Noble Turns to Leasing

As banks remain cautious in lending, shipping companies are increasingly dependent on the bond market for their capital needs. Leasing is often another option to consider, but it is often perceived to be costlier than other sources of funding. Managing Director and Head of Ship Lease Sander Scheepens at Standard Chartered pointed out in today’s market, this might not necessarily be the case. The weighted average cost of capital (“WACC”) even for well-managed shipping companies today can easily range between around 7-8%, based on an assumed cost of debt of 6%, cost of equity of 15% and an 80%/20% debt-to-equity ratio, which makes leasing a viable financing alternative in comparison.

Key advantages of leasing are straight forward (see accompanying table). Leasing offers 100% financing, allows the transfer of residual risk to the lessor and more importantly, can be extremely flexible in its structure to accommodate to the needs of the lessee. “The capital placement risk for bonds is much higher. The windows in the capital markets open and close very quickly, so you need to be very lucky when you are in the market for bonds. Leasing companies on the other hand are there throughout the cycle,” Mr. Scheepens added. Unlike bonds where companies will have to refinance at full cost at the end of the tenure, companies have a much lower outstanding amount to cope with and enjoy more flexibility at the end of the lease, depending on the leasing structure. There is also no need for companies to deal with value maintenance clauses, material adverse clauses or other covenants prevalent in bank loans. Continue Reading

Manage Your Expectations

A lot has been written in these pages about Chinese banks and their growing influence in the global ship finance landscape. But beneath the many widely publicized stories of foreign shipowners securing millions of dollars from the Chinese banks, one cannot help but wonder if the Chinese banks are really well on their way into becoming major providers of global ship finance and if so, how long this process will take.

It is generally accepted that the financial crisis in the West might have just provided Chinese banks a unique opportunity to play a greater role in global ship finance. In 2007, the ship finance market was highly competitive, driven by a large number of international banks, mostly European. But the picture has changed dramatically over the past four years as a result of the global financial crisis. Today, several of these large shipping banks are adversely affected by the crisis and many are still rebuilding their balance sheets. “In 2010, Western banks are still dealing with the legacy of the downturn. Funding rates remain significantly higher than pre-crisis and uncertainty
remains about asset values and earnings rates,” pointed out Russell Beardmore, Regional Head of Shipping Finance from Standard Chartered Bank at Marine Money’s conference in Shanghai last week. But the question remains whether the Chinese banks are ready and well-equipped to take advantage of these new opportunities presented to them. Continue Reading

Malaysia Marine and Heavy Engineering Moves Forward with IPO

MISC is one step closer to the listing of its shipbuilding arm. Europe’s second-largest oilfield-services provider Technip Société Anonyme has agreed to subscribe between 128 million and up to 158.4 million shares or an equivalent between 8.0% and 9.9% of the enlarged and paid-up capital of Malaysia Marine and Heavy Engineering (“MMHE”). Under the binding term sheets, Technip will pay a 2% premium to the Institutional price of MMHE shares.

Bumi Armada Subsidiary Finds Domestic Support

Armada Marine Contractors Caspian has inked a USD 238 milion eight year term loan with six domestic financial institutions in Malaysia. The loan is guaranteed by Bumi Armanda, Malaysia’s largest owner and operator of offshore vessels. Mandated lead arrangers include OCBC Bank (Malaysia), RHB Investment Bank, CIMB Investment Bank, Malayan Banking, AmInvestment Bank and Al-Rajhi Banking & Investment Corp (Malaysia).

Last August, Bumi Armada found similar success with its FPSO (floating, production, storage and offloading vessel) project financing despite the challenging market conditions. The company secured a five year USD 190 million limited recourse loan facility with 7 lenders, comprising Sumitomo Mitsui Banking Corporation (“SMBC”), Bance UBAE S.P.a,  Australian and New Zealand Banking Group, ABN AMRO Bank, WestLB, Malayan Banking and Standard Chartered Bank. The funding commitments were scaled back from an initial USD 260 million but an interesting aspect was that SACE, the Italian Export Credit Agency (“ECA”) provided guarantee for the USD 100 million ECA tranche. SMBC acted as structuring bank, documentation bank and SACE coordinator in this transaction.

ABN AMRO Finances Another KDB vessel

ABN AMRO Bank, Singapore Branch has recently provided pre-delivery and post-delivery senior debt facilities to a Panamanian single purpose company established under the Korea Development Bank Shipping Fund Program for the acquisition of a capesize class dry bulk carrier.

