Korean Shipping Companies Still Not Out of the Woods

Samho Shipping has joined the growing list of South Korean shipping companies that have filed for court protection since the outbreak of the shipping crisis in 2008.

In 2010 alone, Samho Shipping suffered a KRW 43.2 billion (USD 40.1 million) operating loss, largely due to depressed freight rates in the chemical tanker sector. The company had tried to improve its liquidity position by offloading two 17,500 dwt bulk carriers, via sale and leaseback arrangements worth USD 41 million under Korea Development Bank’s “Let’s Together Shipping Fund”. But despite the proactive measures, the company’s liquidity problem continued to deteriorate. This was partly due to its financial commitment as a payment guarantor for its associate company Samho Shipbuilding and the hijack of its two vessels M/V Samho Dream and M/V Samho Jewelry by pirates drove the final nail in the company’s coffin. Creditors that have exposure to Samho are said to include Busan Bank, Kyongnam Bank, Nyonghup Bank and Korea Development Bank.   Continue Reading

UASC seals USD 140 million facility with Gulf Bank

Even though there have been signs of improvement in the banking market, capital remains short in supply worldwide. But United Arab Shipping Company (“UASC”) has proven that it is not impossible to turn ambitious plans into reality, with the support from regional banks and export credit agencies.

Last Tuesday, UASC announced the signing of a USD 140 million senior term loan facility with Gulf Bank. The company will be drawing down the loan to invest in its growth and network expansion plans, as well as the enhancement of its new vessels with waste heat recovery systems to reduce the carbon footprint of its ships. We note that this is not UASC’s first transaction with Gulf Bank. In February 2010, the container liner had also secured a USD 87 million loan from Kuwait’s second largest commercial bank to partly finance its nine 13,100 TEU vessels ordered at Samsung Heavy Industries in 2008, reportedly worth USD 1.5 billion. Continue Reading

USD 1.2 billion MOL bonds On the Horizon

Japanese mega carrier Mitsui O.S.K. Lines (“MOL”) has applied for approval from the Ministry of Finance to sell up to JPY 100 billion (USD 1.2 billion) worth of bonds. If this comes into fruition, it will be the first shipping bond issuance by a Japanese shipping company since January 2010.

Even though R&I has assigned a high preliminary rating of “AA-” for the bonds and re-affirmed MOL’s issuer rating of “AA-”, the credit rating agency has expressed concerns with the acute earnings fluctuations in the company’s container shipping business and the worsening oversupply situation in the dry bulk sector. “If MOL is slow to improve its financial base due to weak earnings and cash flows, it will be difficult to keep the current credit rating,” it said in a statement. Continue Reading

Raising Money in Asia – The Odfjell Way

Chemical tanker operators have largely posted lacklustre 2010 results amid a very challenging operating environment plagued by over capacity. But despite this, Odfjell’s lenders and financial partners have maintained their faith and support in the company’s business model and strategy. Marine Money speaks to President and CEO Jan Hammer and Vice President – Finance & Investment Sylvia Low on the challenges faced by the Norwegian chemical carrier and terminal operator and its success in tapping financing in Asia.

With a fleet of about 86 owned and chartered chemical tankers and interests in 9 tank terminals at strategic locations around the world, Odfjell is a leading player in the global market for transportation and storage of chemical and other speciality bulk liquids. Odfjell has been consistently delivering positive cash flow in the last ten years prior to 2010, but the company ran into losses in 2010 due to continued weakness in shipping activity and capacity glut. Coupled with impairment costs and taxes, Odfjell recorded a loss of USD 79 million in 2010, compared to a profit of USD 121 million in 2009.   Continue Reading

Courage Marine Still Wants HK listing

Taiwanese dry bulk operator Courage Marine is also seeking a listing without raising any new equity. The company dropped earlier plans to issue new shares at no less than 10% discount to its shares listed on the Singapore Exchange, citing “unfavourable prevailing market sentiments and conditions”. Instead, the company is listing its entire issued capital on the Hong Kong Stock Exchange via an introduction listing, where no new shares will be offered. In February, the company appointed Haitong International Capital for the listing of up to 27.6 million additional new shares and the proceeds were initially earmarked for the purchase of a second-hand Capesize or Panamax dry bulk vessel.

From Selling Ceramic Tiles to Building Offshore Vessels

Beneath this intriguing headline lies an interesting story. What would you do if you want to list your privately held Malaysia based shipbuilding company on the Mainboard of the Singapore Exchange? Nam Cheong took an unconventional approach and executed a back-door listing, without raising any equity, through Eagle Brand Holdings (“Eagle Brand”) – a China based manufacturer of ceramic tiles.

For Nam Cheong, Eagle Brand is an ideal reverse take-over candidate: it is a cash positive shell company without any manufacturing activity, hardly any liability and more importantly, it has a management team that is willing to sell out. In 2009, the group divested its entire equity stakes in the manufacturing of ceramic tiles and began its search for alternative investment opportunities. After the completion of the divestment and a substantial capital distribution that followed, the management held numerous negotiations with interested corporations to realise its reverse-takeover plans and Nam Cheong was eventually the chosen suitor. Continue Reading

Key Takeaways from Sea Asia 2011

Key Takeaways from Sea Asia 2011

We attended conference sessions for Sea Asia 2011 last week and here are some of the key issues and concerns discussed.

