Hair of the Dog

By Robert Kunkel

Harry had kept bar at the Four Seasons in New York City for nearly ten years. He leaned back against the polished mahogany liquor shelf remembering evenings past as he straightened his black bowtie and brushed the wrinkles out of the spotless white apron he wore around his waist. Yes sir, Harry had seen it all from behind that bar.

Two men in dark, tailored Italian suits entered through the breezeway, smiled at the bartender, and took two stools.  Harry sized them up quickly: one quick drink, just passing through, one a definite Wall Street type, maybe a banker, the second a little more on the entrepreneurial side, maybe even a salesman. Regardless, if either guess was correct, they would be in and out as soon as the bottom of the first glass was empty.
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Pareto and Odin Products Confab

Last week, Pareto Securities and Odin Group hosted a seminar on the product market and the news was generally good. In the introductory presentation on the market, Pareto’s Martin Korsvold, highlighted the “Positive Delta”, the fact that rates are at an historic low levels and upside is likely as market balance recovers. This outlook is supported by:
•    A manageable orderbook compared to other shipping sectors
•    Demand to outstrip supply going forward
•    The larger trend of more oil being refined closer to production areas
•    Limited investor knowledge of products compared to crude shipping, thereby creating opportunities
•    Oil demand trend gives a bullish backdrop as the oil market has tightened significantly in 2010 driven by strong demand growth, as evidenced by declining inventories.
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Why We Like Norwegian Bonds

We are outspoken in our belief in the importance of the Norwegian bond market, which has become a major alternative funding source, filling in the gaps left by the impact of the financial crisis on the banks and traditional lenders. But who better to tell the story then the Norwegians themselves, as they did at our recent New York conference.

Pareto’s Niels Lyng-Olsen provided a broad overview of the market in his excellent presentation. Looking at the broad market, Mr. Lyng-Olsen noted that the high yield markets, in general, are active with record issuance volumes and decreasing yields. In our world, the traditional banks continue to be constrained, with respect to new lending, making the bond market an important and attractive alternative source of refinancing and capex funding for the shipping and offshore sectors. The dichotomy between the two markets is clearly evident in the following two slides (from Pareto’s presentation) which illustrate the return of bond yields to pre-financial crisis levels, while the cost of bank funding remains high.
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A “MAX” Change in Dry Bulk?

By Robert Kunkel, AMTECH

Vale’s recent announcement that the first of their 400,000 deadweight “Chinamax” bulk carriers will roll out in the fourth quarter 2011 has raised some interesting comments in the dry bulk market. Drewry reported the deliveries will be the largest influence in dry bulk for many years to come as they enter a market already teetering on overcapacity issues. Even BIMCO chimed in with their concerns. The reports indicate that the ships will slash the cost of shipping commodities, reduce freight rates, and delay the dry market recovery. Sounds like sour grapes, but we understand that the owners of larger Capesize tonnage should be concerned how the distribution of iron ore and coal will adjust with these new ship sizes and their economies of scale. Not to mention the fact that Vale’s direct relationship with the Chinese steel makers looks to guarantee a successful logistical change.
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Should We Tag it – T.E.U. Envy?

By Robert Kunkel, AMTECH

A recent announcement by Maersk has turned the box boat sector on its ears again. Maersk has decided to go larger and build what we will now label “PPNP” or Post Post New Panamax. Others have tagged the ships “Malacca max” but being politically correct it is our opinion that we should shy away from that nickname based upon our street based knowledge of the Greek language.
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DryShips Prices

On Wednesday, DryShips Inc. announced, in line with its expected time frame, that its wholly-owned subsidiary, Ocean Rig UDW Inc. has priced its private placement share offering at $17.50/share for total gross proceeds of $500 million, implying an offering size of approximately 28.6 million shares. At the conclusion of the offering, Dry Ships will own approximately 78% of Ocean Rig. The transaction is expected to close December 20th.
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Problem Solving – Chinese Style

We are going to go out on a limb and read between the lines of Safe Bulkers’ press release this past Tuesday. We apologize in advance for any errors, but the release is carefully crafted to minimize details and therefore left us to use our imagination.

The company announced that it had entered into a shipbuilding contract for the construction of a Chinese built 180,000 DWT Capesize bulkcarrier at a contracted price of $53 million (less than the current CRS assessment of $57 million), with an expected delivery in the 3Q 2012. The short delivery time frame is the first hint and we feel comfortable in concluding that the vessel is a re-sale probably ordered in 2008 at a price of ~$88 million, based also upon CRS estimates as of year-end.  No payment terms are provided nor is there any indication whether Chinese banks or export financing is attached.
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The Latest Commodore – Ms. Frangou Breaks Ranks

Ms. Angeliki Frangou, Chairman & CEO of the Navios Group of companies, has been named as the Connecticut Maritime Association (CMA) Commodore for the year 2011. The Award is given each year to a person in the international maritime industry who has contributed to the growth and development of the industry.
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Back to Basics – The road to Success

By Robert Kunkel – AMTECH

It is not often these days to see a shipping deal that goes back to old school basics. A project that covers all the bases, reduces the investment risk and addresses the technical and operational requirements of the trade. Having the right cargo cover, the right ship, the right term of employment together is a beautiful thing.

D/S NORDEN A/S recently announced a contract to build two Handysize newbuildings at Onomichi Dockyard in Japan. Yes Japan, if you can believe it. A 37,000 deadweight ice class vessel, designed to meet specific requirements for the transportation of alumina from Latin America to Canada for Rio Tinto. The two ships are reported to be delivered in the second half of 2012 and the first half of 2013 and will enter a long term charter with the one of the largest dry bulk charterers in the world.
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Secondary Offerings

Recently, two companies filed registration statements allowing for the registration and the sale of shares granted as partial consideration to sellers in recent acquisitions.

First, Teekay LNG registered 1,052,749 common units, representing 1.9% of the outstanding units, on behalf of Exmar NV. Exmar received these shares as partial payment for the sale of a 50% interest in two LNG carriers for an equity purchase price of $70 million, of which $35 million was paid in cash and the balance in these common units.
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