Shipbuilders Get Domestic Support

China Rongsheng Heavy Industries (“China Rongsheng”) has proved to be a clear favourite among Chinese banks, after securing (yet again) another massive facility with China Development Bank (“CDB”). On 22 December 2011, the Hong Kong listed shipbuilder signed a USD 100 million loan facility with CDB, Hong Kong branch. The offshore USD dollar loan marked a significant milestone for CDB Hong Kong that was set up in 2009 as the bank’s launch pad to serve Chinese enterprises
internationally.

One of Taiwan’s largest private shipbuilders, Jong Shyn Shipbuilding, had also found similar success with the domestic lenders, having inked a TWD 1.2 billion (USD 39.7 million) five year syndicated facility through joint bookrunners and mandated lead arrangers – Taichung Commercial Bank, Taiwan Business Bank, and Taiwan Cooperative Bank. Agricultural Bank of Taiwan, Bank of Kaohsiung, Bank SinoPac, Chang Hwa Commercial Bank, Cosmos Bank Taiwan, Hua Nan Commercial Bank and Shanghai Commercial & Savings Bank took part as participants.  Continue Reading

Hanjin Heavy Industries Mulls Bond Offering

Bond markets in Asia continue to serve as a major source of funding for many shipping and shipbuilding companies. Bonds do not dilute existing equity, mostly sold on an unsecured basis, and more importantly offer longer repayment periods at lower costs compared to bank debt.

This week, Korean shipbuilder Hanjin Heavy Industries & Construction is hoping to sell KRW 120 billion (USD 103.3 million) three year domestic bonds. The bonds are expected to be priced at 6.1%, marginally higher than the company’s KRW 150 billion corporate bonds issued in November 2011. Meritz Securities, Korea Investment & Securities, Woori Investment & Securities, Korea Development Bank, Daewoo Securities, Shinhan Investment Corp and Hyundai Securities are reportedly participants in this offering.

COSCO Holdings Raises RMB 4 billion Domestic Bonds

Investors have appeared to leave China COSCO Holdings’ recent fiasco over charter party disputes behind them, as evident from the successful closing of company’s latest jumbo bond offering. The listed flagship and subsidiary of China Ocean Shipping (Group) Company sold RMB 4 billion (USD 626 million) seven year medium term notes (“MTN”), with lead manager China International Capital Corporation and co-lead Bank of China, just a month before 2011 came to a close.

Investors might be forgiving, but the terms of this piece of new debt were less favourable, compared to a similar MTN issue the company concluded in 3 September 2010. The RMB 5 billion MTN issue in 2010 was not only larger in size, but also offered investors a much lower coupon of 4.35% for a longer 10 year tenure. The latest unsecured notes offer investors an annual coupon of 5.45% for seven years, suggesting that even large state-owned companies in China are not immune to the wider difficulties in the capital markets. Proceeds of the latest bond issue will be set aside for working capital and the key terms of the issue are shown in the Guts of the Deal table accompanying this article. Continue Reading

Counter Cyclical Lending

Subscribers and friends of Marine Money will long have heard bankers talking about counter cyclical lending. That great opportunity that comes along during each down cycle where banks can lend against depressed asset prices and then sit back and relax as the market improves and the loan to asset ratio reduces and reduces. What bliss.

So here we are in early 2012. Surely this is the time to lend with a severely depressed shipping market and vessel values limping downwards, indeed to a fraction of what they were only a few years ago. Some commentators are suggesting that on an inflation adjusted basis new vessels are now cheaper than they have ever been. Granted, cash flow is not very exciting and the outlook for the rest of the year is decidedly limp, but can asset values fall that much further.

So where are all the counter cyclical lenders? Well, as always happens most ship lenders are just too preoccupied looking after their troubled shipping portfolios to be able to even consider new lending. The depressed market has become the nightmare rather than the fairy tale opportunity. What seemed like a harmless 60% loan a few years ago is now unfortunately a 120% loan and with no solution in sight. Shipping bankers are very busy for the wrong reasons.

