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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
WHY TEEKAY BOUGHT A PIECE OF TORM
By Matt McCleery
K laus Kjærulff apparently did a superb job selling the Torm story at Marine Money Week. After all, sitting in the audience during his speech on June 18th were Teekay’s Chairman Sean Day and its CFO Peter Evensen. Perhaps as they listened to Mr. Kjærulff speak with pride of his company’s successful business model and its consistently high placement in the annual Marine Money Rankings table, Messrs. Day and Evensen got to thinking – good company, good people, good strategy, good sector, lots of Marine Money awards…hmmm, let’s ask Bjorn Moller if he thinks we should buy it. And Bjorn and Teekay’s board gave the nod because, in the second week of July, Teekay announced that it had purchased a 16% stake in Torm from motivated seller Sanyo Hellas of Greece.
Although the dollar figures aren’t enormous by Teekay standards, we think this is one of the most structurally significant deals in recent memory. Strategically, economically and even intellectually, the transaction is elegant in its simplicity. For the price of a 10-year old aframax, Mother Teekay staked its claim to Torm, made a substantial in-road into the product tanker industry, and possibly played the role of white knight on behalf of Norden.
The timing was also good. As many know, Teekay has been in the market in recent months looking at all kinds of deals and inspecting all kinds of ships – from LNG carriers to LPG carriers – looking to put capital to work. But the challenge of growing Teekay further stems from its stated strategy of “creating a sustainable competitive advantage through high capacity utilization and scale.” Put more bluntly, Teekay wants to be big at whatever it does. But there is a caveat: the company is also working hard to diversify market exposure and increase its return on equity – and, perhaps more than any single acquisition the company has ever completed, the acquisition of Torm will accomplish all of these objectives.
SOH MEN TURNING JAPANESE?
World-Wide Shipping’s Dr. Helmut Sohmen has pulled yet another stealth share acquisition, this time in Japan. The Hong Kong-headquartered company has acquired a more than 6% stake in Tokyo-listed Iino Kaiun, an old-line industrial carrier with interests in LNG, LPG, VLCCs, smaller tankers and a smattering of bulk carriers. With about 1 00m shares in circulation, the 6% stake acquired in the market cost Dr. Sohmen an estimated USD 10 - 13m.
So far, what we see is that World-Wide is looking at a tie up in kind of an alliance. It is not their intention to pursue a merger, said one official at Iino Line. “Right now their share is so small that we do not see that there would be any immediate impact on our business,” he added. IiWhat claim on assets Dr Sohmen received in return is unclear because the company’s fleet list does not specify Iino Line’s share of 11 LNG carriers. LNG was believed to be a prime attraction of World-Wide’s accumulation of 10% Bergesen shares.
Other Iino Line ships include 14 bulk carriers, eight LPG carriers of 2700 to 80,000 cbm, 15 chemical carriers, and five methanol carriers. Altogether the company claims to hold 78 vessels totaling 2.97m dwt.
LNG PROJECT FINANCING: The Shikemusen of the 21st Century
By Matt McCleery
Leave it to shipping to be different; just as the accounting world governed by Federal Accounting Standards Board (FASB) is calling for debt to be consolidated onto balance sheets, the shipping industry is finally figuring out how to move it off balance sheets through project financing structures. Historically, in the world of ship finance, the term “project finance” was usually used as a euphemism for doing a deal with other people’s money. Even the term “project” is more often than not a subtle reference to the fact that the sponsor won’t provide any recourse or corporate guarantees.
Of course, this is an exaggeration. After all, we’ve seen tanker owners like Torm and Frontline tap the German KG market to increase liquidity and beef- up earnings per share. We’ve also seen companies such as International Shipholding, dubbed by one banker as “the next MC Shipping,” basically exist with the raison d’etre of arranging project financing. But thanks to the development of LNG shipping, project financing will play a greater role going forward.
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