Bond Markets and Shipping: A Summary of th Annual Marine Money Hong Kong Ship Finance Conference Rodricks Wong, Marine Money Asia

Transcription

1 5th Annual Marine Money Hong Kong Ship Finance Conference Rodricks Wong, Marine Money Asia

2 Shipping Bonds in Vogue Bonds remain as a vital source of funding for shipping companies in Asia Proceeds raised were typically used to repay bank debt, refinance maturing bonds and/or bolster working capital Shipping companies were able to issue bonds tailored to their circumstances and market conditions. These range from straight forward plain vanilla corporate bonds through to more complex ones such as convertible bonds and Shariah compliant bonds In general, bond yields have risen against the uncertain global economic environment 44% of the total shipping bond volume issued in Asia was completed in 3Q2011 Bonds issued in some countries have much longer tenors than traditional shipping bank loans. This is highly attractive to shipping companies

3 A Record Number!!! Historically, shipping companies issue bonds to supplement larger bank debt facilities In 2011, total shipping bond issues in Asia surged 90% to USD7.97 billion from USD 4.12 billion in This figure has surpassed the historical high of USD 7.81 billion in 2009 For the first time in history, China has emerged as the largest shipping bond issuer The domestic bond market continues to serve as a major source of liquidity for Korean shipping companies. The top four shipping companies had raised USD 125 million more bonds in 2011 than in 2010 Japanese shipping companies re-emerged as major bond issuers after one year hiatus Asian Shipping Bond Volume (figures in USD million) Asian Shipping Bond Issues (by country) 24% 7% 4% 5% 14% 46% China Japan Korea Taiwan Singapore Malaysia

4 Reasons for the Surge in Bond Issues in Asia The sharp rise can be attributed to the following reasons: i) Material contraction in the banks appetite for shipping loans. Many European banks are going through a difficult period, reducing and restructuring their shipping loan portfolios. Their lending capacity will remain constrained by regulatory requirements and higher cost of funding ii) Historical low interest rate environment and the abundance of liquidity in Asia have encouraged fixed income investors to seek alternative bond investments

5 A Record Number but activities are predominant in North Asia No shipping bond issues in Thailand, Indonesia and Vietnam, suggesting that investors are wary of investing in emerging market assets Asian Shipping Bond Issues in 2011 (figures in USD millions) China Japan Korea Hong Kong Taiwan Singapore Malaysia Thailand Indonesia Vietnam Source: Marine Money

6 2011 Shipping Bond Issue China Total Shipping Bond Volume in 2011: USD 3.6 billion Total Shipping Bond Volume in 2010: USD 1.2 billion Top Issuer in 2011: China Shipping Group Company Date of Amount Interest Tenor Maturity Remarks Issue (RMB bn) rates (years) China COSCO Holdings 30/11/ % 7 30/11/2018 Medium Term Notes Programme China Shipping Group 8/8/ % 7 8/8/2018 Medium Term Notes Programme 18/5/ % 5 18/5/2016 Medium Term Notes Programme China Shipping 1/8/ % 6 1/8/2017 Convertible Development Sinotrans CSC Group 21/10/ % 3 21/10/2014 Medium Term Notes Programme 8/9/ % 1 9/9/2012 Short term notes Sinotrans Shipping 11/10/ % 3 11/10/2014 Dim-sum Source: Marine Money, DnB NOR Markets, Bloomberg

7 2011 Shipping Bond Issue Korea Total Shipping Bond Volume in 2011: USD 1.9 billion Total Shipping Bond Volume in 2010: USD 1.8 billion Top Issuer in 2011: Hanjin Shipping Company Date of Amount Interest Tenor Maturity Remarks Issue (KRW bn) rates (years) STX Pan Ocean 25/8/ % 3 25/8/2014 Senior Unsecured 25/2/ % 3 25/2/2014 Senior Unsecured Hanjin Shipping 30/9/ % 5 30/9/2016 Senior Unsecured 30/9/ % 3 30/9/2014 Senior Unsecured 20/7/2011 USD 150 million 4.0% 5 20/7/2016 Convertible 27/6/ % 5 27/6/2016 Senior Unsecured 27/6/ % 3 27/6/2014 Senior Unsecured 8/3/ % 3 8/3/2014 Senior Unsecured 8/3/ % 5 8/3/2016 Senior Unsecured Hyundai Merchant Marine 7/7/ % 5 7/7/2016 Senior Unsecured 7/7/ % 3 7/7/2014 Senior Unsecured 7/4/ % 5 7/4/2016 Senior Unsecured 7/4/ % 3 7/4/2014 Senior Unsecured SK Shipping 4/10/ % 5 4/10/2016 Senior Unsecured 4/10/ % 4 4/10/2015 Senior Unsecured 12/5/ % 3 15/5/2014 Senior Unsecured 12/5/ % 5 12/5/2016 Senior Unsecured Source: Marine Money, DnB NOR Markets, Bloomberg

