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Change – Faster Than a Speeding Bullet, But For the Better?
The concept of change continues to gain currency in both politics and financial markets. In times of crisis, surely speed is of the essence. Crisis management by definition precludes well thought out solutions. For example, this was evident when the government changed its position about buying only mortgages and decided instead to cover the full gamut of toxic financial products or restricting short selling on a wholesale basis rather than focusing on what many perceive as the real issue, naked short selling. It becomes more of showing that something is being done, than finding the real long-term solution-like putting band-aids on a million cuts.
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December 2, 1999
LAZARD SHUFFLE
Veteran shipping investment banker Hamish Norton left Lazard Freres, and indeed the shipping industry, yesterday to join the technology group at investment bank Bear Sterns. Lawyer and presidential confidante Vernon Jorden joined Lazards this week, though it is unclear whether even Mr. Jorden is diplomatic enough to work with shipping investors. Mr. Norton told us that the technology group at Bear Stearns has particular expertise in the areas of software and aerospace. While there is very little capital markets deal flow for shipping at the moment, in our view the field of maritime investment banking will be a bit less crowded when shipping deals start getting done again.
HIGH YIELD
HVIDE
After successfully rebutting a few criticisms of its plan of reorganization, Hvide Marine now has just one more date with the bankruptcy judge, on December 9th, and looks set to emerge from bankruptcy just in time for Y2K to erase all reams of documentation. We understand that Deutsche Bank is arranging the exit financing. The structure of the reorganization has been well covered in Freshly Minted, so search the FM Archive for details.
Those with sharp pencils and a penchant for penny stocks might want to take a look at Hvide common stock. The shares presently trade on the OTC Bulletin Board at around $0.13. Under the plan of reorganization, holders of common shares will receive a warrant for 1 new share of Hvide for every 124 old shares of Hvide held (about 8:1000). Old shares will be cancelled and warrants will have a strike price of $38 and expiration date 4 years from date of issue. Give us a call if you would like to take a look at Hvide’s pro forma 12.3 1.99 balance sheet which uses “Fresh Start Accounting” (i.e vessels have been written down from book to current market value). Continue Reading
Guide To Tax-driven Finance Schemes
By Christoph Toepfer of Toepfer Transport
T he shipping industry is a highly capital intensive business. This is one of the reasons why, over the last 10-15 years, more sophisticated structures have been developed for the financing of ships, including off-balance sheet and leasing structures. Through these financial structures, the primary users of the vessels (e.g. container lines, oil majors etc) have increasingly become disconnected from their ownership.
In the case of container lines, they have operated in highly competitive markets with very small profit margins, often incurring losses. Capital requirements grew and to achieve economies of scale many lines have had to undertake such expansion with their own capital resources. Technical innovation and economies of scale have resulted in ever larger vessels being required; vessels which previously had not existed and therefore had to be built new. Hence, container lines have either been obliged build and finance these new types of vessel themselves or provide employment guarantees to third party investors in the form of long term time charters. In order to maintain the greatest operational flexibility and leave long term asset ownership and residual value risk to others, the lines have also used these financing schemes for smaller vessels.
The low return on capital from ship owning activities has increasingly led the oil majors to leave vessel ownership to others with the additional benefit of distancing themselves from the liability for pollution. As a result, oil majors have substantially reduced their owned fleets in favour of chartered tonnage in recent years.
Forget OPA, Meet Sarbox
By Gary J. Wolfe of Seward & Kissel LLP
he Sarbanes-Oxley Act of 2002 (”Sarbanes- Oxley”), adopted over a weekend at the end of July, 2002, hit the capital markets world the way the Oil Pollution Act of 1990 hit the shipping world 12 years ago. Everyone knew it was coming. Everyone pretended that it wasn’t. Therefore, it came “without warning”. Everyone then fell into a state of shock and wished it away. When it would not disappear, everyone learned to live with it. With Sarbanes-Oxley, the capital markets world is still in the wishing away stage. Public companies, whether U.S. or foreign, no matter what their industries, will have to learn to live with it.
What does Sarbanes-Oxley Do?
For those who do not have time to read a 200-page statute, the best way to understand Sarbanes-Oxley is to look at the Enron/Worldcom/Adelphi a/Global Crossing situations, and turn them upside down. The simple rule is: If something scandalous happened at Enron, Worldcom, Adelphia or Global Crossing that angered the investing public, then Sarbanes-Oxley forbids it or tries to make it much more difficult. We can examine the companies in order and see how Sarbanes-Oxley addresses their situations. We can then see how the Sarbanes- Oxley provisions may apply to public shipping companies, especially those that are not U.S. incorporated or headquartered.
Staggering Growth in the Sizzling Desert
by Kevin Oates
To get an idea of what Dubai is like right now, consider the following statistics:
• UAE growth was measured at 7% in 2003, estimated at 3.6% in 2004 and forecast for 4.5% in 2005.
• Jebel Ali was the first Free Zone in the 1980s; there are now more than 30 such zones in the Middle East.
• Estimates put planned aggregate Middle East regional investment in the energy sector, to meet demand growth, at $150 billion.
• Estimated capital required for oil projects by 2006 is $41 billion, for gas projects $19 billion and for petrochemical projects $13 billion.
• The container throughput in Dubai has grown from 1.16 million boxes in 2001 to 2.61 million boxes in 2004.
If you have ever visited Dubai, then the skyline alone should be enough to give you an indication of the amount of investment going on. New buildings are being constructed continually, each one bigger and better than the previous. Whole islands and landmasses are being created from the sea, destined to be home to luxury residential, leisure and commercial communities.
