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Market Commentary – 11/08/2007
The Taxman Cometh (Part II) Back in September, we reported on the Norwegian government’s variation on the “bait and switch” tax ploy. Perhaps troubled by the fact that ship owners were paying no tax, the government, as bait, offered owners a new tax system based upon the tonnage tax system prevalent in Europe. Taxes would be extremely low but the cost of conversion was high. In fact, they were intending to unwind the current system, which charged no tax provided there were no distributions to shareholders and the company continued to perform shipping activities in Norway. Under the old system, owners, in good faith, presumed the undistributed profits were not taxable and therefore no tax liability was accrued on the balance sheet. Moreover, since no distributions were permitted and there was no reason to keep the profits liquid, the proceeds were reinvested giving owners a competitive cost of capital. What a deal! Instead of paying no taxes, owners would now pay a small amount. That would be tolerable until you factor in the price, a retroactive tax on all the profits made under the previous regime. The government, whose motivation, given the health of the economy, is uncertain but perhaps may be construed as out of spite, decided that the previously untaxed profits would now be taxed at a 28% rate retroactively. By way of relief, the government is allowing the payment to be made over 10 years and will waive up to a third of the liability if that portion was re-deployed in environmental investments. It is not surprising that this plan created an uproar among owners. With the monies reinvested and no reserves for future taxes, companies would be forced to liquidate assets or face a very real tax on future earnings. So, not unlike the U.S., the owners engaged a lobbyist, in this case the Norwegian Shipowner’s Association, to battle this egregious tax. They, in turn, hired the tax experts at Wiersholm (and Hjort and BA-HR) to give an independent legal opinion. Trond Sanfelt and Bettina Banoun from Wiersholm argue in their legal opinion that the proposed tax is unconstitutional in that it is contrary to Grunnloven § 97 (Constitution), which prohibits any act to have retroactive effect. Continue Reading
People & Places – 11/01/2007
DublinWelcomes Marine Money
In the beautiful city of Dublin and the wonderful setting of the Four Seasons Hotel Marine MoneyWednesday hosted the inaugural Marine Money Dublin Ship Finance & Investment Forum with Anchor Sponsor Bank of Ireland. Over 110 attended to hear the two pronged rational for the conference. Firstly, in co-operation with the IMDO (Irish Maritime Development Office) to promote Ireland as a venue for foreign shipping companies to establish their corporate headquarters, and secondly to educate the Irish investment dollars (or euros) about shipping investment opportunities and how those investments can be monitored and managed. Continue Reading
Market Commentary – 11/01/2007
Day One: DRYS Hammered – By a Motley Collection of Short Selling Fools
Day Two: Teekay and DRYS share $4.08 Billion Market Caps
There was a time we read the message boards, until we decided that most were written by self serving house bound agoraphobes. They were predictable, occasionally amusing, generally depicting management as incompetent, the positions of other message board participants as astonishingly mis-informed as they endeavored to cover their short positions. Or they are unbridled cheerleaders whose mathematic defenses of long positions defy logic or the rules of addition.
Fortunately, we discovered living minute to minute on the vagaries of shipping securities and the rantings of message board writers and investment pundits was no way to spend a life. Continue Reading
The Week in Review – 11/01/2007
Rag Top
Like its automobile namesake, convertible bond offerings are becoming more popular these days. It is no surprise given the attractive interest rates and the fact that the convertible feature can be hedged to minimize dilution to existing shareholders.
In the latest instance, Seadrill last Friday announced the offering of a $900 million convertible bond with a five-year tenor and on Monday they announced the successful completion of the transaction. With its strong pedigree and market fundamentals, it is not surprising that this was the largest-ever Nordic equity-linked transaction. In fact, the stock price rose throughout the marketing period despite potential hedging activity associated with a convert offering. Continue Reading
Market Commentary – 10/25/2007
Liar, Liar, Pants on Fire?
When it comes to the credit crisis we know this statement is not true. However, the true extent of the crisis remains unfathomed and much of the data surrounding it may be misleading lulling us into a sense of security that is both unwarranted and dangerous. Two reports from Lars Kirkeby and Maths Liljedahl of Nordea Credit Research provide an interesting perspective on this much talked about subject.
Looking in particular at the Norwegian High Yield Market, Mr. Kirkeby sets the stage for his presentation showing the historical iTraxx 5-year crossover index representative of spreads on high yield corporate issues together with a graph showing the number and rate of speculative grade defaults. After a rapid rise from near historic low levels the spreads reached a high but then quickly fell back to earth or at least the recent historical range largely as a consequence of the Fed rate cut. Also, after a difficult period between 1999 and 2003, where default rates were in excess of 6%, these rates have subsequently fallen to below 2% over the last four years. Continue Reading
The Week in Review – 10/25/2007
Times they are a-changing. As vessel values continue to hit new highs the current market is typically held out as the explanation, with medium-term timecharters offering quick amortization of apparently inflated values. Financial factors are sometimes over-looked. For example, the dollar’s steep fall means that inflation in dollar terms may not be as severe as it looks in real terms. Meanwhile the time required to pay off a vessel is notably impacted by the cost of the capital required to obtain it.
So, while the credit crunch may not be devastating for ship values, it is sure to have an impact. Consider that, according to Petrofin, 75% of the current orderbook remains to be financed. This of course makes perfect sense, as the orderbook stretches through 2011 and there is a little need to finance a vessel that has not yet begun to be built, but it also demonstrates that the anticipated stream of new vessels is dependent on ample access to affordable credit. Unsubstantiated reports indicate that dozens of newbuilding deals are suddenly hard-pressed to find the financing necessary to make their economics work. To help compensate some of these newbuildings will inevitably end up in the resale market, increasing available supply and theoretically beginning to compress prices. Continue Reading
The Week in Review – 10/11/2007
Eighteenth century French philosopher Voltaire once commented that doubt is not a pleasant condition, but certainty is absurd. Perhaps that provides some comfort as news of Bureau Veritas launching Europe’s largest private equity flotation of the year and Teekay Tankers taking out a new $800 million credit facility mixes with the pale of doubt cast over the global financial markets. Here we open with a review of a few important transactions before turning to a deeper commentary on shipping credit by a venture into Hamburg, wherein lies the heart of the market. Continue Reading
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