Links
With 2 Months to Spare
Today, Navios Maritime Acquisition Corporation, the SPAC formed by Navios Maritime Holdings (“Navios”) back in June 2008, announced that it had agreed to acquire a 13 vessel fleet, consisting of 11 product tankers (4 LR1s and 7 MR2s) and 2 chemical tankers for an aggregate purchase price of $457.7 million. The company also has options to purchase two additional LR1s for $40.5 million each. The purchase price will be paid from cash ($123.4 million) and $343 million of bank financing consisting of a three term loans aggregating $277 million and a $57 million revolving credit facility. The high leverage also leaves excess cash remaining for growth from the original $220 million raised. The company’s rationale for the purchase is its belief that the assets are being acquired near their inflation adjusted historic low prices and the anticipated increased demand for products as the global recession eases.
Continue Reading
Insatiable!
Investors cannot seem to be able to get enough of the shares and bonds of Teekay and its subsidiaries. In the latest iteration, Teekay Tankers announced Monday, after market close, its intention to offer 7 million shares of Class “A” common stock of the company in a public offering. But even before the market opened the next day, the company announced that the offering had been increased to 7.7 million shares, following the trend of Teekay’s previous offerings.
With the joint bookrunners, UBS, Citi, J.P. Morgan and Deutsche Bank opening up their retail systems, the bulk (75% to 80%) was covered by retail with the balance covered by institutions. In a world of low interest rates, a consistent dividend payer is a star.
Continue Reading
Risk Management in the Bunker Industry
By Adam Dupre, Ocean Intelligence Pte Ltd
Risk is not necessarily negative, but it is real and needs to be managed. You might say it highlights a watershed point up to which activity is likely to be successful and beyond which it is may be dangerous. It highlights the point in the consideration of any transaction where the possibility of failure is too high to justify proceeding. Low risk is still risk, but it is positive and justifies proceeding, whereas high risk may not justify proceeding.
Risk management is the skill/art/science of assessing where on the line from low to high risk any particular customer or deal sits, and of making the right decision as many times as possible. The closer to the line you can get, the more likely you are to do more and more successful business. If your risk assessment procedures do not generate clear assessments, then you need to err on the side of caution, and may miss opportunities. If you have sophisticated risk analysis systems that you can trust, you can work much closer to the wire, with the opportunities for higher rewards that this kind of business can bring. The nub of the matter is how accurate are your means of assessing risk?
Financing, Tax and Operational Benefits Embedded in Section 883 Regs
By Eric P. Lerner, CPA, Eisman, Zucker, Klein & Ruttenberg, LLP
Introduction
During June 2007, the U.S. Treasury Department and the Internal Revenue Service (“IRS”) released temporary and proposed regulations (the “2007 Regulations”) concerning the reciprocal shipping exemption under Section 883 of the Internal Revenue Code. Besides tax benefits, a deeper understanding of certain of the 2007 Regulation’s provisions can provide financing and operational benefits for vertically integrated shippers.
For the uninitiated, the reciprocal shipping exemption is the most lucrative income tax position a shipping enterprise possesses. It allows eligible shipping companies to be exempt (fully or partially) from U.S. Federal income taxes on its shipping activities. To be eligible for the exemption, there are a series of conforming requirements that the enterprise must be in compliance with, including, but not limited to (i) stock ownership requirements (ii) reciprocal Tax Treaty (or exchange of Notes) arrangements for shipping activities (iii) qualified country residency status, and (iv) appropriate categorization of shipping revenues and costs, including activities that are deemed incidental to the international operation of ships or aircraft.
Introduction to Offshore Support Vessels
By Andy Yeo and Magne Motzfeld Øy, Pareto Securities Asia
Synopsis
The development of offshore oil and gas fields involves a wide range of marine assets. The variety of offshore vessel types can be confusing to some readers. This article sets out the main categories of vessels involved in these operations and the general trends in the sector.
Understanding the Offshore Support Vessel (OSV) Market
Exploration and Production (E&P) of an offshore oil and gas field represents the first piece of the long petrochemical value chain. Offshore operations are by nature complex to execute, the margin for error is small and the investment is large. Hence, the consequences can be dramatic if operations fail, both economically and environmentally. Additionally, specialised single purpose vessels are generally built at a lower cost, which will allow them to provide more competitive rates given the same returns requirement. This has led to a variety of specialised offshore assets, focusing on certain tasks within the offshore industry. It is important to note that unlike commodity type vessels, OSVs are not very standardised marine vessels; specifications can vary greatly.
Generally, OSVs provide support services to offshore drilling (rigs), pipe laying and oil producing assets (production platforms and FPSOs) utilised in E&P activities.
It follows then that demand in the OSV market is driven primarily by the underlying demand for oil. Strong demand for oil, and a sustained high oil price, will encourage oil companies to increase their E&P spending budget, and planned activities.
CRISIS, A TIME TO CHANGE – PART 2
By Paulo Fernandes, Petrobras & Arlie Sterling, Marsoft
In a previous article (August/September 2009), we emphasized that a crisis is not just an external event, but also the internal reaction to it. A crisis in a company is an opportunity to exchange the current strategies for new ones that better fit its future view and goals.
