Buana Listya Tama mulls over Convertibles

Six months after a successful spin off from Berlian Laju Tanker (“BLT”), Jakarta listed Buana Listya Tama (“Buana Listya”) is seeking to raise USD 50 million through a convertible bond issue. Details of the potential private placement are yet announced, but we understand that the proceeds will be set aside to fund capital expenditure, as the company continues to pursue organic growth in the domestic crude oil, product tanker and gas tanker markets. Aside from convertible bonds, the company is also considering other funding avenues in light of the recent turmoil in the capital markets.

RS Platou Markets, one of the mandated joint bookrunners in the ongoing potential private placement of the convertible bonds, pointed out that Buana Listya has a strong credit profile with cash reserve of USD 34.6 million and total assets of USD 415.5 million, against total debt of USD 69.0 million. Pending the successful fundraising exercise, Buana Listya’s total debt-to-EBITDA ratio will stand at just 2.1 times, even without taking into account EBITDA contribution from new vessels and all its bareboat charter obligations capitalized. EBITDA can fluctuate significantly as the shipping market goes through peaks and troughs, but what makes Buana Listya more palatable to the investors is that unlike its parent who focuses on the international markets, it has a strong focus on the energy sectors within Indonesia that will provide significant opportunities from the expanding cabotage trade. The strong balance sheet will come especially handy when the company is already actively participating in tenders or discussions for a variety of long term contracts in the Very Large Gas Carrier, floating offshore coal terminals, FPSO and FSO sectors. Buana operates the first and only Indonesian-flagged FPSO, the second largest FSO fleet and the largest oil tanker and gas tanker fleets in Indonesia. Continue Reading

Best Time to Order Ships: It’s a Matter of Perspective

One of the most frequently discussed subjects in most, or if not all of Marine Money’s conferences is on whether the shipping industry’s messes are of its own making, largely due to the irrational behavior of shipowners, who are prone to ordering vessels at the peak of the market and creating a capacity glut. During the shipowner panel discussion in Singapore, President at Taiwan listed U-Ming Marine Transport Corp Mr. CK Ong blatantly pointed out that the shipping market will never be in equilibrium so long as shipowners continue to have a “short term memory” and are infatuated with ordering new vessels. “Even among liner companies where the top 20 players take up 60% of the market share, they behave in the same manner. What hope is there for the highly fragmented dry bulk market?” he reasoned.

A different perspective was presented by Mr. Graham Porter, Chairman of Tiger Investments and Ms Zheng Luoheng from China Ship Fund. Both argued that there are legitimate reasons for owners to order ships in a depressed market during Marine Money’s 2^nd Annual China Ship Finance Conference held in Shanghai last week. Mr. Graham Porter remained strongly convinced that the impact of the fuel-efficient ships will be felt in operations, the charter market and vessel resale values. “The economic efficiencies of larger ships with the new generation of engines and hull designs are dramatic for container ships and to a lesser extent, we are going to see that effect on other ship types that people never thought would get touched,” he said. Pointing to statistics from in house research department, Ms Zheng highlighted that China is heavily dependent on foreign shipowners in the transportation of dry bulk commodities into the country, unlike other nations such as the United States and Japan. Presently, 78% of the dry bulk imports, or an equivalent of 1.25 billion tons, are carried by foreign shipowners and the country is paying a heavy price for this
over-reliance. Continue Reading

Recent Developments in LNG Market and Opportunities for PRC Players

Contributed by Fei Kwok, Of Counsel, Norton Rose LLP

An Overview of Current LNG Market

After more than 60 years of effort by innovative industrialists, liquefied natural gas (LNG) has become one of the dominant clean fuels in the global energy market. By the end of 2010, there were 12 LNG producing countries and 11 LNG importing countries. In 2011, however, the number of LNG producing countries increased to 18 and the number of LNG importing countries increased to 25, with Qatar alone supplying 26% of the LNG traded globally.