But there are some banks which are able and willing to lend in 2012, and they can cherry pick the deals they choose to do.  Banks such as DVB Bank, ABN AMRO, Nord LB, NIBC, Standard Chartered, Nordea, DNB and precious few others appear to be bucking the trend and devoting capital to shipping. Not a lot, in the whole scheme of things, but enough to make an adequate return for the banks, and only to carefully selected clients. And it is truly counter cyclical – loan to asset
ratios of close to 50%, usually a requirement for a period of fixed employment to a high calibre charterer, often a parent guarantee, and more than likely a margin hovering around 300 basis points or more. Have those banks ever had it better?

What of the Chinese banks? Though not very experienced in shipping, are they going to be smart counter cyclical lenders? Well, curiously enough, Chinese banks were too expensive for most top European owners in 2011. The margin of 400 basis points and north was simply too hard a pill to swallow. But with those few European banks still in play increasing margins and with the shortage of shipping liquidity likely to increase as the year goes on, the pricing requirements of the Chinese banks may well become competitive. We may well see funding for top European owners coming from the Chinese and, without having planned it, the Chinese banks will sit pretty during the next upturn in the market and watch their ratios get rosier and rosier as their counter cyclical lending bites.

Shipping needs capital and shipping banks have to lend to make money. Perfect timing is a luxury that few plan for or even execute. But this year, and next, may be as close as you get to the ideal lending climate for those few banks able to stay in the game.

Crisis Management for Mortgagees—Part II

This is the second in a series of three articles examining loan enforcement and judicial sale of vessels. In the first article, Norton Rose (sia) LLP partners Ben Rose and Robert Driver looked at preparations and common ptions for enforcement. This article looks specifically at vessel arrest and judicial sale, focusing in particular on the factors which need to be taken into account when deciding whether arresting a vessel is the appropriate course of action and, if so, where such action should be taken.

Historically, mortgagees have favoured judicial sale as a method of enforcement but in recent times, they have appeared reluctant to arrest vessels and have sought to restructure loans wherever possible, notwithstanding the inevitable financial haircut. Indeed, vessel arrests in Singapore have fallen in 2011 as against the figure for 2010. However, with time running out for many owners, mortgagees are again looking at judicial sale. But what are the key questions a mortgagee needs to ask himself before deciding whether to arrest? Continue Reading

Unitholders Approve PST Delisting

Pacific Shipping Trust (“PST”) is a step closer to making history as the first shipping trust to be listed and delisted from the Singapore Exchange. In early October, parent company Pacific International Lines proposed to buy up the remaining 40 percent shares in PST. PIL offered 43 US cents in cash per unit, representing a 14.7 per cent premium over the last-traded price of 37.5 US cents at the point of the announcement.

On December 16, 2011, PST unitholders voted in favour of the delisting that was conditional upon an approval of at least 75 per cent of the total number of issued units held by the unitholders present and voting, on a poll, either in person or by proxy at the extraordinary general meeting (“EGM”), with not more than 10 per cent objecting. At the time of offer, PIL was already holding in excess of 75% of the total number of units at the time of offer. The challenge was to convince minority unitholders that the offer price was fair and the delisting was to their interest. Continue Reading

Beefing Up War Chest – Yangzijiang Taps Domestic Bonds

Just before 2011 came to a close, Jiangsu New Yangzi Shipbuilding (“JNY Shipbuilding”) filled its coffers with over RMB 1.4 billion (USD 220.9 million), having sold its first ever RMB denominated medium term notes (“MTN”) with lead manager, China Minsheng Bank. The three year unsecured notes, issued by the wholly owned subsidiary of the Singapore and Taiwan listed Chinese shipbuilder Yangzijiang Shipbuilding (“YZJ Shipbuilding”), carry an annual coupon payout of 6.05%. The key terms of the issue are shown in the Guts of the Deal table accompanying this article.

