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Teekay, the Bank – Innovation Award
By George Weltman
We’re prejudiced. When we saw this transaction back in July, we knew it was a winner. To describe it as outside of the box is an understatement and therefore it is a perfect fit for this award. It is a product of the times, evidencing that the reduced availability of shipping debt is affecting the cost of capital, the structure through which it is lent and, as result, who provides it. In this instance, what some might view as expensive capital was provided to a shipowner in the form of a loan. And it works.
In a deal structured by Deutsche Bank , Teekay Tankers (“TNK”) drew down $115m of excess capacity under its revolving credit facility and used the funds to provide what is effectively a first preferred ship mortgage bond secured by 2x 2010-built VLCCs owned by TMT, a Far Eastern shipowner. Each of the three year fixed rate first priority loans is in the amount of $57.5 million and will pay a coupon of 9%.
UASC JOL – Leasing Award East
By Nora Huvane
Cultural differences, varying regulatory regimes, unpredictable currencies. There are lots of reasons not to engage in a cross border lease transactions. But then there is the relentless endeavor to find the best-suited, most competitively-priced source of capital in the world.
Leave it to DVB to assemble just such a transaction between a leading Middle Eastern operator United Arab Shipping Company (UASC) and Japanese Corporate Investors. The transaction, closed in June 2010, achieved the financing of 101,015 TEUs of standard dry containers for a total amount of USD 125 million, equivalent to 100%. This was broken down into two tranches, the first of USD 49 million on a 5-year lease, and the second of USD 76 million on a 6 year lease. The two tranches together resulted in 100% financing.
Middle East Meets West – Leasing Award West
By George Weltman
Nominations in this category were few and far between. Whether it was a conspiracy of silence or largely quiescent KG and K/S markets, we are not sure. Also limiting leasing activity was the inability to raise leverage, which meant equity returns were not sufficiently inspiring to attract investors. However Pareto proved both assumptions wrong in putting together a noteworthy transaction with Havila. In this instance, Havila wanted to control two 4,900 DWT PSVs that were for sale from the owner who contracted them. An outright purchase was difficult for Pareto due to its substantial orderbook and the resulting stretched banking relationships. Pareto solved the problem by structuring a K/S that would acquire the two vessels with a project cost of NOK 740 million and bareboat charter them to Havila for eight years. The financing consisted of an equity raise of NOK 180 million and senior debt of NOK 470 million shared between DVB and the Norwegian export credit agencies, GIEK and Eksportfinans. And lastly Pareto provided a mezzanine piece of NOK 90 million. In defense of our thesis on a lack of bank debt, we would note it is a lot easier to arrange bank debt with ECA credit support and a subordinated loan underneath. For the investors, the projected IRR was 20%, an attractive return for this structured deal.
Brazil Again! – Project Finance Award
By George Weltman
With the discovery of pre-salt oil and the subsequent increasing importance of Brazil as an oil producer, Brazil and project financing have become synonymous. The assets, whether drilling rigs, FPSOs or offshore supply vessels, are expensive and in great demand there and, in some cases beyond the capacity of the local contractors. Project financing solves that problem by combining asset-based financing with a hell or high water contract that provides the contracted cash flows which will repay the debt.
This year there were two strong nominees and we just could not pick a winner. So for the first time in our memory, we have a draw. No cop out; we challenge you to declare a winner from these two.
Export Credit Goes Out with a Bang! – Export Credit Award East
By Rodricks Wong
Much to everyone’s relief, there has been a significant improvement in the risk appetite for shipping in 2010. Most traditional ship financiers have returned to the market in varying degrees and Asian banks have notably stepped up efforts to finance their domestic shipping clients. Despite so, loans have not returned to the levels seen in the heyday and 2010 was also the year where we saw the return of export credit finance in a big way. In Asia, export credit agencies especially The Export-Import Bank of China (“China Eximbank”) and Japan Bank for International Cooperation (“JBIC”) — formerly The Export-Import Bank of Japan — poured in billions of dollars to support the domestic shipbuilders last year, and many companies succeeded in closing long-term innovative export credit financings (see accompanying tables).
The Power of Export and Its Critical Lubricant – Export Credit Award West
By George Weltman
It is in every nation’s interest to export goods and services. A favorable balance of trade is an important measure of economic health. As an incentive to selling its goods, nations have created export credit agencies (“ECA”) to provide favorable financing terms to help clinch the sale. Fortunately, the OECD insists on standard terms, precluding cutthroat financing, and thereby leveling the playing field among the nations. With bank lending mainly rationed and the orderbook ballooning, the export credit agencies have stepped into the breach and continue to provide financing on highly favorable terms to shipowners as compared to what the banks are offering these days. Thus, it came as no surprise to us, that this category received an inordinate amount of nominations when compared to the rest. Interestingly, export credits deals ran the full gamut of structures, including loans, leases and project financings. As long as there was local content, the transaction was eligible. And, within the deals, the agencies themselves provided funding and/or guarantees. It is hard to imagine what the orderbook would look like today in terms of cancellations and delays if not for the ECAs.
