 5 to 9, though no action to speak of other than piecing together the omnibus restructuring. After the efforts of the past several weeks (months, years…) all parties involved deserve a breath.
GLOBAL OCEAN CARRIERS
Slowly reports are drifting out on the “Book”, which has become more allegorical than literal to us. While we expect the company and steering committee to step up activity in the week ahead, all parties involved have remained very tight-lipped throughout the entire process.
PEGASUS Continue Reading
Freshly Minted – November 4, 1999
ERROR AND APOLOGY
In the October issue of Marine Money page 9, we erroneously stated that the Bank of New York “took a 30% write down of their estimated $1 billion shipping portfolio”. We regret the unintentional error and apologize to the Bank of New York.
HIGH YIELD
LONELY ANALYSTS
While most “normal” analysts are tightly huddled around squawk boxes, listening to earnings calls, shipping analysts are feeling a little left out because shipping issuers don’t have to (and don’t) report until 60 days after the quarter. While many thought that most shipping restructurings would be done in 1999, it looks as though 2000 will be another busy year for the clean up crews.
GOLDEN OCEAN
The biggest news in the high yield sector this week is that Golden Ocean received approval from holders of 70% of its bonds to waive the covenants related to the delivery of the VLCC Opalia from KKI and the scheduled deliveries of three additional VLCCs from Hitachi (see last week’s FM for details). A subsidiary of Golden Ocean has entered into an agreement to purchase the Opalia following the expiration of its charter to Shell (2 years, option 2). Two (option one) of the three Hitachi ships will go to Stena when they are delivered. The consent allows the company to deliver its 1999 newbuildings while it is finalizing its pre-agreed restructuring. Continue Reading
Freshly Minted – October 7, 1999
“A man’s got to make at least one bet a day, else he could be walking around lucky and never know it.”
-Jimmy Jones, Horse Trainer
ERROR AND APOLOGY
In Freshly Minted of September 23rd, we erroneously stated that Petros Pappas of Oceanbulk in Greece was a defendant in the lawsuit involving the vessel Brazilian Friendship. The defendant we were referring to was Peter Pappas. We regret the unintentional error and apologize to Mr. Petros Pappas.
MARITIME CYPRUS
The bi-annual Maritime Cyprus conference took place this week in Limassol and Nicosia. Delegates note that attendance was considerably down on last time in 1997. In the past Greek shipowners have supported the Cypriot “Posidonia with a bit less alcohol and more academia” but this year there were fewer in attendance. Either cost cutting or on duty in the office trying to keep their ships employed. Not to worry though. Plenty of bankers, lawyers and insurance brokers to keep the parties rolling well into the night.
ROYAL BANK OF SCOTLAND Continue Reading
Freshly Minted – September 30, 1999
We continue to experience a very strong response to the Ship Finance Forum in Greece. To register please call us at the phone number below for more information. Then on October 21st together with BankBoston we have the 1st annual Ferry Finance Forum at the New York Yacht Club.
BREAKING NEWS
Frontline has entered into an agreement with its banks giving the company increased flexibility with respect to the repayment of debt and to increase working capital by approximately $ 32 million. The company also issued approximately $ 20 million in equity through a private placement. Issue price was NOK 33.00. The total number of shares issued, 4,715,000 were placed with a group of five investors. The transaction was successfully placed by Fearnley Fonds ASA and Carnegie. Mr. Fredriksen has also converted $ 35 million of a $ 89 million subordinated loan given to Frontline into equity. At an issue price of NOK 33.00 a total of 8,230,000 shares were issued. 3,500,000 of these shares will be offered to the existing shareholders at NOK 33.00. The total amount of shares outstanding after these transactions is 59 million. The combined transaction will increase Frontline’s equity by $ 55 million, and will improve the working capital by up to $ 52 million. The proceeds from the transactions will be used finance the acquisition of ICB. After implementation of the transaction, Frontline’s current cash breakeven TCE rates for 2000 have been reduced to approximately $ 21,000 for the VLCCs (including 2 lease vessels) and $ 15,000 for the Suezmaxes and OBOs.
HIGH YIELD
PEGASUS SHIPPING Continue Reading
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