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Table of Contents
1. INTRODUCTION
2. SHIPPING
3. CAPITAL STRUCTURE
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Over the last eight years, ship financing has probably changed more than in the last couple of centuries. After
years of continuance of boom and bust cycles in the start of the millennium, the shipping industry experienced
one of the greatest booms of all times in the period of 2003 through 2008. With increased demand for
seaborne trade fuelled by the emerging Chinese economy, freight rates skyrocketed leading to a mass
expansion of the world shipping fleet. Such expansion needed funding with shipowners primarily tapping bank
loans and public equity markets. By 2008, the demand for seaborne trade had reached its culmination point,
and when the financial crisis hit, world trade was negatively affected resulting in a substantial overcapacity of
ships. This caused the freight market to collapse. As a result of the crash in the financial market, a series of
bankruptcies rippled through the market causing counterparty credit concerns. With the trust gone, short term
funding costs went through the roof, causing bank liquidity to dry up. This led shipowners to turn to the bond
market for financing. By the end of 2009, market sentiment had again recovered, resulting in a new round of
investments. The recovery was, however, short lived, as the European Sovereign Debt Crisis emerged by the
start of 2011.
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The following theory section for shipping is taken from Martin Stopford’s, Maritime Economics 3rd edition (2009).
Source: CRSL
The concept of shipping has existed for thousands of years. Ever since the first transportation of cargo that dates back more than
5000 years; seaborne trade has led to exploration and discoveries that have shaped the world of today. With global development,
trade has increased which has led to greater demand for transportation. Today, more than 90% of world trade is transported by the
shipping industry, making it a truly global industry.
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The shipping industry can be divided into three segments: bulk shipping, specialized
shipping and liner shipping.
Bulk Shipping:
The bulk shipping segment carries large homogeneous parcels, such as raw material cargo
and can be split further into the following sub segments:
Minor bulks
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Liner Shipping
The liner shipping or general cargo shipping, which it is also known as, carries parcels
that are too small to justify a dedicated bulk shipping operation. The container
shipping segment is part of this group. There are no fixed rules for what characterizes
as general cargo, however, boxes, bales, machinery, 1000 ton steel products are
typical examples of general cargo.
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Specialized Shipping
Specialized shipping is specially built ships that carry non-homogeneous cargo such as
motorcars, forest products, refrigerated goods, chemical and liquefied gas. It can
therefore be viewed as a combination of the bulk and liner segment, as it bears
characteristics of both.
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Global sea transport is provided by four directly related markets; freight market, the
market for buying and selling of second-hand ships, the newbuilding market, and the
demolition market.
In this market, second-hand ships are traded between shipowners. Since second-hand
ship prices are dependent on freight rates, age, inflation and expectations of future
earnings, the value of ships can be volatile. The volatility in price is thus important to
shipowners, as the trading of ships is a major source of revenue.
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This is the market where new ships are ordered from the shipyards. Since the ship has to be
built, this ads complexity to the contract process in the form of specifications, delivery date,
payments and financing of the purchase. The ship prices are related to the prices in the
second-hand market, market expectations, the capacity of the shipyard and the access of
affordable financing. The investment in a new ship is of considerable risk, since it takes
two to three years for it to be delivered, thus with the volatile nature of the shipping
industry, the market conditions may have changed upon delivery.
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The demolition market (often referred to as the recycling market) is the market where old
or obsolete ships are dismantled and sold for scrap. The procedures are similar to the
once under the sale and purchase market, but the customers here are scrap yards, rather
than shipowners. The major scraping markets are today located in eastern Asia. The scrap
price has historically varied substantially over time. The price is determined by the supply
of ships and the demand for scrap metal, which in Asia, is usually dependent on the
demand in the local steel market.
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Economic cycles can be defined as the varying pattern of economic activity over a
period of time. Market cycles in the shipping industry are a prominent part of the
business. Martin Stopford uses the analogy of poker to describe the behaviour of
shipowners in shipping cycles. Like poker, profiting from the cycles is a combination of
skills, luck and psychology for the shipowners, which is a game that has been played
for centuries.
