Anchor Ship Fund Pushes Ahead with Second Ship Fund

The current uncertain economic environment has not derailed the ambition of Japan’s largest ship fund manager to launch its second ship investment fund. According to a recent article by Bloomberg, Anchor Ship Investment Co, which is backed by Mizuho Securities and Dai-ichi Life Insurance, could more than double its fleet to as many as 50 vessels.

Anchor Ship is putting together its second ship investment fund of about JPY 200 billion (USD 2.6 billion) that will take a different investment approach by shifting its focus from operators to Japanese owners. The fund is looking into the feasibility of co-investing with individual shipowners, by jointly setting up special purpose company (“SPC”) to own the vessel. The owner can subsequently bareboat charter the vessel from the SPC, manage and operate the ship and fulfil the time charter commitment with an operator. The financing of the vessel will come from equity contributed by both parties and bank debt. This structure essentially provides shipowners with an alternative funding solution, especially to those who had ordered their ships at high prices. The second fund is also receptive to idea of taking over ships that are cancelled by shipowners, but that will require the cooperation of all the parties including operators, banks, shipbuilders and in some cases the trading houses. And in an effort to diversify its investment portfolio, the fund manager is not ruling out possible investments in offshore assets such as floating production, storage and offloading (“FPSO”) units and drill ships.

Anchor Ship launched its first ship fund of JPY 200 billion or USD 1.6 billion in May 2007. The maiden fund focused mainly on acquiring large vessels that are on long term bare-boat charters of around 10 years with blue-chip Japanese and foreign operators, and has posted annual returns in excess of 5% since its inception even against the backdrop of a rising Japanese yen against the dollar. The fund had an initial IRR target of 10 – 20%. Anchor Ship has invested in 24 vessels, out of which 12 vessels comprising four container vessels, five tankers, a car carrier, one liquefied petroleum gas tanker and a bulk ship are currently on the water. The remaining 12 vessels, including three container ships, two capsize dry-bulk vessels, three panamax and four handysize will be added to the fleet in the near future. Its customers include Japanese shipping lines Nippon Yusen and Kawasaki Kisen Kaisha.

Private Equity Firms Charge into Shipping

A couple of eyebrow raising private equity deals in the shipping space were announced last  week, just before the global markets took a beating. HNA Group, a Chinese conglomerate and parent of rapidly expanding shipping company Grand China Logistics has agreed to acquire Singapore based container leasing company GE SeaCo, together with Hong Kong based private equity and advisory firm Bravia Capital, for USD 1 billion.

GE SeaCo’s joint venture partners, GE and SeaCo Ltd, will receive approximately USD 500 million and USD 528 million each for their interests in the joint venture and their respective owned container fleets (net of certain seller transaction costs). And following the completion of the acquisition, GE SeaCo will operate as a core business within HNA’s existing logistics and finance businesses. The acquisition is being funded by a combination of equity and a committed debt facility, arranged through Deutsche Bank and ING. Deutsche Bank Securities served as sole M&A advisor to the sellers in this transaction.

Adam Tan, Executive Director of HNA, pointed out in a press release that the acquisition would fit precisely into the group’s strategic plans to quickly grow its logistics and transport business. HNA currently owns and operates China’s fourth largest port, a fleet of 30 container ships and a container ship finance arm. GE SeaCo began life in 1998 as a 50/50 joint venture between GE Capital and SeaCo Ltd, and has grown to become the fifth largest player in the global marine container leasing industry owning and managing over 870,000 20-foot equivalent units.

And it is not just about Asian private equity firms buying up Western companies. A group of private investors, comprising First Reserve, WL Ross, Fairfax Financial Holdings, Morgan Creek Capital Management, PPM America Capital Partners and sovereign-wealth fund China Investment Corp, have committed to invest over USD 600 million in equity in private shipping company Diamond S Shipping. Diamond will in turn make use of the funds to acquire 30 MR product tankers from privately held Korean shipping company, Cido Tanker. With the acquisition of the 30 tankers, Diamond will quadruple the size of its fleet to 40 ships with an average age of 1.75 years. Incidentally, energy industry-focused firm First Reserve Corp is also Diamond S Shipping’s founding investor.