Asia is a major destination for LNG exports. In 2010, Asia consumed 70% of the LNG exported. According to a recent report, 60% of global LNG exports in 2011 was taken up by buyers in Asian countries, among which Japan remains the most important market, absorbing 50% of the LNG sold to Asia. Korea and Taiwan are currently the other two leading Asian LNG buyers. Each competes for LNG supplies and has been more successful than China and India because of their ability to afford relatively high LNG prices. China has increased its long-term LNG SPAs from one contract in 2004 to twelve by the end of 2010, although since 2010 Chinese buyers have been focusing on scooping up LNG spot cargoes.   Continue Reading

Update on Chinese banks and ECA activity

Contributed by Madeline Leong, Partner, Watson, Farley & Williams Asia Practice LLP

Over the last 10 years, the profile of Chinese commercial banks has developed significantly in international ship finance. Up until a few years ago, such banks were becoming more active in financing foreign shipping companies acquiring Chinese newbuildings. The global economic downturn in the last few years however appear to  have taken its toll on the pace of such financings from Chinese commercial banks and resulted in a shift in the lending policies of these banks. Although Chinese banks show keen interest in extending financing to foreign shipping companies, they are  generally more enthusiastic if a Chinese export credit agency (ie, Export and Import Bank of China (also known as CEXIM) or China Export and Credit Insurance Corporation (also known as Sinosure)) is involved.

CEXIM has responded to the increasing demand (in China and the rest of the world) for export credit agencies’ participation in shipping finance transactions by remaining committed to extending financing to foreign shipping companies (either as participating as a lender or an issuer of standby letters of credit or guarantees). CEXIM has also recently vocalised its intention to increase its resources in its foreign branches thus expanding its global reach in order to maintain its support of the Chinese shipbuilding industry. CEXIM has noticeably, in recent months, demonstrated such continued support as we have continued to see them involved in international shipping finance transactions. Whilst doing so however, CEXIM remains justifiably prudent and cautious in selecting its counterparties and in determining its commercial terms. Continue Reading

Staying Positive

Close to 190 delegates gathered in Busan for Marine Money’s 5^th Annual Korea Ship Finance conference last Thursday and it was hardly surprising that the mood was less than optimistic, given what is happening in Europe. But it is not all gloom and doom. Korean shipbuilders for example have performed much better than expected this year, overtaking China in newbuilding orders. Estimates from Dr. Jong-seo Yang, Research Fellow at Korea Exim Bank pointed out that Korean shipbuilders have secured newbuilding contracts of at least USD 30 billion so far this year as demand for higher value and specialized vessels such as FPSOs, LNG carriers and drill ships remain bullish. He also added that the high oil price will continue to support the demand for offshore vessels and more fuel efficient ships – vessel types that Korean yards have a competitive advantage against their Chinese counterparts.

Korean shipowners are likewise happy to hear that quite a few sources of funding, be it government driven or not, are still available to them. This is despite a rising concern that Korean shipowners are increasingly relying on international funding than domestic banks (refer to accompanying table) as domestic lenders scale down their commitments to the industry. Korean shipowners’ funding from domestic banks has dropped sharply from 78% in 2007 to 40% last year. “It is probably not an exaggeration that the Korea Development Bank (“KDB”) may be the only commercial bank that is paying attention to the shipping industry,” quipped Mr. Yong Suk Hyun, Head of Shipping Finance Team at KDB. Korean banks are coping with increases in their cost of funds, resulting from the Eurozone crisis and tensions in the Korea Peninsula. Continue Reading

Update on Evergreen Marine’s USD 824 million loan

A few more details have emerged on Evergreen Marine’s recently concluded USD 824 million syndicated facility. The loan, which was made up of two USD 247 million tranches and a USD 330 million tranche, was secured through its three subsidiaries Evergreen Marine Corp (Taiwan), Evergreen Marine (UK) and Evergreen Marine (Singapore). According to sources, the pre-delivery loan components were priced at 95 bps above LIBOR and the post-delivery portions were at 90 bps in excess of LIBOR. The facility was also structured in such the way that should the difference between Taiwanese inter-bank rates Taifx and LIBOR exceed by 35 bps, Evergreen will have to pay the lenders the excess over the 35 bps spread differential.

