Symbiotic Relationship

Watching the interrelationship between Ship Finance and Frontline is always interesting, particularly when it comes to the disposal of vessels. Earlier this month, Ship Finance agreed to sell the 1998 built VLCC Front Vista to a subsidiary of Frontline for $58 million. After the repayment of the associated debt, Ship Finance will receive net proceeds of $22.1 million and will record a book gain of $1.8 million.  While not an exciting deal from Ship Finance’s perspective, it does lock in a gain and eliminates any residual risk.

The deal is much more interesting for Frontline who have sold the vessel concurrently to a third party, which has fixed the vessel on a 10 year time charter to a national oil company at a gross rate of $43,500/day. The transaction has been structured as a conditional sale over 10 years, matching the term of the charter. The effect of the deal is to take a vessel which has been trading spot and converting it to fixed financial long-term revenue stream against a national oil company credit. From this side too, the residual risk is removed. Not a bad deal at all.

Despite the Rumors of It’s Being Stillborn….

Diana Shipping Inc. announced, on Tuesday, that it had successfully raised approximately $132 million for its previously announced project involving the formation of a company to invest in containerships over the next 12 to 18 months. Diana will be investing $50 million or approximately 38% of the equity with the balance provided by institutional and accredited investors in a private transaction.
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Game Changer?

In their 4th quarter earnings release, Golden Ocean Group Limited announced that it had begun the process of pursuing a secondary listing in Singapore with the goal of accessing the growing Asian investor market. The company already has an operational presence in Asia and saw the opportunity offered by the July 2009 Memorandum of Understanding between the Singapore Exchange (“SGX”) and the Oslo Bors, which facilitated a simplified and accelerated dual listing process between the exchanges.

Our Singapore correspondent, Rodricks Wong, highlighted the significance of this transaction from the Asian perspective:
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What One Hand Taketh, the Other Giveth

Last week, Songa Offshore formally confirmed that it has delayed it offering of 7-year notes that it had launched on January 27th. The decision to delay the offering was the result of volatile market conditions, as well as the upcoming deadline of February 12th, after which 3rd quarter results would no longer be sufficiently current to access the capital markets. The company is in the process of preparing its year-end results and upon completion of the audit will determine whether to proceed with the offering after taking into account market conditions and investor feedback.

In its 4th quarter earnings report, Songa highlighted the goal of deleveraging as part of 2010 business plan. Currently, the company has $890 million of debt, consisting of a secured credit facility of $1,050 million of which $802.1 million is outstanding, and two Norwegian bonds totaling $87.9 million.
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Back in the Public Saddle

On Tuesday, Scorpio Tankers Inc. filed a preliminary registration statement for an initial public offering of its shares. While lacking in specifics, there is still much to be gleaned. The equity raise, including the green shoes is in the range of $150 million which amount will be supplemented by a new credit facility. Proceeds will be used to re-pay debt and for fleet expansion, targeting modern tankers from 35,000 DWT to 200,000 DWT, which are generally not older than 5 years of age.
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Lessons Learnt But Not Forgotten

The world of ship owners, shipbuilders, financiers and, ultimately the investors, entered into an age of anxiety and confusion when the financial markets collapsed at the end of 2008. But then, is it the latter which led to the former, or the writings were clearly on the wall since the beginning of 2008 (or maybe even earlier)? Some analysts suggested that the industry was overwhelmed by the euphoria of the “unstoppable growth” of the BRIC nations, especially China, and the explosive supply of credits and spending power of the Developed nations. Therefore, is it excusable that the industry will be laden with excessive capacities for years to come, and it is no one’s fault since everyone has been misled? 

Recently, I have the chance of catching up on my readings, and particularly one by Mr. Kazuo Inamori, the founder of Kyocera and KDDI – both being world market leaders in their respective industry sectors. Whilst reading this book, it became clear to me that the issues we (the shipping industry) are facing are created not because the statistics were misleading, but due to two very basic human defects: Greed and Arrogance. In the book, it was quoted that “Life is an expression of our mind”.    Continue Reading

Wikborg Rein Sees More Listings in Singapore

Last week, Wikborg Rein provided an outlook for listings in Singapore in 2010. The Norwegian law firm pointed out that a large part of market capitalisation has been eroded by the privatisation of several listed companies but it expects to see a greater number of listing candidates, both in primary and secondary in Singapore this year. In view of the Memorandum of Understanding (MoU) signed between Singapore Exchange (“SGX”) and Oslo Børs on 8 July 2009 to promote dual listings on the two markets and an improving global economic outlook, Wikborg Rein believes that secondary listings of Oslo-listed companies will re­ceive increased attention.

