December 2, 1999

LAZARD SHUFFLE

Veteran shipping investment banker Hamish Norton left Lazard Freres, and indeed the shipping industry, yesterday to join the technology group at investment bank Bear Sterns. Lawyer and presidential confidante Vernon Jorden joined Lazards this week, though it is unclear whether even Mr. Jorden is diplomatic enough to work with shipping investors. Mr. Norton told us that the technology group at Bear Stearns has particular expertise in the areas of software and aerospace. While there is very little capital markets deal flow for shipping at the moment, in our view the field of maritime investment banking will be a bit less crowded when shipping deals start getting done again.

HIGH YIELD

HVIDE

After successfully rebutting a few criticisms of its plan of reorganization, Hvide Marine now has just one more date with the bankruptcy judge, on December 9th, and looks set to emerge from bankruptcy just in time for Y2K to erase all reams of documentation. We understand that Deutsche Bank is arranging the exit financing. The structure of the reorganization has been well covered in Freshly Minted, so search the FM Archive for details.

Those with sharp pencils and a penchant for penny stocks might want to take a look at Hvide common stock. The shares presently trade on the OTC Bulletin Board at around $0.13. Under the plan of reorganization, holders of common shares will receive a warrant for 1 new share of Hvide for every 124 old shares of Hvide held (about 8:1000). Old shares will be cancelled and warrants will have a strike price of $38 and expiration date 4 years from date of issue. Give us a call if you would like to take a look at Hvide’s pro forma 12.3 1.99 balance sheet which uses “Fresh Start Accounting” (i.e vessels have been written down from book to current market value). Continue Reading

Where is China in the Ship Demand Cycle…Take a look at their Energy Demand

By Joel McCormick

With China’s banks bursting with domestic savings, foreign banks could be squeezed out of energy- related shipping projects by as much as 40 or 50 basis points—and foreign institutions will have to be more creative in structuring deals, using tax lease and other vehicles, to get in the game, cautions a Hong Kong- based shipping banker.

Arnold Wu, BNP Paribas’ Hong Kong-based Asian head of shipping services told Marine Money that China’s first liquefied natural gas (LNG) terminal to be built across the border from Hong Kong in southern Guangdong province is being almost entirely underwritten by Chinese banks. Beginning 2005, the terminal, the first of a projected three along the China coast, is slated to begin receiving LNG from Australia’s Northwest Shelf delivered by transport franchise holders COSCO and China Merchants. Continue Reading

Welcome Back!

Last night our inbox rapidly filled with an onslaught of research from Banc of America Securities’ Michael Pak and James Lee, who initiated the bank’s coverage of the dry bulk shipping sector. In a report entitled “BofA Dockings: Stock Ideas Against a Strong Current,” Messrs Pak and Lee provide a guide for investors to navigate through the sector over the next 12 months and a primer for first time investors in the sector.

They have initiated their coverage of the sector with an overweight rating based upon a favorable risk/reward profile resulting from the recent pullback on near term concerns related to seaborne trade and heightened volatility of freight rates.
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Cracks Appear; Shareholders Patch

Shareholder support and understanding is a crucial aspect of a company’s development and growth. Nowhere is this more evident than in the case of Svithoid Tankers, which last week resolved to carry out a rights issue of approximately SEK 54 million, which through warrants, if fully exercised, will provide the company with an additional SEK 60 million in a second tranche in 2009. The proceeds will be used to finance the ongoing newbuilding program and to strengthen the company’s balance sheet as a means to obtain more favorable financing. The first tranche of the issue is guaranteed by a consortium comprised of existing shareholders, holders of convertibles and other guarantors. In conjunction with the offering, the company intends to divest the company’s three largest vessels and strategically focus on the segment under 5,000 DWT going forward.
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GOing Private

Some things were never meant to be. So seems to be the case with Global Oceanic Carriers’ short but somewhat turbulent public life. The company went public on the London AIM in a deal sponsored by Vassilis Vintiadis of Niva Shipping in the spring of 2005. At the time it was a market leader in terms of financial innovation, the first shipping company in recent memory to go public in London at all, and on an alternative market at that. If you’ll remember spring 2005 was the heat of the shipping IPO fervor in the United States, but GO Carriers’ tiny GBP 22.47 million Collins Stewart-led offering and barely larger GBP 26.5 million market capitalization at the time of its listing wouldn’t have quite cut it in New York. Nor would its fleet of three panamax and one handymax bulk carriers that had an average age of nearly 20 years.
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The Week in Review

Summer is upon us and, while not as busy as last year, there is still quite a lot going on. This week Global Oceanic Carriers decided to call it a day for its public listing in London while Svithoid Tankers announced a rights issue in Sweden. Aries Maritime meanwhile concluded its review of strategic alternatives and chose to maintain its independent public listing. Bocimar announced a joint venture with Conti7 for six handysize newbuildings while the Shipping Corp of India entered into a JV with the state run Steel Authority of India. Double Hull Tankers rebranded itself and broadened its mandate with a name change to DHT Maritime, reflecting both the impending phase-out of any tankers that are not double hull and the company’s interest in timely and selective acquisitions that include vessels other than tankers. Speculation continues to flutter about the potential acquisition of Hapag-Lloyd by NOL from TUI for somewhere in the realm of $6 to $8 billion plus. Last but not least Bank of America signaled a recommitment to the shipping sector with the initiation of coverage on four shipping companies.