Mayer Brown JSM acted for Cido on this transaction which has been structured as a sale of shares in various vessel-owning companies while Jones Day advised Diamond S Shipping. The balance of the purchase price will be financed by Nordea Bank Finland and DnB Nor Bank ASA. We note that Cido’s fleet had been up for sale for quite some time. In 2010, DnB NOR sold 5 MR tankers for Cido to Blue Lines, a Dubai based shipping company backed by Middle Eastern funds.

China Shipping Nauticgreen Shelves USD 192 million IPO

World stock markets around the globe continue to fall sharply since Standard & Poor’s downgraded American debt for the first time in history last Friday, as fears that the twin debt crises in the US and Europe could drive the world economy into recession continue to shake investors’ confidence. Others believe that the markets are over-reacting and have accused large individual investors of “coordinated short-selling attacks” and preying on fragile market sentiments, which have prompted some countries to look into implementing a total ban on naked short selling, in order to stabilize the stock markets.

Without surprise, the market volatility has forced several IPO issuers to delay or drop plans to raise equity. China Shipping Nauticgreen, the container leasing unit of state-owned China Shipping Group, has postponed its plans to raise up to HKD 1.5 billion (USD 192 million) in Hong Kong, until market conditions improve. This decision was made despite the fact that the appointed bookrunners, China Merchants Securities and Deutsche Bank, were able to sell the entire institutional tranche after two days of book-building that began on August 1. Continue Reading

Slow Steaming Causes Headaches for Asian Companies

Slow steaming is expected to stay as liner companies continue to grapple with high fuel costs and excess capacity. The benefits of operating vessels at significantly reduced speed have been well documented in the major press during the shipping crisis. Apart from increased fuel savings and reduction in carbon dioxide emissions, slow steaming improves the fundamental supply-demand imbalance in container shipping, which is widely expected to worsen as more ultra large ships are scheduled for delivery this year. But what are the repercussions that slow steaming has on the supply chains in the Asia Pacific region?

According to a global survey of 290 logistics executives across the globe by Philadelphia-based forwarding logistics company BDP International, its Centrix consulting unit and St. Joseph’s University in April, slow steaming has resulted in longer journey times, delays in the arrival of goods, longer supply chains and lead times. “Companies affected by slow steaming are doing what they can to adjust,” said Mr Jacques Chan, BDP’s General Manager for Hong Kong and South China. “Nearly every industry is affected by slow steaming, and the managers of import and export focused businesses want a say in how the practice affects them.” Continue Reading

Polarcus Taps Export Finance

Last Thursday, Dubai-based marine geophysical specialist Polarcus Limited signed a term sheet for a bank facility of USD 410 million with DnB NOR Bank, DVB Bank, and the two Norwegian export credit agencies, Garanti-instituttet for Eksportkreditt (“GIEK”) and Eksportfinans. The facility will be drawn down in 5 tranches for the refinancing of existing debt related to three seismic vessels as well as for the construction of two newbuildings at Norway’s Ulstein Verft.

Eksportfinans will be contributing USD 260 million to the facility which will be used for the long term financing of the two new vessels under construction. The interest rate will be fixed at 2.85% in addition to 2.75% guarantee commission to GIEK and the commercial banks. The facility is subject to customary covenants, including minimum liquidity reserve of USD 25 million, minimum equity ratio (25% equity to total assets), minimum working capital of USD 22 million and a lock up clause for sales of shares currently belonging to the Zickerman family. The rest of the facility will be largely used to refinance existing senior debt from its bondholders. Continue Reading

Chinese ECAs Continue Support to Domestic Shipbuilders

China is finally normalising its expansionary monetary policy into the pre-crisis level, but tighter regulations and capital controls imposed by the central government will continue to pose challenges for Chinese lenders and affect the liquidity level they have for shipping. This however has not affected the level of support Chinese shipbuilders receive from Sinosure and the Export-Import Bank of China (“China Exim”).

Guangzhou based Yuexin Shipbuilding has signed a strategic cooperative agreement with Sinosure, in a move that will allow the privately owned Chinese shipbuilder the access to the credit insurance agency’s expertise that will come handy in the review of its business strategy. The shipbuilder specialises in the construction of offshore support vessels and has delivered over 60 vessels including DP2 Support/Maintenance Vessels, Multi-purpose Utility Vessels and Anchor Handling Tug/Supply Vessels since its establishment in 2000. Continue Reading

Chinese Ship Finance – On Hold?