For those IPO aspirants, Wikborg Rein has the following advice.

-          Companies contemplating primary lis­tings on the SGX should commence the process sooner rather than later due to the proposed changes to the listing rules in Sin­gapore which will, inter alia, tighten the admission requirements and raise the minimum issue price. In this regard, timing is the key for any company which wishes to list on the SGX – the candidate should either decide to do so quickly before the changes take place, or wait until the new regime is in place. Continue Reading

Shipping IPO in Asia: Where Else But China

We could barely contain our excitement when we picked up news that Hainan Strait Shipping had successfully raised net proceeds of RMB 1.28 billion (USD 187 million) on the Shenzhen Stock Exchange last December. The news might be a little old but any shipping company that managed to pull off an IPO last year deserves some recognition in our newsletter.

Hainan Strait Shipping, a ro-ro operator based in Hainan Island in China sold 39.5 million new shares at RMB 33.6 (USD 4.92) a piece, making this the second shipping IPO in Asia last year. Established by Haikou Port Group together with co-investors Shenzhen Yantian Port Holdings and China Shipping Haisheng (a listed subsidiary of state-controlled China Shipping Group), Hainan Strait Shipping operates a fleet of 17 vessels including 15 ro-ro passenger ferries and 2 passenger vessels between Hainan Island and Guangdong province in China. Its main shareholder Haikou Port Group has a 75% stake prior to the IPO and is 95% owned by the central government. For those who are not familiar with Hainan, the island is located in the southern most of China and Hainan Strait Shipping operate ferry services in the shallow, narrow Qiongzhou Strait that separates the island and Guangdong’s Leizhou Peninsula. Continue Reading

From Selling Compact Discs To Buying Offshore Vessels

Underneath this rather intriguing headline lies an interesting story. What would you do if you want to list your privately held offshore support services business on the Mainboard of the Singapore Exchange? Falcon Energy took a different approach and executed a back-door listing through Sembawang Music – a well known music retailer in Singapore in May 2006. Sembawang Music was an ideal acquisition target back then: It had only one business, with hardly any liability and more importantly controlled by only one major shareholder who was willing to sell out. And the rest is history. After selling its music retail chain store business, Falcon Energy grew steadily into an oil and gas operator with a focus on the production phrase of oilfield activities. It currently owns and operates nine offshore vessels, mainly work/accommodation vessels.

In the greater scheme of things, Falcon Energy announced a surprise major acquisition last Friday. It will be acquiring the entire 29.07% stake in CH Offshore, 205 million shares at SGD 0.70 per share from Malaysia’s Scomi Marine Berhad for SGD143.5 million (USD 101.7 million). Scomi Marine will pocket a profit of USD 18.6 million from the investment it made in 2005 and proceeds will be used to repay its existing borrowings. Continue Reading

Priced to Sell

Last Wednesday, Berlian Laju Tanker sold USD 100 million five year convertible bonds with joint bookrunners J.P. Morgan and RS Platou Markets. The bonds were priced to sell with an attractive coupon fixed at 12% and come with a conversion premium of just 10% and a one time reset after six months. The modest conversion premium could well suggest that BLT and its advisors are looking for a more equity like transaction, which will help improve its leverage risk profile in the medium term, should the bonds be converted into shares.

The proceeds from the offering will be used for, among other things, investments in the expanding cabotage trade in Indonesia, based upon its long-standing relationship with Pertamina and other oil and gas operators in Indonesia. The proceeds may also be used to repay or redeem existing debt, including outstanding convertible bonds guaranteed by the company, and for general working capital. BLT needs fresh capital to cover a potential put on its outstanding USD 125 million convertible bonds in May 2010. As we understand from RS Platou Markets, these proceeds are not expected to be used for the on-going acquisition of Eitzen Group. Continue Reading