The syndicated loan, payable over ten years, was arranged by Bank of Taiwan, Land Bank of Taiwan, Taiwan Cooperative Bank, Taipei Fubon Commercial Bank, E.Sun Commercial Bank. Chang Hwa Commercial Bank, First Commercial Bank, Hua Nan Commercial Bank and Mega International Commercial Bank joined in as participants. Proceeds will be used to finance the construction of ten 8,000 TEU post-panamax containerships ordered at Taiwanese shipbuilder CSBC Corp for USD 1.03 billion in May 2011. Continue Reading

Swiber Tests Market Demand for Perpetuals

Lacking of good alternatives to park cash in, high net worth individuals in Asia who want to remain invested in today’s volatile market are turning to corporate bonds and potentially perpetual securities for higher yields. And Singapore listed Swiber Holdings wants to take advantage of this positive market development. Last week, the offshore oil and gas services provider started marketing its proposed offering of SGD 50 million (USD 39 million) perpetual preference shares with an indicative 8% dividend. This follows shortly after the successful closing of its plain vanilla SGD 60 million (USD 47 million) 5% one year debt raised under its SGD 500 million Multicurrency Medium Term Note Programme, established by sole bookrunner DBS Bank in July 2010.

This time, Swiber is selling perpetual preference shares in lots of minimum SGD 250,000 to private bank clients. Investor demand for this relatively new investment instrument was reportedly lukewarm, despite the fact that the shares pay investors an annual dividend of 8% and an extra 2% dividend if the shares are not called in the third year. In the event of default, further protection comes from an additional 2% dividend to the investors and the option to convert into ordinary shares if the company defers a second dividend payment or defaults on dividend payment. Continue Reading

China and the Euro Crisis

The problems in the Eurozone have been grabbing headlines for several months now and there are still no solutions in sight. Following the Greek’s Prime Minister’s shocking call for a referendum on the EU bailout package, Greece could be heading one step closer to bankruptcy and banishment from the Eurozone if the people vote against the deal – designed to slash the country’s mountain of debt by nearly a third.

It is an irony, as Britain’s Daily Telegraph newspaper noted, that the root of the lender’s problem is not due to reckless lending to borrowers with doubtful credit histories like US subprime crisis. Many of them had been compelled to buy these bonds because of regulatory requirements. But now, these banks are forced to accept a 50 percent write-down on their holdings of Greek debt. The banking sector will also have to recapitalize to the tune of around €106 billion and were told to increase core cash reserves to 9% by next summer. Continue Reading

Opportunities Arising in the Shipping Industry for PE Funds and Others

Alastair C. MacAulay, Partner, Mayer Brown JSM

Background

At the height of the global financial crisis in the fourth quarter of 2008, shipping markets in all sectors experienced a dramatic free fall. For example, between June 2008 and December 2008 capesize day rates dropped from over US$230,000 to US$2,316, an all time low, representing a 99% loss of value in just six months. This marked the bursting of a bubble which had been growing for about seven years during which time many traditional ship owners were able to amass large cash reserves and reduce leverage.

When the crash came at the end of 2008, many players in the shipping industry anticipated a growth in mortgage enforcement and distressed sale activity. Continue Reading

OCBC Provides Mezzanine to GO OFFSHORE

GO Offshore, Otto Marine and OCBC Bank have entered into indicative term sheet for a mezzanine loan of up to USD 20 million by OCBC with an option for OCBC to subscribe for new ordinary shares in GO Offshore or its listing vehicle for up to the facility amount. GO Offshore is a wholly-owned subsidiary of GO Marine Group, a company in which Otto Marine has a 19% shareholding and an option to acquire a further 81% shareholding.

Under the term sheet, the mezzanine loan will be repayable by GO Offshore at the earlier of (a) 36 months from the first drawdown date or (b) the occurrence of a “liquidity event”. A “liquidity event” includes an initial public offering by GO Offshore or its listing vehicle and the sale or transfer of all or substantially all the assets of GO Offshore. The facility will commence on the date of the definitive facility agreement to be entered into between GO Marine and OCBC and will expire 36 months from the first drawdown date. Continue Reading