The Editor is High

Whilst we know its summer in Surfers’ Paradise, Buenos Aires and Cape Town, the winter of 2003 has been particularly memorable at our headquarters near New York for the weather. Snow and cold and then even more snow in an unrelenting attack.

Equally unrelenting is our little corner of the world in ship finance. Since December 15, 2002, NYSE listed tanker companies have raised $1 .64b in new funds to finance what is largely consolidation in the industry and not for new tonnage. But others, like OMI, are refinancing and sandbagging the balance sheet to get stronger in a market that looks as if it cannot last, instead of getting bigger and more leveraged. Which strategy will win? Well, there are lot of theories out there and all are right in some respects but the best answer is that no one really knows. The world is just too uncertain. Activity has not just been in tankers. Sinotrans, the Chinese version of United Parcel Service and the old Sea-Land combined, hit the market with a $450m IPO with Credit Suisse and BOC International. It’s oversubscribed and up on the issue date. RCCL is out to replace their $1 bn revolver with a ‘best efforts’ of the same size with Citibank, Nordea and Dnb.

Indeed many bankers have indicated to this editor it’s the best in a while in terms of opportunities. Said one, “Last year you (the bank) had to grab onto whatever you could get and hope that you did not lose it, because if you did you would have a bad year. This year the bulls-eye is much easier to discern and the chance for many to have a good year, is not only excellent, its downright likely.”

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Guide To Tax-driven Finance Schemes

By Christoph Toepfer of Toepfer Transport

T he shipping industry is a highly capital intensive business. This is one of the reasons why, over the last 10-15 years, more sophisticated structures have been developed for the financing of ships, including off-balance sheet and leasing structures. Through these financial structures, the primary users of the vessels (e.g. container lines, oil majors etc) have increasingly become disconnected from their ownership.

In the case of container lines, they have operated in highly competitive markets with very small profit margins, often incurring losses. Capital requirements grew and to achieve economies of scale many lines have had to undertake such expansion with their own capital resources. Technical innovation and economies of scale have resulted in ever larger vessels being required; vessels which previously had not existed and therefore had to be built new. Hence, container lines have either been obliged build and finance these new types of vessel themselves or provide employment guarantees to third party investors in the form of long term time charters. In order to maintain the greatest operational flexibility and leave long term asset ownership and residual value risk to others, the lines have also used these financing schemes for smaller vessels.

The low return on capital from ship owning activities has increasingly led the oil majors to leave vessel ownership to others with the additional benefit of distancing themselves from the liability for pollution. As a result, oil majors have substantially reduced their owned fleets in favour of chartered tonnage in recent years.

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Forget OPA, Meet Sarbox

By Gary J. Wolfe of Seward & Kissel LLP

he Sarbanes-Oxley Act of 2002 (“Sarbanes- Oxley”), adopted over a weekend at the end of July, 2002, hit the capital markets world the way the Oil Pollution Act of 1990 hit the shipping world 12 years ago. Everyone knew it was coming. Everyone pretended that it wasn’t. Therefore, it came “without warning”. Everyone then fell into a state of shock and wished it away. When it would not disappear, everyone learned to live with it. With Sarbanes-Oxley, the capital markets world is still in the wishing away stage. Public companies, whether U.S. or foreign, no matter what their industries, will have to learn to live with it.

What does Sarbanes-Oxley Do?

For those who do not have time to read a 200-page statute, the best way to understand Sarbanes-Oxley is to look at the Enron/Worldcom/Adelphi a/Global Crossing situations, and turn them upside down. The simple rule is: If something scandalous happened at Enron, Worldcom, Adelphia or Global Crossing that angered the investing public, then Sarbanes-Oxley forbids it or tries to make it much more difficult. We can examine the companies in order and see how Sarbanes-Oxley addresses their situations. We can then see how the Sarbanes- Oxley provisions may apply to public shipping companies, especially those that are not U.S. incorporated or headquartered.

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Wilh. Wilhelmsen Votes

Also last week, Wilh. Wilhelmsen announced its decision not to enter into the new Norwegian tonnage tax regime for the majority of its Norwegian based shipping activities, although the group’s head office will remain in Lysaker. “The basis for the decision is uncertainty related to the predictability and sustainability of the new tonnage tax regime.” Enough said.