On the credit side, JNY Shipbuilding and its MTN issue are both awarded ratings of AA+ by Shanghai Brilliance Credit Rating & Investors Service. This rating is well supported by strong cash flow from operations, proven track record, good order book quality and the parent company’s status as a listed entity in Singapore and Taiwan. Proceeds will be used to beef up working capital, which the yard says is extremely important in a challenging operating environment. Troubles in Europe and the resultant lack of bank appetite for shipping finance, overcapacity and falling freight rates in all traditional segments in shipping have all led to commercial new order flows drying up rapidly. At the same time, LNG and offshore sectors – arguably the only two marine bright spots unfortunately do not play to the strengths of Chinese shipbuilders, with the upsurge in demand benefiting only a selected group of established shipbuilders in Korea. Continue Reading

Crisis Management for Mortgagees

By Ben Rose and Robert Driver, Norton Rose (Asia) LLP

In recent months the shipping markets have witnessed an increase in the number of troubled loans. Some owners and mortgagees have managed to agree terms for rescheduling. Where this has not been possible, mortgagees have considered enforcement. In the past, they have favoured judicial sale but various factors, notably cost and substantial write offs, have obliged them to seek alternatives; but with time running out for many owners, mortgagees, finding alternatives more elusive than before, are again reconciling themselves to the prospect of judicial sale. In a series of three articles, Norton Rose (Asia) LLP partners Ben Rose and Robert Driver examine three successive stages in the judicial sale process, beginning, in this article, with the preparations and the common options for enforcement. The next article will focus on ship arrest – what are the main issues to consider when deciding whether or not to arrest a vessel and the final article will look at practical issues once a ship has been arrested.

Early warning signs

Signs of an owner’s financial difficulties usually manifest themselves in a breach of financial covenants, an inability to refinance and the occurrence of various other events of default. If owner’s the business is viable, debt rescheduling may be feasible. In previous cases debt rescheduling has sometimes been successful and the owner has been able to trade its way out of difficulty. In other cases rescheduling has merely been a prelude to enforcement, often made more difficult and costly for the mortgagee by the accumulation of third party debt during the moratorium. Continue Reading

HMM Seals USD 500 million Debt Facility

Hyundai Merchant Marine (“HMM”) has demonstrated that even during times of economic uncertainty, reputable ship owners with good track records are still able to tap the banking market. Last Tuesday, HMM concluded a USD 500 million syndicated debt facility led by DNB Bank. Other participating lenders include ABN AMRO, Credit Agricole, Korea Finance Corporation and Korea Development Bank. The facility will be used by HMM to fund the construction of five mega container vessels being built at Daewoo Shipbuilding & Marine Engineering which are scheduled to be delivered throughout 2014.

DNB says the latest transaction underlines the bank’s continued commitment to shipping throughout the cycle. In an earlier report, J.P. Morgan analyst Sofie Peterzens pointed out that the bank is well positioned to absorb potentially higher shipping losses from a profitability and capital perspective. With only 7.7% of total lending to shipping, a well diversified loan portfolio and LTVs averaging 60-75%, Ms Peterzens believes that DNB’s exposure to the sector is manageable.

Aban Offshore Taps High Yield Bonds for Refinancing

Even as the year comes to a close, companies are busy strengthening their balance sheets and ensuring there is sufficient capital to ride through the uncertainties lying ahead. With banks tightening their lending requirements and some reducing their shipping exposure or exiting from the industry, the “Norwegian” high yield market continues to offer oil service, drilling, E&P and shipping companies fund raising opportunities amid challenging times. To the issuers, the attractiveness of the KS model lies in its fast and flexible issuance process, and ability to tap into pools of investors with in depth understanding of markets.

Last Wednesday, Aban Offshore Limited’s Singapore subsidiary Deep Drilling 1 Pte. Ltd had successfully raised USD 125 million four year senior secured bonds with sole manager Pareto Securities. A number of features make this deal attractive to investors, beginning with a good asset in a highly favorable market. The proceeds will be used to refinance existing bonds maturing 19 January 2012, previously issued to acquire 2006 Singapore built jack-up rig, Deep Driller 1. Continue Reading