With so much going on, it was not surprising that our First Annual Marine Money Ship Finance Conference, held in the magnificent Grand Hyatt hotel in Dubai on 2nd February, was a great success. Over 167 shipowners, shipping bankers and shipping service executives spent the day with us. All the major players from Dubai and the region were represented, as well as local and international financiers. In terms of figures, over 60 representatives of shipping groups were there, 12 local and regional banks or financial institutions and over 15 foreign lenders.
Keynote addresses were given by Mr Sultan Ahmed bin Sulayem, the Executive Chairman of the Ports Customs and Free Zone Corporation, and by Mr Yusr Sultan, Board Member of GEM and CEO of Terminals, Shipping and LPG, Emirates National Oil Company. The words that come to mind from both addresses are optimism, opportunity, pride, potential and quality. Dubai is going places, and not least because the government and major private players in shipping have plans for greater things to come. A UAE flag, to be recognised internationally as a state flag, is on the agenda. Such an achievement could only serve to pull even more local investment into shipping.
Local and regional shipping companies including Emarat Maritime LLC and Emirates Ship Investment Co. presented the initiatives they have taken to reap the potential rewards that stem from Dubai’s unique shipping environment. We were privileged to hear an enlightening presentation by IRISL (IR Iran Shipping Lines), a company with 87 vessels, more being built and expansion plans for another 40 vessels by 2007. IRISL cannot always get foreign finance because of the lack of an Iranian national credit rating by the international agencies. To get around this, IRISL has set up a company in Germany that will own vessels, fly acceptable flags and be able to attract the type of investment and banking interest its parent requires, a solid and creative example of forward thinking.
Dubai Maritime City gave us an update on their plans to create a unique shipping service environment on land currently being reclaimed from the sea. The area will house a shipyard and repair yard, commercial space for all types of shipping activities, a maritime academy, a marina and state of the art office space for shipping companies. It is planned to be ready by 2007!
National Bank of Fujairah and DVB Bank AG held an intriguing discussion about their different approaches to lending in the region. Both have a great deal to offer, and the point was emphasized that there is every opportunity for local and international banks to link up and complement each other’s strengths, thereby providing optimal service to the region’s shipowners.
Our final session, titled alternative finance, included a discussion by our anchor sponsor, Tufton Oceanic, about Islamic Finance, a new and huge potential source of finance to our industry. The session also featured a talk by CAT Finance, which baited the audience with discussions about building ships in the region and getting suitable finance.
Dubai makes things happen was a slogan used by one of our speakers. Well, we at Marine Money are convinced of this, and our second annual Marine Money Gulf Ship Finance Conference is already booked for 1st March 2006, at the Grand Hyatt Hotel. Hope to see you there!
MukemmelBirForum
Last Thursday, the 5th annual Marine Money Istanbul Ship Finance Forum took place within sight of the Bosporus at the Swissotel. In our mind, there could not be a more appropriate setting for this or any shipping conference.
After greetings from Marine Money’s Mia Jensen and Kevin Oates, Mr. Metin Kalkavan, as Chairman of the Turkish Chamber of Shipping gave brief introductory remarks which included interesting numbers on the Turkish shipbuilding industry. He was followed to the podium by Mr. Lucien Arkas, the Chairman of Arkas Holdings, who gave the keynote address. Mr. Arkas provided a concise history of his 44 years in shipping. But more importantly, he attributed the Turkish owners’ success in this industry to their high level of entrepreneurship, courage and self-esteem.
Bank Debt in 2006: Public Companies Take on Dry Powder & Lenders Wander the World
If the international ship finance business is a body, comprising complex system of vital organs, then commercial bank debt is its heart – and as you can see from looking just about every single transaction highlighted in this special issue of Marine Money - nothing functions without it.
Whether you are talking about XL Capital’s $1 billion investment grade credit wrap for CMA-CGM, Top Tankers sale/leaseback in Korea, Odfjell bonds in Norway, Quintana’s acquisition of Metrobulk or the dozens and dozens of public and private equity deals living and breathing in New York these days, the reality is that the financial returns needed to create virtually every capital structure in the global shipping industry are nourished by leverage - and that leverage comes from the bank debt market.
And so long as transaction activity is increasing in size and complexity, as it has been for years, we think that the market for bank debt will become even more vibrant. Continue Reading
Doing Business After the Credit Catharsis
Bank debt has long formed the sturdy foundation of the shipping capital markets. Exotic instruments come and go, but the ship mortgage and the syndicated bank loan remain and thrive. Typically banks fulfill their role quietly, helping clients to grow and modernize their companies without fanfare. At times, perhaps, they help a little too much. Continue Reading
THE RISE OF ASIAN SHIPPING GIANTS
It was only a decade ago when an unexpected financial crisis gripped Asia and pushed the region into recession. Since then, the Asian economies have resumed strong economic growth with the renaissance of China and India. Companies are once again expanding, and stock markets in the region are skyrocketing driven by the influx of foreign capital and optimism over Asia’s future.
While the current sub-prime crisis does pose a downside risk to global economic growth, underlying fundamentals of the Asian economies remain robust and sound. In its latest Global Economic Prospects report, the World Bank estimates the Asia-Pacific region to have grown about 10 percent in 2007, the strongest performance since 1994. Continue Reading
Advisory & Consulting Services
Marine Money has a proven track record of assisting shipowners and capital providers in originating and executing marine financing transactions. Whether you are a finance provider interested in developing deal flow, a shipowner/charterer looking for vessel financing or a private or public equity investor considering making an investment in the marine sector Continue Reading
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