In this series of articles, we will present the history of a major shipping company and highlight one strategy adopted by it to deal with a crisis.
In this article, we will present a case study of VALE, the giant mining company from Brazil, and focus in on its vertical integration (“VI”) strategy. Vertical integration is the extent of control that a company exercises over the links of its value chain.
Throughout its history, VALE, as a mining company, has been strategically integrated in all the links of the value chain. The value chain from VALE in the iron ore business is composed of the following four activities: mining, transportation to terminal, shipping and steel production. In particular, VALE is heavily vertically integrated into shipping. In this paper, we will present VALE’s approach to shipping through the last years, will present some considerations about the economics of this approach and, finally we will address non-economic aspects of the VI strategy and show how shipping companies may employ it in their business.
Continue Reading
Is it Time to Buy Ships? And Where Are We in the Cycle?
By Charles de Trenck, Transport Trackers
Over recent years, I’ve been trying to understand the pattern of corrections in ship prices (setting aside supply-demand and construction costs for a minute). To better understand the correction, I’ve taken to trying to strip out the noise coming from dollar volatility. The problem, as I see it, is too many of us have been trapped by looking at performance within a tautology of prices going up in dollar terms because the dollar was going down.
If we use gold as a yardstick rather than the dollar to answer the question of whether to buy ships now, the conclusion long term is generally more positive based on past trends. But the story told is also quite different.
If we use DXY (dollar strength against non-dollar basket) then the answer is more mixed, if we are in a dollar upward revaluation period. The trap is that if the dollar rebounds too much, we may be in for an extended slow down which will hurt companies which bought over-priced ships (ie, which were more defensive when the dollar was declining, as they were part hedge against that dollar decline…). The Euro’s problems in relation to the Greek debt crisis add another layer, which shifts the relationship of dollar-Euro-gold, of course.
Continue Reading
Nine Weeks
Publishing a weekly newsletter, we are perpetually focused on the here and now. The news is a hard taskmaster. As a consequence, we never seem to have enough time to assess both the trends and the meaning behind the data.
Quite unexpectedly, in the beginning of this year, when markets are generally somnolent, shipping transactions in the capital markets were on a tear. During this very short period of nine weeks in 2010, there were 10 equity deals, 2 shelf registrations, 4 bond transactions, 2 mergers and acquisitions and one joint venture. As a consequence, we thought it would be worthwhile to pause and take a look back on the first nine weeks of this year, as reported in Freshly Minted, and try to glean meaning, if any, from the facts reported.
The Hope is Right in Our Hands
By GAO Yanming
Chairman of HOSCO Group and North China Shipping Holdings Co., Ltd.,
Vice Chairman of China Shipowners Association and
Standing Committee Member of the Hebei Provincial Political Consultative Conference
As the Chairman of the Board of Directors of both Hebei Ocean Shipping Company Limited (“HOSCO Group”) and North China Shipping Holdings Company Limited (“NCS”), Gao Yanming has played a major role in the development of the maritime sector in China. Today, HOSCO Group has grown into the leading private and fourth largest shipping company in China, a truly remarkable feat considering that the shipowner was on the brink of bankruptcy when Mr. Gao was appointed as its General Manager in 1998. Mr Gao was also the master architect behind the meteoric rise of NCS into one of the biggest dry bulk shipowners and operators in Hong Kong, having successfully taken advantage of territory’s pro business environment and its position as one of the world’s leading financial centres.
Highly respected for his views on the Chinese shipping industry, Mr Gao actively puts forward his suggestions to the Ministry of Transport, National Development and Reform Commission and even directly to Premier Wen Jia Bao. In this speech, delivered at World Shipping (China) Summit 2009, Mr Gao appealed to the industry players to take concrete actions to reduce the tonnage overhang through scrapping of old vessels, laying up existing tonnage, delaying newbuilding deliveries and cancelling orders for the benefit of the industry.
– Editor
Since September 2008, the international shipping industry has been undergoing an unprecedented “catastrophe” in one century, which has incurred great loss to the shipowners in the whole world. That catastrophe is caused by the following two reasons: one is due to the global economic crisis brought by financial tsunami; the other is due to the severe surplus of tonnage supply. Under such double pressure, people are expecting the market to recover soon. But how can it be recovered?
Many people pin their hope on the resurrection of world macro-economy, but that is apparently not enough. There is no doubt that world economy will recover gradually. This “invisible hand” will help to recover the shipping market. However, if the situation of severe tonnage surplus can not be corrected, the shipping market recovery will lag so far behind the macro-economy revival that the shipowners’ suffering will be greatly prolonged. Therefore, it is necessary for shipowners to extend their “visible hands” to do further.
With this opportunity, I would like to appeal to your active action and instant adoption of the following measures to reduce the tonnage supply:
Pricing May No Longer Be an Issue
Yesterday, TBS International announced that it had secured a waiver of certain covenants from its lenders for an additional 30-day period so that negotiations of new or amended credit facilities could continue. The lenders consist of syndicates led by Bank of America, The Royal Bank of Scotland and DVB Group. There are also loan agreements with AIG Commercial Equipment, Commerzbank, Berenberg Bank and Credit Suisse.
Continue Reading
The Official Guide To Marine Finance Providers
Shipping Index