With cycles we can distinguish between three different types, in relation to how long
they last:
A long-term cycle refers to a cycle lasting for several decades that is driven by
advancement in technology, change in economic conditions and regional changes.
Thus, it is important for shipowners to pay attention to whether the market is in
the downturn or upturn of the cycle.
Short term cycles or business cycles typically last anywhere from 3 to 12 years.
Within the short term cycles of shipping, there are four different stages which have
the following characteristics:
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o Collapse: In this stage, the oversupply of vessels in the market exceeds the demand, drastically driving down the freight
rates. This decline can further be reinforced by economic shocks like the financial crisis. As ship prices decline,
shipowners are reluctant to sell ships due to the previous prices in the peak period.
4. Shipping Taxation
The shipping industry generally benefits from very low effective taxes due to favourable tax regulations in most countries. Since
shipping activity is not geographically bound, like other industries, this means that shipowners are free to choose what country they want
to register their fleet and operate from. There is, therefore, a strong incentive for the governments to offer favourable regulations in order
to attract foreign companies and avoid flagging out of domestic operators. The taxation regimes within shipping can be split into three
categories.
The tax paid under the tonnage tax regime is not based on the actual profits generated by the firm, but rather on the actual tonnage of the
vessel. The tax is calculated by multiplying the tonnage of the vessel by a fixed amount that represents the estimated profit per ton. Under
the tonnage tax regime, there are two prominent models, the Dutch and the Greek model.
Comparing the Dutch model with a regular taxation model, the main difference is how the profits from shipping activities are calculated
and what vessels are included under the respective model. Other than this, the shipping firm and income from non-qualifying activities
will be taxed under the regular taxation system. The Greek model is overall more lenient, including all vessels and shipping activities
under it. In addition, the two models also have special criteria for ownership, lock-up period, capital gains, flag requirement and the way
the management is organized. However, the overall taxation will differ from country to country, even though they use the same model, as
the governments will tailor it for their home country.
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Geographically the Dutch model is implemented in most EU countries as well as Japan, USA, South Africa and South Korea, while the
Greek model is only used in Greece, Cyprus and Malta.
This refers to the tax provision provided to shipping companies operating in the respective country. There are many different incentives,
however, most incentives are typically associated with very low taxation. This is either done by reducing the tax rate, narrowing the tax
base or through tax redemption. These kinds of tax regimes can be observed in countries like Liberia, Malaysia, Marshall Islands,
Panama, Russia and Singapore.
Tax efficient regimes refer to countries that do not have any special tax regimes targeted towards the shipping industry, but rather treat
all foreign operators on equal grounds. Despite the fact that there are no shipping specific tax regimes, it can still be attractive for
shipping companies to register their vessels and operate out of countries like this. This may be due to exemption of taxation for foreign
investment or accelerated amortization for the ships. Some of the countries practicing this are Antigua, Barbuda, Bermuda, Estonia and
Saint Lucia (PWC, 2009).
other hand, we do have a supply-side problem. This oversupply has been created by the rapid fleet expansion and ordering during the booming years,
which was followed into the recent years of economic recession. As the freight rates of the recent boom reached astronomical levels, only
comparable with those of the First World War, many of the operators built up substantial capital. This capital has now being put to use to build up
cheap countercyclical investments. This is illustrated by a growth of 37% of the world fleet from 2008-2012.
Even though there has been a gradual reduction of new orderings from its peak of 2009 and a gradual increase in demolitions, the supply of ships still
far outgrow the demand, having a growth of trade of about 3.5%, paired with a 10% increase in the world fleet last year. It is expected that by 2014,
there will be a fleet surplus of about 20% leading to severe excess capacity. Such structural unbalance leads to low projected growth in the future, and
with another possible round of countercyclical ordering around the corner, the trough can be further prolonged.
Going further in detail, the tanker sector is currently struggling with the structural problems mentioned, and the sector is losing growth due to the
combined effect of high oil prices, and the emerging completive sources of oil; like shale oil and deep water oil from the Persian Gulf and Brazil.