The carrier was sold to it by STX Pan Ocean and will be bareboat chartered back to the company on delivery and, subsequently, sub-chartered out to a Hong Kong leasing company. The Singapore office of Watson, Farley & Williams advised ABN AMRO Bank the lenders in this transaction.

Vinalines Places Bonds for USD 52 million

State-owned shipping and port operator Vietnam National Shipping Lines (“Vinalines”) sold VND 1 trillion (USD 52.08 million) bonds in the domestic markets for vessel acquisitions and new project development. The three year senior unsecured bonds carry an annual coupon rate of 14.5% in the first year, and floating coupon rates in the second and third years, to be computed based on the average 12-month deposit rate plus 3.5% per annum. We understand that domestic banks and investment funds were the primary buyers of these bonds and Standard Chartered Bank was the sole arranger and book runner for the bond issue. Continue Reading

Bits and Bobs on China

For everyone interested in China, we found some recent headlines that you might appreciate. Enjoy!

Hui Shang Bank Joins Hands with Dong Fang Shipbuilding: China Exim Bank is certainly not the only financial institution, offering domestic shipbuilders credit support. Based in Anhui province in China, the regional bank has recently provided RMB 250 million (USD 36.8 million) credit to China Dong Fang Shipbuilding. 

Pacific International Lines secures ECA Support: Old news but still relevant news! Pacific International Lines has joined the group of foreign shipowners who has successfully tapped Chinese ECA support. The second largest containership operator in Singapore secured a USD 517 million 10 year buyer’s credit from Bank of China in 2009. The Sinosure backed facility will be used towards its newbuilding orders at Dalian Shipbuilding Industry. This is also Bank of China’s very first ECA backed transaction for a foreign shipowner.   Continue Reading

The Action Continues at China Exim!

Even as many are trickling back from their summer holidays, the Export-Import Bank of China (“China Exim Bank”) has no time to rest on its laurels as the bank continues to work hard in providing financing to both foreign shipowners and domestic shipbuilders. Last week, the policy bank signed a massive RMB 50 billion (USD 7.35 billion) long-term strategic agreement with Jiangsu Rongsheng Heavy Industries. This is the largest agreement that the policy bank has ever signed with a non-state owned shipbuilder. The cooperation will entail the provision of the different types of bank guarantees required in Jiangsu Rongsheng’s business which include refund guarantees, tender bonds, performance bonds, payment guarantees and seller’s credit. Over RMB 10 billion (USD 1.47 billion) will be set aside for seller’s credit. The latest strategic alliance will greatly enhance Jiangsu Rongsheng’s competitiveness in attracting new shipbuilding orders. Jiangsu Rongsheng is also rumoured to have appointed Morgan Stanley and JP Morgan to revive its IPO plans to raise at least USD 700 million in Hong Kong in the fourth quarter of this year. Continue Reading

BLT Gets Lukewarm Response

It remains challenging for shipping companies to tap the capital markets in Asia, and many are still waiting for any window of opportunity to raise funds amid the uncertain global macro environment. In recent months, there have been a number of bond issues and share offerings, but deal sizes tend to be small and not more than USD 100 million. Kudos goes to Berlian Laju Tanker (“BLT”) for having concluded its latest rights offering, but it was not without any difficulties.  

In May, the Indonesian chemical tanker owner and operator proposed a one-for-one rights issue to raise up to USD 131 million. The larger than expected discount offered (39.7% discount from its theoretical ex-rights price) surprised the market and led to the company’s share price tumbling by 18.6% in a single day. Investment bankers we spoke to pointed out that the large discount was not excessive and in line with the market conditions at that point of time. But it remains unclear why BLT continued with its rights issue despite the less than ideal valuation. We were told that BLT has no immediate issues with its lending banks and the rights issue was a part of the management’s continuous efforts in managing its balance sheet. Continue Reading

Silk Holdings Goes Islamic

The rapidly growing offshore oil and gas industry in this region continues to attract strong investor interest, and new players are entering the market to take advantage of the attractive charter rates commanded by offshore vessels and equipment. Malaysia’s Silk Holdings is one such example.

Listed on the mainboard of Bursa Malaysia, Silk Holdings’s main business is to own and operate a 37 km highway in Malaysia. In 2009, the financially distressed company went through a comprehensive restructuring scheme and identified the oil and gas sector as a potential new business driver. It subsequently went on to acquire AQL Aman, the holding company that owns 70% of offshore marine support services company Jasa Merin, with the remaining 30% stake held by the Terengganu State Government. Today, the company operates a fleet of 12 offshore support vessels, providing offshore support services to leading oil majors such as Petronas and Exxon Mobil and plans to take delivery of another four vessels by the end of this year. Continue Reading