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“Out damned spot! Out I say!” – The Evolution of the Spot Market
By George Weltman
Who would have thought that Shakespeare’s Lady Macbeth could have prognosticated the evolution of spot or voyage trading in the dry bulk markets? For clarification, a voyage charter is the hiring of a vessel and crew for a voyage between a load port and a discharge port. The charterer pays the vessel owner on a per-ton or lump sum basis. The owner pays the port costs (excluding stevedoring), fuel costs and crew costs. This is the way shipping has worked since the first cargo was carried and is still a mainstay of the tanker market. For a long while, the spot market took a back seat to the time charter market in the dry bulk sector, as banks and investors were more risk averse, and preferred the regular payments of a time charter. Interest in the spot market has lately revived as the public companies seek to profit from market volatility or, at the least, avoid fixing long in a low market. Today, bulkers are fixed upon indices with floors, ceilings and profit sharing. IPOs have been marketed based upon pool employment and corporate vehicles, old and new, are structured with no debt in order to play the spot market, while keeping the downside protected.
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Looking for a Ship – If Cargo Is the Chicken & the Ship Is the Egg – We Start With the Egg.
By Robert Kunkel, AMTECH
The data supporting China’s rise to the top of shipbuilding demands a second look at the historical analysis of supply (ships) and demand (cargo). Putting the cargo demand aside for the moment and placing the spotlight on China’s shipyard capacity, let’s take a light look at the supply side and how this nation’s embrace of shipbuilding may skew the number of actual deliveries from what may be a “virtual” order book.
The collapse of the dry bulk “supercycle” resulted in a dramatic reduction of Chinese shipbuilding orders through the end of 2008. Prior to the market collapse, established Chinese yards boasted full order books well into 2013. Determining the true amendment to the book after the downturn is a difficult task and we wonder how many of those orders were actually delayed or canceled. In this sector, some believe the ships missing in action at the time of reported delivery could be as high as 40% of the order book.
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US Capital Markets Fuel Corporate Activity – Wall Street Firms Execute For Clients
Marine Money Capital Market League Tables Highlight
DnB NOR, Deutsche, Citi and Jefferies
Marine Money’s survey of the global banking community in the spring told a dramatic story. Banks prefer lending to and doing business with public shipping companies. Transparency, performance and the simple fact that public company managements with their access to capital have been among the most active in the business – that activity of course translates into fees – makes the case that capital markets access and execution capability are important skills. We celebrate here the Capital Markets performance of the leading Wall Street banks and their first half contributions to the shipping community.
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Super Singapore
More than 515 delegates came to the newly opened Marina Bay Sands casino and conference center for Marine Money’s Singapore week conference and stayed until the IRI reception at the very end at 1 Altitude the new highest alfresco bar in Singaopre where the 360 degree view was as big as the prospects for Asia and shipping (except MRs) appeared throughout the two day conference.
Dr. Marc Faber’s challenging, entertaining and ultimately gloomy forecast (buy a garden and get out of cities where bombs and ruin alone will prosper) was largely forgotten by the end where nine of Asia’s most important bankers were largely hopeful, clearly clubby and open for business (except HSH who clearly was effectively tidying up its house with an eye for the future, so not entirely bearish).
“DryRigs”
We began the week reading Ole Slorer’s initial research note on DryShips. Morgan Stanley’s shipping analyst upgraded the shares based upon his assessment that:
“A firmer tone in the ultra-deepwater drilling market recently may allow DRYS to scale down its risky and under-capitalized rig expansion…We believe the sale of two rigs would remove the financing overhang from the $1.4bn estimated capex for DRYS’s four unfunded newbuilds that still lack contracts. Assuming DRYS completes its announced $350m ATM offering, such an asset sale could put an end to our concerns of further dilution from further offerings related to the drillships. Despite the potential book loss in excess of $440m and the negative impact on the company’s projected EPS (by 15% in 2011 and 27% in 2012), a sale at around $600m per drillship could allow the stock to appreciate 30-40% in the near term.”
And Another Exciting Career Move
On Tuesday, Teekay Corporation announced that it’s President and CEO Bjorn Moller intends to retire from these roles in the spring of 2011 after 25 years of service. As Sean Day, Teekay’s Chairman notes, “Bjorn has been an exceptional and visionary leader of Teekay during his time as CEO. He has done a superb job of developing and implementing the strategies that have transformed the Company into a world leader in the marine energy industry over the past decade. We are grateful to Bjorn for his enormous passion and commitment to Teekay over so many years. I am pleased that Bjorn has accepted our invitation to remain on our Board of Directors after he steps down next spring so that we may continue to draw on his tremendous experience and expertise.”
Going Public
The expression going public does not only refer to companies. In this instance, our neighbor and good friend Oivind Lorentzen seeking greater challenges beyond those offered by his private interests in shipping has accepted the position of Chief Executive Officer of SEACOR Holdings Inc., where he will have the enviable position of working hand-in-hand with Executive Chairman Charles Fabrikant, his predecessor in that role and the founder of the company.
QIB Mortgagees – Navios Maritime Acquisition Seeks Institutional Asset Lenders
Today, Navios Maritime Acquisition announced that the company and, its wholly owned finance subsidiary, Navios Acquisition Finance (US) intend to place privately approximately $375 million of first priority mortgage notes due in 2017. The offering is targeted to 144A investors in the U.S. and to foreign investors.
With its relatively short-term, the financing appears to be a bridge to the return of the banks. The fact that the notes are secured should ameliorate the normally higher interest rate, with the company further benefiting from interest only, which is also typical of institutional transactions.
JACCAR Investments Expands and Diversifies – New Joint Venture with CECO
In addition to his recognized day job as Chairman and CEO of Bourbon, Jacques de Chateauvieux is an astute investor and one we wish we could follow. Through his private investment company, JACCAR Holdings, Mr. de Chateauvieux purchased Bourbon shares in 1984. Then, in 2004, as Chinese shipbuilding began to appear on westerner’s radar, he invested in the Sinopacific Shipbuilding Group, where he also serves as Executive Manager. There are also investments in industrial fishing and real estate.
About 10 days ago, JACCAR Investments entered into contracts for the construction of eight Tiger 12,000 cbm semi-pressurized and refrigerated LEG carriers with affiliate, Sinopacific Offshore & Engineering. The vessels, with deliveries commencing in 2012, are state of the art liquid ethylene gas carriers, which were designed in-house. Among the innovative and cost saving features are:
Knightsbridge Follows-on and Continues Diversification
On Monday, Knightsbridge Tankers announced an underwritten public offering of 4.25 million shares, offered pursuant to the company’s effective shelf registration. The shares were priced Wednesday after the market closed at $19 per share, a 12.7% discount from the closing price of the shares the day preceding the announcement. The discount largely reflects the current volatility of the markets.
Proceeds of the offering will be used to repay existing indebtedness, fund a portion of the purchase price of a newbuilding Capesize bulker that the Company has agreed to purchase from Golden Ocean Group Limited, with the balance expected to be used to fund future vessel acquisitions, for working capital and for general corporate purposes.
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