Norwegian Bond Market

Transcription

1 Norwegian Bond Market Alternative Financing for the Shipping Industry Christian G. Moxon June 20, 2013

2 We believe the shipping markets have bottomed out e 2015e To be continued Source: Pareto Securities 2

3 Key takeaways from this presentation An issuer s market virtually no demand limit for sensibly structured bond financings Extensive use of tailoring to match issuer and investor need Common sense as an important guideline (Almost) all types of risk can be quantified, assessed and dealt with 3

4 How Norwegian is a «Norwegian style offering»? Loan agreement Norwegian market in practice Trustee Investors Clients Assets Currency USD, NOK, EUR, SEK, DKK 4

5 How big is the market? Amount outstanding, Norwegian HY market USDbn Bulk of capital issued for the capital intensive offshore industry However, companies within a variety of sectors, spanning from mining, pharmaceuticals to forestry, have also issued bonds Today a multi-billion dollar market with USD 30bn+ outstanding Source: Norsk Tillitsmann (Norwegian Trustee), Pareto Securities 5

6 How deep is the market for a single transaction? Size of HY bond offerings in the Norwegian market USDm 700 Deal upsized and ~3x covered Priced at the bottom of the price range (9.0%) 600 Ticket sizes in the range of USD 1-75 million 500 Global demand Deep Drilling Petromena UK US Continental Europe Nordic Asia Africa Brazil January 2006 May 2006 July 2007 December 2010 April 2011 March 2012 March 2013 Source: Norsk Tillitsmann (Norwegian Trustee), Pareto Securities 6

7 How diversified is the market? Selected HY issuer in the Norwegian market Pioneer Public Properties II AS Global universe of issuers Seadrill to Tinkoff Credit System in Russia Wide range of use of proceeds Expansion of kindergarten business (Pioneer public) to financing modern UDW rig fleet (Ocean Rig) Source: Norsk Tillitsmann (Norwegian Trustee), Pareto Securities 7

8 To help protect your privacy, PowerPoint has blocked automatic download of this picture. Marine Money Public debt deal of the year 2012 OSX 3 FPSO Public Debt Deal of the Year UDS 500m Norwegian style high yield bond for OSX-3 FPSO USD 500m 1st lien bond to partly finance the construction of the OSX-3 First Brazilian issuer in the Norwegian High Yield Market Global roadshow covering, US, UK, Continental Europe, Asia and Latin America Total investor demand of USD 1.5bn (book 3x covered) Jury s considerations; The issuer gave fewer covenants and warranties than is typical on this type of bank deal, and kept the terms simple This helped them maintain maximum operational flexibility and control while creating an investment in which investors will not need to be as active as a syndicate of banks would be with a loan facility OSX-3 under construction at Jurong, Singapore Source: Marine Money Offshore (volume 1, April 2013), OSX Brasil S.A., Pareto Securities 8

9 Norwegian offerings vs. US offerings Transaction structure Norwegian offering Flexibility on use of proceeds, covenants and tenor Focus on the deal fundamentals US offering Standard template requirements, important to tick the boxes Deal docs Light and efficient documentation process Limited strain put on the Company No official rating required Comprehensive prospectus and loan agreement required Transaction cost Managers (and not lawyers) to produce lion share of documents Due diligence scope decided on a case by case basis Comprehensive due diligence Considerable input from legal counsel required Rating process Issuance process An offering could be completed in 2-6 weeks depending on complexity of transaction Minimum 6-10 weeks preparation phase (due to docs) The official rating process could delay the process further Size Source: Pareto Securities Offering sizes from USD 50m and upwards Challenging for companies targeting smaller transaction to justify the time and cost required to complete the issue 9

10 Large companies with no Norwegian content chose Norwegian offerings Mainly due to speed and flexibility USD 125m senior unsecured bond issue in the Norwegian market in 9.0% p.a Chose the Norwegian market due to Speedy issuance process Full visibility on timeline important to match settlement of LPG vessel acquisition from Maersk NOK 500m senior unsecured bond issue in the Norwegian market in p.a Chose the Norwegian market due to Flexibility in timing market opportunities Competitive interests compared to a US offering USD 500m senior secured bond issue in the Norwegian market in 9.25% p.a. Chose the Norwegian market due to Newbuild FPSO project required specialized investor knowledge Complex rating experience Diversification of funding sources USD 300m senior unsecured bond issue in the Norwegian market in 8.25% p.a. Chose the Norwegian market due to Access to investors understanding the rig-space Time-to-market Document light Source: Pareto Securities 10

11 With the right structure, all type of risks and features can be dealt with Leverage Contract risk HY bonds have frequently been used as take-out financing for uncommitted newbuilds Construction risk HY bonds have been used as bridge financing during a 2-3Y construction period Structures with de-facto 100% leverage have been accepted by investors Corporate risk Companies with a challenging market environment and low visibility on earnings have frequently issued bonds Cash flow risk Geo-political risk Companies with operations in Nigeria, Senegal, Iran and other non-western countries have regularly tapped the bond market Residual value risk Bonds with no or limited amortization have been issued in the Norwegian market Source: Pareto Securities Bonds with payment in kind through majority of the tenure have been accepted by investors 11

12 HY bond investors are ready to invest in shipping Wilh. Wilhelmsen yield to maturity 10.0% 9.0% 8.0% Yield to maturity gone from ~9% in Sep-11 to ~4% today 7.0% 6.0% 5.0% 4.0% 3.0% Jan-åå Sep-åå May-åå Jan-åå Sep-åå May-åå Source: Bloomberg (June 11, 2013), Pareto Securities 12

13 Ship-owners have yet to capitalize on the market potential Shipping market share of total Norwegian HY volume 94% 95% 100% 83% 89% 89% 78% 96% 6% 5% 17% 11% 11% YTD 2013 Shipping Other 22% 4% but the few who have tried have been very successful Source: Norsk Tillitsmann (Norwegian Trustee), Pareto Securities 13

14 High yield bonds in shipping as funding source are underutilized Financing of the cost of the current fleet on water USDbn HY bonds account for only 7% (USD ~30bn) of the delivered cost for current shipping fleet HY bonds as a funding source for the shipping industry, is clearly underutilized 0 Delivered cost Equity / amortization Bonds Bank Source: Pareto Securities, Petrofin Research, World Yards 14

15 The Norwegian equity market 15

16 Key highlights - Norwegian equity market An attractive market to raise growth capital A sophisticated market within the shipping and offshore space target investors already well educated within relevant segments Understand and appreciate risk / reward in a cyclical business Investors look beyond challenging multiples arising from companies with aggressive newbuilding programs Highly cost and time efficient listing process compared to other market places Regulatory procedures are not onerous Limited documentation requirements means shorter lead to listing Uncomplicated listing process, including manageable fee levels Rules and regulations according to international standards Reporting can be submitted in English and in local currency Access to capital from both Norwegian and international investors Foreign investors accounting for ~35% ownership and >50% of the trading volume International investors look to the OSE for exposure to the shipping and energy sector 16

17 We believe the shipping markets have bottomed out UDW / VLCC (10Y) index # of 10Y VLCCs per newbuild UDW rig? In 2000, you could buy 4 x 10Y VLCC for the cost of a UWD newbuild In 2013, you can by 30 VLCC for the equivalent price of a UDW e 2015e A good time to buy VLCC s? Source: Pareto Securities 17

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