8 2011 Shipping Bond Issue Japan Total Shipping Bond Volume in 2011: USD 1.1 billion Total Shipping Bond Volume in 2010: - Top Issuer in 2011: Nippon Yusen Kaisha Company Date of Issue Amount (JPY bn) Interest rates Tenor (years) Maturity Remarks Mitsui O.S.K. Lines 21/6/ % 5 21/6/2016 Unsecured 21/6/ % 10 21/6/2021 Unsecured Nippon Yusen Kaisha 9/9/ % 5 9/9/2016 Unsecured 9/9/ % 10 9/9/2021 Unsecured 9/9/ % 20 9/9/2031 Unsecured 2011 Shipping Bond Issue Taiwan Total Shipping Bond Volume in 2011: USD 594 million Total Shipping Bond Volume in 2010: USD 170 million Top Issuer in 2011: Yang Ming Marine Company Date of Issue Amount (TWD bn) Interest rates Tenor (years) Maturity Remarks First Steamship 20/10/2011 USD 200 Zero 3 20/10/2014 Convertible million Wan Hai Lines 28/7/ % 6 28/7/2017 Senior Unsecured 24/6/ % 7 24/6/2018 Senior Unsecured 22/6/ % 5 22/6/2016 Senior Unsecured Yang Ming Marine 27/12/ % 5 27/12/2016 Sinkable Source: Marine Money, DnB NOR Markets, Bloomberg

9 2011 Shipping Bond Issue Malaysia Total Shipping Bond Volume in 2011: USD 422 millon Total Shipping Bond Volume in 2010: USD 81 million Company Date of Issue Amount (RM mn) Interest rates Tenor (years) Maturity Remarks 21/9/ % 5 21/9/2016 Islamic MISC 21/9/ % 3 21/9/2014 Islamic 19/7/ % 1 19/7/2012 Islamic 19/7/ % 1 19/7/2012 Islamic 2011 Shipping Bond Issue Singapore Total Shipping Bond Volume in 2011: USD 357 million Total Shipping Bond Volume in 2010: USD 386 million Top Issuer in 2011: Neptune Orient Lines Company Date of Amount Interest rates Tenor (years) Maturity Remarks Issue (SGD mn) Neptune Orient Lines 22/6/ % 10 22/6/2021 Medium Term Notes Programme Swiber Holdings 25/10/ % 1 25/10/2012 Medium Term Notes Programme 25/1/ % /7/2014 Medium Term Notes Programme Source: Marine Money, DnB NOR Markets, Bloomberg

10 Notable Bond Issues in Asia in 2011 First offshore RMB denominated shipping bond issued in Hong Kong Sinotrans Shipping raised RMB 2.6 billion (USD 408 million) three year bonds Top issuer in Asia in 2011 Raised an unbelievable RMB 10 billion (USD 1.54 billion) in two MTN tranches. Largest convertible offering by an Asian shipping company ever China Shipping Development completed a RMB 3.95 billion (USD 602 million) six year convertible bond issue

11 Notable Bond Issues in Asia in 2011 Closed its second MTN issue since 2010 at better pricing and longer tenor NOL issued its second batch of ten year medium term notes worth SGD 300 million. The offering was not only larger in size than its maiden MTN issue in 2010, it was also priced at 25 bps lower for the same tenor MTN with an Islamic touch Malaysia s tanker owner filled its coffers with RM 1.3 billion (USD 422 million) Islamic bonds Incredulous 20 years bonds at 2.13%! Only in Japan NYK raised JPY 10 billion (USD 130 million) two decade unsecured plain vanilla bonds at record low interest rate of 2.13%

12 Shipping Bonds run a gamut of Structures Plain vanilla Domestic Unsecured Bonds Plain vanilla Domestic Unsecured Bonds with Sinkable features Dim sum bonds

13 Shipping Bonds run a gamut of Structures Medium Term Notes Islamic Medium Term Notes Convertibles

14 Watch out for Perpetual Bonds Rising popularity of perpetual bonds has caught the attention of shipping and offshore marine companies Perpetuals are pseudo equity. There is no maturity, as the company does not have to redeem the bonds by a certain date. The company can defer the dividend, so there is no risk of default if it fails to meets its coupon payout The issuer usually undertakes to make all coupon payments on the perpetuals, including those in arrears, before declaring any dividend payout to shareholders. Investors also expect perpetuals to pay them a higher yield than other forms of debt

15 Key Takeaways 2011 saw the creative use of bonds by shipping companies in Asia to fill part of their funding needs. The majority of the bond issuance remains to be local currency denominated. Only two bond issues Hanjin Shipping and First Steamship were sold in USD Competition for limited availability of bank debt will leave financing a challenge. Shipping companies will continue to keep a lookout for brief windows of opportunities in the bond markets to refinancing of bank debt, maturing bonds and/or bolster working capital The access to bond markets is, however, limited to larger players. Name recognition and market reputation are important High volatility in the capital markets has raised the risk profile of shipping. Will the investors continue to bite, moving forward?

16 Thank You! Rodricks Wong, Senior Research Analyst Marine Money Asia The information and data in this presentation relating to the international ship finance industry are taken from Marine Money International s databases and other sources available in the public domain. Marine Money International s methodologies for collecting information and data, and therefore the information discussed in this section, may differ from those of other sources, and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the ship finance and maritime industry.