Building On A Successful Formula

Pro business policies and a tax friendly environment have spurred significant growth in Singapore’s maritime sector over the years, and more good news is on the way. The government has announced a slew of measures to further develop Singapore as an International Maritime Centre and perhaps the most interesting is the introduction of a five-year tax incentive from 1 April 2010 to 31 March 2015, which grants a concessionary tax rate of 10% for ship brokers and forward freight agreement traders.

In addition, ship management fees will soon be exempted from tax and the Maritime Finance Incentive (“MFI”) scheme will be renewed upon its expiry on 28 February 2011 for another five years to 31 March 2016. Under the MFI scheme, ship or container leasing companies, funds, business trusts or partnerships will enjoy a tax concession of 10% on qualifying leasing income.

Game Changers?

In their 4th quarter earnings release, Golden Ocean Group Limited announced that its application for a secondary listing in Singapore had been approved by the Singapore Exchange (“SGX”). The company already has an operational presence in Asia and saw the opportunity offered by the July 2009 Memorandum of Understanding between SGX and the Oslo Bors (“OSE”), which facilitated a simplified and accelerated dual listing process between the exchanges. This will be the first secondary listing by a Norwegian firm under the new accords.

From our perspective, this is an interesting transaction. Not only is this an example of a western company seeking equity capital in the East, it also raises the question of whether the market would follow the trendsetter, John Fredriksen, who was the first to bring his company to the U.S markets. The successful listing of Golden Ocean will blaze the trail for more to follow and strengthen Singapore’s position as a maritime and financial hub. Continue Reading

GMF Launches Badaro #14

Global Maritime Financing (“GMF”) has successfully closed its latest ship fund under the Ship Investment Company (“SIC”) Act in South Korea. This could well be the first SIC created since the financial crisis broke out in 2008. Market reports suggest that the fund Badaro No. 14 Ship Investment Co. raised 72 billion won (USD 63 million) and acquired a newbuilding 180,000 DWT Capesize bulk carrier at Sungdong Shipbuilding & Marine Engineering. The vessel upon delivery in May 2011 will be chartered to Hyundai Merchant Marine under the bareboat charter hire purchase (“BBCHP”) structure.

40% of the financing comes from a junior loan provided by local institutional investors and underwritten by Mirae Asset Securities while the remaining 60% is satisfied by a 5 year senior loan from Calyon (now rebranded as Crédit Agricole Corporate and Investment Bank). Korea Exim Bank provided the refund guarantee for the newbuilding. Continue Reading

Liberia Celebrates

Jorg Molzahn, the Managing Director of LISCR Germany, announced at the recently held Liberian Shipowners Council Meeting that the Liberian Registry broke through the 100 million G.R.T. mark when it registered a Sanko Steamship vessel. This represents approximately 3,200 vessels. Congratulations to LISCR on this accomplishment.

What Does this Say About Risk Appetite?

While we understand that investors want equity type returns for equity risk, we are unsure what that means these days. Over the past two weeks, we have reported on Songa Offshore’s recent capital raising exercises. Initially, over a period of 6 weeks, the company tried to do a $200 million bond offering, which was eventually deferred due to market conditions and a timing issue related to the aging of the financial results incorporated in the prospectus.

The company then turned to the equity markets and with what seems to be minimal effort sold $100 million in equity in 60 minutes in an issue that was 6.5 times oversubscribed. Effectively, as they point out, they could have sold the whole company.
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Chicken Little The Sky May Not Fall

There is no blood in the water here in Hamburg. In fact, the general consensus is hopeful. The storm has passed and the future while not bright is merely dark. Perhaps the most appropriate metaphor is the fact that the Alsters (lakes) that sit in the middle of Hamburg are for the first time in 30 years sufficiently frozen to allow residents to walk on water. Perhaps similarly, the shipping infrastructure has firmed too. But hopefully unlike the lakes, we hope it is not seasonal. While the tone is positive that is not to say that there are no problems.
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Who’s on First, What’s on Second, I Don’t Know’s on Third.

The title that begins this article is from a famous baseball skit by the comedians, Abbot & Costello. We chose it as it reflects, in humorous terms, our lack of understanding of what is happening in Hamburg, about which much is written but very little of which is elucidating. We arrived in Hamburg expecting the worst based upon its emphasis on the container sector and KG financing. There were three main questions we hoped to have answered by a broad range of the local shipping populous including owners, bankers, brokers, financiers, lawyers, accountants and other service providers. Two of the questions were variations of the title of the famous children’s book, Where in the World is Waldo? These took the form of what in the world is really happening here? With the second variation being where in the world is the necessary liquidity to support shipping going to come from? And finally with shipping companies going through the audit of their year-end financial statements, we wondered about the process of  asset valuation of both vessels and loans, the proverbial elepant in the room, and what impact potential impairments might have on an already tenuous structure. The latter requires some explanation.
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Equity Appetite Remains Strong

On Monday, Capital Product Partners announced that it planned to offer 5.8 million common units in a public offering. The transaction was priced the next day at $8.85 per common unit ,a discount of 6.25% from the prior day’s closing price. Proceeds will be used to acquire the M/T Atrotos, a 48,000 DWT product carrier built in 2007 from its sponsor, Capital Maritime & Trading, for $43 million and for general corporate purposes. Chartered  to Arrendadora Ocean Mexicana for $19,900 net per day, the vessel is sub-chartered to Petroleos Mexicana for five years. Operating costs for the period are fixed at $3,575 per day, which is a very competitive cost even for a modern ship.
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Logic Prevails

Norwegian shipowners were rightfully overjoyed with the ruling of the nation’s Supreme Court that overturned the government’s attempt in 2007 to change the then existing tonnage tax system to one that conformed to those in the European Union. While the change going forward would have been beneficial, the conversion process required that the taxes previously deferred under the system would become painfully taxable. The government tried to make this palatable by spreading the repayment over time and giving a credit if the funds were used to benefit the environment.

Businesses require a level playing field with certain knowledge that the decisions made in the past based upon the facts at the time will not come back to haunt them.  Having committed to remain in Norway rather than move to more favorable tax jurisdictions, the shipowners rightfully felt that they had met their end of the bargain, while the government, in their view, was trying to renege on the agreement through this retroactive tax.
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Another Slick Deal

On Wednesday, DryShips announced the latest iteration of its fleet renewal program and it was done with the usual Mr. Economou élan. Two middle age (circa 1995) Panamax bulkers, the Iguana and Delray were sold generating proceeds of  $43.5 million and a total book gain of $9.2 million. Although the related debt was repaid, the banks have agreed to keep it available for the replacement vessels.

To replace these vessels, the company has ordered two newbuilding 76,000 DWT Panamax dry bulk vessels at a Chinese shipyard for a price of $32.25 million each, versus the Clarkson estimated price of $33.8 million, reflecting the discount offered by Chinese yards. Delivery is expected to take place in 4Q 2011 and 1Q 2012. Given Mr. Economou’s recent propensity to fix long-term, the impact on EBITDA in the interim is minimal, according to Justin Yagerman of Deutsche Bank and Natasha Boyden of Cantor Fitzgerald. In fact, Ms Boyden noted that one of the vessels was on a below market time charter of $13,456/ day.

Cash in hand, debt funding available and the ships on the way. Next!