By Nigel Ward, Partner, Norton Rose LLP

In 2008/9 the Chinese banks were looked to as the only remaining hope for international ship finance – the last pool of bank debt that could be harnessed to replace the withdrawing European banks and to satisfy the capital requirements of owners with existing new building orders in the shipyards of the world. Just as many other countries, but on a larger scale, China responded to the global financial crisis by injecting significant liquidity into its domestic market.

A large part of that liquidity was funnelled through the public sector banks and much of it was deployed in support of infrastructure projects sponsored by regional and municipal authorities, to pump up domestic consumption and to fund state owned enterprises in support of export  manufacturing, business investments and the acquisition of strategic resources abroad. Continue Reading

Asian Offshore & Energy Companies Attracted to Norwegian Capital Markets

Over the past two months, at least three Asia based offshore & energy companies have tapped the Norwegian capital markets. Jasper Explorer, a wholly owned subsidiary of Singapore listed Jasper Investments, raised USD 165 million successfully in secured bonds in May, Asia Offshore Drilling (“AOD”) completed its USD 80 million private share placement this month and this week KrisEnergy, a Singapore based E&P company with First Reserve as the majority owner, raised USD 85 million in a senior secured bond issue. Our sister publication Freshly Minted has provided excellent coverage on the Jasper and AOD transactions and the guts of the deal tables are provided below.

One common thread in the transactions was the role of Pareto Securities as the Sole Lead or Joint Lead Manager. The Norwegian investment bank has been actively involved in a number of equity and debt placements of over USD 4 billion over the last six months. Continue Reading

SapuraCrest and Kencana in RM 12 billion Merger

Two Bursa Malaysia listed oil and gas firms, SapuraCrest Petroleum and Kencana Petroleum, are in talks over a potential RM 12 billion (USD 3.95 billion) merger that will create one of the largest integrated oil services companies in the country. The structure of the merger will be carried out in the form of a sale to a SPV, in which a shell company Integral named Integral Key Sdn Bhd (“IKSB”) will acquire the assets and liabilities of both SapuraCrest and Kencana.

Under the buy-out offer, IKSB has offered SapuraCrest’s shareholders RM 5.87 billion (USD 1.95 billion) that will be satisfied by the issuance of 2.5 billion new ordinary shares in IKSB at an issue price of RM 2.00 per new IKSB share and a cash payment of RM 875 million (USD 291 million). IKSB has simultaneously submitted a RM 5.97 billion (USD 1.97 billion) offer to acquire the entire business and undertakings of Kencana, in the form of cash of RM 969 million (USD 322 million) and 2.5 billion new IKSB shares at the same issue price of RM 2.00. Both companies will be delisted from the exchange after the merger, and the new entity will be relisted under a different name.  Continue Reading

Bumi Armada Completes Mega USD 880 million IPO

The jittery market environment might have forced the withdrawal of several IPOs around the world in the recent weeks, but Bumi Armada’s successful equity raising has shown that there is still strong investor appetite for companies with exciting long term prospects. The Malaysian oil and gas services company and its existing shareholders raised RM 2.66 billion (USD 879 million) this week, making the offering the second largest in Southeast Asia this year after  Hutchison Port Holdings Trust. For further details, see the Guts of the Deal below.

According to the local media, the total demand for the institutional offering far exceeded supply by 40 times, resulting in the shares being priced at the upper half of its indicative price range at RM 3.03 (USD 1) a piece, or 19 times the company’s earnings in 2010. The retail tranche (excluding the employee offering of 21 million shares) was also oversubscribed by 9.5 times, which suggests that investors remain optimistic on the outlook of the oil and gas sector. Taking into account that 26.7% of the deal was actually made up secondary shares sold by existing shareholders, the company filled its coffers by a lesser amount of RM 1.852 billion (USD 612.7 million), that will go towards the repayment of existing bank debt and fund capital expenditure and working capital requirements. RM 775 million (USD 256 million) has been earmarked to repay unsecured revolving credits and bridging loans within six months, which this will provide the company interest savings of RM 24 million and a lower gearing ratio from 2.75 to below 1.  Continue Reading