By George Laios, Deputy CEO
Just a few days ago we witnessed the listing of the first corporate bond in the Athens Stock Exchange by a non-coastal shipping company, namely Costamare Participations Plc. This was good news for both the NYSE listed shipping company and the Greek stock exchange. The former successfully rose €100m in unsecured bonds at a significantly competitive pricing, whilst the latter has proven that it has the depth and volume required for shipping companies, which are now offered a new alternative of fund raising; in other words, a new door has opened for other shipping players to follow suit.
However, this is not a fit for all finance tools. This is a very complex procedure that can take many months, if not years, to complete. It took Costamare years to complete regardless of already being a NYSE listed company, partly because market conditions were not favorable when a smaller bond was sought after 4 years ago. Regardless of the complexity and the tremendous effort, the point that we need to keep is that a large, well-established, and structured company not only can find new ways of financing itself, but also create them.
Scale has always been important; however, it now seems to be more important than ever. With banks and financial institutions now focusing on corporate structured, sizeable, ‘’ESG compliant’’ clients and full recourse deals, scale seems to be the only way out. But how can this be achieved?
Consolidation, M&As, joint ventures, strategic alliances and pool arrangements are the most obvious methods that an owner could consider in order to attract capital and ‘’grow’’. The consolidation trend will come at the forefront in the next years, considering that 45% of the Greek owned fleet in number of vessels is controlled by 50 companies, while approx. 15.0% of the fleet is fragmented under more than 450 companies that own up to 4 vessels each.
M&As are considered the most direct and quick way to scale up. In addition, compared to plain vessels’ purchases they also offer a brand value, not just some additional tonnage. The current market fundamentals (e.g. increased valuations) also favour M&A transactions. However, again, this is not a walk in the park process. Thorough Due Diligence, terms negotiation and documentation preparation are just a few of the challenges that the relevant parties have to go through.
Joint Ventures are a milder way for two parties to join forces. Most often, they are set up for a specific purpose while there are also pre agreed exit procedures. JVs are becoming more and more popular and are in effect a real life test for two parties to examine if they get along and maybe join forces/merge in the future.
If, however, neither M&As nor JVs are preferable for a ship-owner, then maybe a strategic alliance or a pool participation may do part of the scale-up work. There are already alliances formed to serve numerous needs such as consumables’ supply and insurance coverage, whilst there is a significant number of vessels’ chartering pools.
All of the above-mentioned tools have a common denominator: Let’s join forces and grow up together. There are hundreds of small shipping companies that could team-up with a peer and get the benefits of collaboration and larger scale. Financing terms and pricing is one of the most obvious benefits. Raising funds for small owners becomes harder and harder nowadays and whilst alternative lenders have the capacity and the appetite to lend (together with the required flexibility), their internal return hurdles/targets make them significantly more expensive than traditional lenders. In other words, they cannot be a long-term solution, especially when their (larger) peers borrow at significantly lower pricings. However, financing is not the only front that scale is required.
There are several other equal important challenges that a modern shipping company faces, such as vessels’ technology, ESG and hefty regulations. Shipping companies, let alone small ones, do not have the luxury of being left behind. Scale, team-up and knowledge sharing seems to be the only and most efficient way forward.
Chartering (Wet: Softer / Dry: Softer)
The dry bulk market followed the same momentum of the previous week, with gear sizes performance improving and with bigger sizes markets noting rates decreases. The Capesize sector suffered the largest discounts with BCI losing 841 points w-o-w. The BDI today (01/06/2021) closed at 2,568 down by 241 points compared to previous Tuesday’s (25/05/2021) levels. The crude carriers market is still weighed down by uninspiring performance across all sectors. The BDTI today (01/06/2021) closed at 598, a decrease of 16 points, and the BCTI at 516, a decrease of 10 points compared to previous Tuesday’s (25/05/2021) levels.
Sale & Purchase (Wet: Softer / Dry: Firmer)
Appetite for secondhand tonnage remains high. A generous number of dry bulk deals materialized with geared size candidates attracting most of the interest during the past days. On the tanker front, fewer sale concluded compared to the previous week. In the tanker sector, we had the sale of the “BAI LU ZHOU” (110,503dwt-blt ‘07, China), which was sold to Indonesian owner, Soechi Lines, for a price in the region of $14.2m. On the dry bulker side sector, we had the sale of the “RICH FUTURE” (82,197dwt-blt ‘13, China), which was sold to Greek buyers, for a price in the region of $23.0m.
Newbuilding (Wet: Softer / Dry: Softer)
Without a doubt, last week belongs to the non-conventional type of units with a plethora of container and Gas carrier orders surfacing on the market. Asian owners monopolized the boxship orderbook; Wa Hai Lines ordered four 13,100 teu units at Samsung while HK-based owner TS Lines concluded an order for four 7.000teu. Furthermore, SITC inked a deal for eight firm plus 2 optional 1,023teu boxships. LNG units were also popular last week. Maran Gas declared an option for two 174,000cbm at Samsung for $187.0m each while Hyundai LNG ordered one 174,000cbm unit at DSME against long-term T/C to Repsol. Interest for newbuilding orders was strong from the Greek owner Evalend Shipping; it came to light that the respective owner exercised an option for two Kasmarmax units at Yamic shipyard at $27.0m each while the same owner has also declared an option for one 91,000cbm unit at Hyundai Samho. On the tanker front, newbuilding contracting activity was sluggish; one deal for two 50,000dwt product carriers emerged last week from STX Marine at Hyundai Vinashin. Each vessel will cost $35.0m while the order will follow a long-term T/C to Pan Ocean.
Demolition (Wet: Stable+ / Dry: Stable+)
The demolition market shifted in a lower gear during the previous week, with Indian cash buyers following a more conservative approach amid a potential scrap prices correction in the coming weeks. As a result, average scrap levels remained steady compared to the prior week. However, there is still enough activity in the demolition front with Bangladeshi cash buyers offering the best bids and with tanker units being the most common ship-type among the recently vintage demo tonnage. Pakistani breakers lagged behind their Bangladeshi competitors, yet with cases where their offers being the highest ones. Indian breakers activity is still struggling due to oxygen supply deficiency. Ship Recycling Industries Association of India (SRIA) demanded that a proportion of the oxygen surplus should now be used for industrial operations. At the same time, not much has changed in the demolition Turkish market. Import and local steel prices remained almost steady w-o-w while the Turkish Lira lost further ground against the U.S Dollar (1TRY=8.50USD at the time of writing).
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