On Container Shipping:

The strategy of chartering-in tonnage to maintain flexibility may not turn out as well as envisaged:

Kenichi Kuroya, President and CEO of K-Line, pointed out that one of the key lessons that the Japanese container giant has learnt during the downturn was the error of chartering in too many vessels. This has created “tremendous difficulty” for the operator in seeking a reduction in shipping capacity in line with market conditions. “We could have lay up or sold the excess vessels if we had owned them,” he explained. Moving forward, K-line will review its fleet of container vessels and increase its ownership to 30% within the next 7 to 10 years. Another 30% of the tonnage will be fulfilled by long term charters and the remaining 30% on short term.

Consolidation is beneficial in theory but difficult to execute in reality:

Thomas Riber Knudsen, Chief Executive, Maersk Line, Asia Pacific Region pointed out that three big liner companies are dominating the market and the rest of the companies are occupying market shares between 2 – 5%. Consolidation is inevitable as smaller carriers find it increasingly difficult to compete on costs. Larger carriers are aggressively pursuing greater economies of scale by ordering larger and more fuel efficient vessels. Randy Chen, Special Assistant to the President, Wan Hai Lines Limited, however, highlighted that there are practical difficulties when it comes to mergers and acquisitions in Asia due to cultural differences and consolidating networks effectively to achieve higher utilization. “How do you consolidate these players with 2% market share each who are essentially Asian liners – Korean, Japanese, Chinese and Taiwanese liners? How easy is it to consolidate the networks of these liner companies?” he questioned.   Continue Reading

The Emergence of Industrial Shipping and Why Banks Like This Story

The shift of commodity and industrial players into vessel ownership is not a new development, but the controversies revolving surrounding it were once again thrust into the limelight during Sea Asia 2011 in Singapore last week. Citing STX Offshore & Shipbuilding as an example, Standard Chartered’s Head of Shipping Nigel Anton pointed out that only 1 % of the pre 2007 orders received by the Korean shipbuilder were from ‘Industrial’ owners, but this proportion has increased to 10% post 2007. Driven by the extreme volatility in time charter rates & asset values in the last decade, many of these companies are looking at vertical integration and securing the value chain, and more importantly establishing greater control over freight rates, which has become a vital competitive advantage in an increasingly global market place.

Archer Daniels Midland (ADM) Grain Company is one of the many large charterers making an entry into ship owning, primarily with the objective of converting variable costs to fixed costs. In a recent edition of the Wilhelmsen Ship Management Newsletter, Y. K. Chandra, Vice President Fleet Operations and Planning said that the financial collapse in late 2008 presented the company with a good opportunity to acquire vessels given that resale values for such assets had plunged to the lowest levels in over a decade. “With a tight grip on our operating expenses, we could use our owned fleet as a physical hedge against an ever volatile freight market while accomplishing another goal: to vertically integrate our delivery system, our food supply chain,” he added. ADM operates the world’s premier crop origination and transportation networks, connecting crops and markets in more than 60 countries. Continue Reading

K-SURE backed Project Financing for a USD 168 million Caspian Sea Drilling Rig

A syndicate of international lenders led by Bank of America N.A. as agent has provided an export-credit backed USD 168 million project financing for a drilling rig for use in the Zhambyl oil field in the Kazakh sector of the Caspian Sea. The project sponsors are led by Korea National Oil Corporation with the other project sponsors being SK Innovation Co., Ltd, Samsung C&T
Corporation, LG International Corporation, Aju Corporation, Daesung Industrial Co., Ltd, Daewoo Shipbuilding & Marine Engineering Co., Ltd and Hyundai Hysco Co., Ltd.

The drilling rig will be constructed by Daewoo Shipbuilding & Marine Engineering Co., Ltd. and is intended to be employed by the state-owned KazMunayGas of Kazakhstan.  The financing was backed by credit insurance from Korea Trade Insurance Corporation (K-Sure) and arranged by Mizuho Corporate Bank Ltd, Bank of America Leasing & Capital LLC and WestLB AG.

The Singapore office of Watson, Farley & Williams acted as advisor to the international syndicate.

BLT Clarifies on Indonesian Cabotage

While BLT counts on the Indonesian cabotage principle as an important engine of growth, there are concerns that the Indonesian government might be exempting the entire offshore sector or the oil and gas tankers from cabotage to avoid any unwelcomed disruptions of offshore oil production. This could dampen investor interest in the listing of its wholly owned subsidiary Buana Listya.

CIMB in its research note pointed out that “BLT has banked on the implementation of the cabotage requirements to help it secure some domestic Floating Production storage and Offloading contracts. Abandonment of the cabotage rule could result in a more competitive environment for future FPSO bids.” BLT’s management was quick in rebuttal and shed some light on this latest development.  Continue Reading