A True Trail-blazer: Yangzijiang Shipbuilding – Equity Follow-on Award East
By Rodricks Wong
Every year, Marine Money hands out awards to market innovators who have been creative in tapping the various funding sources. In 2010, one exceptional company in Asia caught our attention in this year’s follow-on category: Yangzijiang Shipbuilding. Not only was the company the first Singapore listed entity to launch a Taiwan Depository Receipts (“TDRs”) listing, but this offering was also the first successful TDR sale by a mainland Chinese company, following warmer ties between Taiwan and China. Who would have thought that a Chinese shipbuilder could pull off such an impressive feat in Taiwan, where cross-strait relations have historically been marred by tensions and instability?
It is never easy to be a pioneer and we are impressed by Yangzijiang’s sheer determination. Within 10 weeks, Yangzijiang obtained approvals from all relevant authorities in Taiwan including the Taiwan Stock Exchange, the Taiwan Central Bank, Executive Yuan (“House of Administration”) and Securities and Futures Bureau of Taiwan Financial Supervisory Commission, which came exactly one month after China and Taiwan inked the Economic Cooperation Framework Agreement. Under the China friendly President Ma Ying-jeou administration, it is now possible for companies to deploy the funds they raise from Taiwanese investors entirely to finance investments in China.
No One Left Behind – Equity Follow-on Award West
By George Weltman
The follow-on equity offering is an essential tool in the Master Limited Partnership’s (“MLP”) toolkit. MLPs must grow and the source of that growth, generally, is the MLP’s parent company which inventories assets that are subsequently dropped down to the partnership. In most cases, the parent can transfer the associated loan with the asset, leaving an equity shortfall. But that is not a problem for these serial equity issuers. Retail investors can’t get enough of these high yielding shares. After all the revenues are visible and contracted over the long-term and, but for some reserves, all the cash flow is paid out as dividends. And with each dropdown the dividend paying capacity increases.
Two nominees for this award took this art to a new level last year. Teekay in three separate offerings sold 17.5 million common units raising a total of $412 million at an average all-in discount to last sale of 8.5%. All three equity raises were executed opportunistically, with offering prices above 90% of Teekay Offshore’s 52-week high share price at the time of offering. And, most importantly, in all three transactions, following the offering of more than 10% of pre-offering shares outstanding, the stock performed well and the green shoes were fully executed. BofA Merrill Lynch was a joint bookrunner on all three deals, followed by Citi and UBS on two and Morgan Stanley on one.
Courage of Their Convictions – IPO Award West
By George Weltman
With the last shipping IPO done in New York in June 2008, and an unsuccessful one at that, we welcomed the return of the IPO market in 2010. During the year, four shipping companies went public successfully, each in a different sector.
The first one to come to market was Peter G’s Baltic Trading Limited, which was designed as a vehicle for retail investors to play the BDI based upon its spot market employment strategy across the Capesize, Panamax and Supramax sectors. Public shareholders will have the opportunity to buy alongside the Genco management team, when they believe assets are at a cyclical low. Moreover, it is an investor friendly vehicle with a high dividend model, and little or no leverage involved. The company successfully sold 16.3 million shares at $14, the low end of the range, raising approximately $228 million. The bookrunners were Morgan Stanley and Dahlman Rose with Jefferies, Lazard and DnB NOR serving as co-managers.
Winning with Converts (Again) – Equity Linked Award
By Rodricks Wong
There have been surprisingly few equity linked offerings in the shipping and offshore space in 2010, but Pacific Basin has demonstrated once again that it is possible to raise big money even in troubled times. Two years ago in these pages, we gave the equity linked Deal of the Year to the company for rising up to the challenge and launching its convertible offering just when the financial debacle was about to unfold from a housing crisis to a credit crunch in late December of 2007. At that time, it was the largest convertible offering by an Asian shipping company ever, and the second largest convertible bond offering by a Hong Kong issuer since the beginning of 2006.
The situation was not very different when Pacific Basin launched its USD 230 million convertible bond offering last March. A crisis was simmering with Greece, but the Hong Kong listed dry bulk shipping company went ahead to defy the odds and concluded the second largest convertible bond offering ever done by a Asian shipping company, trumped only by its own USD 390 million convertible bonds in 2007. The main terms of the offering are shown in the accompanying table.
The Official Guide To Marine Finance Providers
Shipping Index