Bulk trade is doing a bit better, with Asia being its main driver. This demand is, however, not only created by China, but Asia as a whole, where China
accounts for half of the demand. Liner trade experienced its first negative shock in 40 years in 2009, with a 6% decrease in seaborne trade. It has,
however, partially recovered, but indications are now that the market is likely to be more volatile in the future (Stopford Presentation, 2013).
Looking into the future, according to Wilbur Ross, emerging markets such as China, Brazil and India are likely to carry the shipping market in the
following years (qtd. LaRocco, 2013). This view is further reinforced by the recovery in world trade being led by these developing countries, having
been much of the driving force behind the recent economic recovery.
The resurgence of oil and production in the US, due to technological advances in attaining the reserves in the shale rock, is also an event that could
cause large changes in both seaborne trade and oil production. It is predicted that the US will become a net exporter of oil by 2030, but this
development is dependent upon the oil prices remaining at fairly high level. It is expected that a drop of the oil price under $70-95 per barrel
would make it
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Looking into the future, according to Wilbur Ross, emerging markets such as China, Brazil and
India are likely to carry the shipping market in the following years (qtd. LaRocco, 2013). This view
is further reinforced by the recovery in world trade being led by these developing countries, having
been much of the driving force behind the recent economic recovery.
The resurgence of oil and production in the US, due to technological advances in attaining the
reserves in the shale rock, is also an event that could cause large changes in both seaborne trade and
oil production. It is predicted that the US will become a net exporter of oil by 2030, but this
development is dependent upon the oil prices remaining at fairly high level. It is expected that a
drop of the oil price under $70-95 per barrel would make it unprofitable to extract these
resources (Bartis et.al., 2005), and with it being just seven years since everybody predicted oil
prices to sustain at $20-25 per barrel until 2030, the future is clearly not set. It is, however, likely
that the success factor of this extraction will be an important variable in the in the world trade for
years to come. The initial effect of the shale oil can already be seen, by among other things, Saudi-
Arabia decreasing its export to the US, and shifting their exports to a larger degree towards China
(IEA, 2012).
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The term “capital structure” refers to how the firm is financed through equity, debt or hybrid securities (Berk, DeMarzo,
2011).
In 1958, Merton Miller and Franco Modigliani (MM) published their article “Theory of investment”, stating that under
perfect capital markets the total value of a firm is independent of the capital structure. Despite initial criticism, this
contribution by MM has become the cornerstone of modern financial theory.
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- “Investors and firms can trade the same set of securities at competitive market prices equal to the present value of their
future cash flows.
- There are no taxes, transaction costs, or issuance costs associated with security trading.
- A firm’s financing decisions do not change the cash flows generated by its investments, nor do they reveal new
information about them” (Berk, DeMarzo 2nd edition 2011, page 455).
Proposition 1: “In a perfect capital market, the total value of a firm is equal to the market value of the total cash flows generated
by its assets and is not affected by its choice of capital structure” (Berk, DeMarzo 2nd edition 2011, page 455)
MM supported their reasoning behind Proposition 1 with the arguments from the Law of One Price and Homemade Leverage.
The Law of One Price states that under the assumption of perfect capital markets, all the cash flows generated by the firm will be
equal to the cash flow paid out to all. This is
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consistent with the Law of one Price, meaning that the value of the firm assets must be equal to its securities. This in turn means that as
long the firms’ choice of securities does not change the cash flow of the firm; the value of the firm is independent on the source of
financing. If the law of one price was violated one would have an arbitrage opportunity.
Homemade Leverage
The homemade leverage argument states that if investors are unhappy with the capital
structure the firm has chosen, they can simply add/subtract leverage to/from their portfolio by borrowing/lending out themselves. This is
known as homemade leverage, and as long as the investor can borrow or lend at the same rate as the firm, the added/subtracted leverage
will be a perfect substitute for the use of leverage by the firm.
Proposition 2: “The cost of capital of levered equity increases with the firm’s market value debt-equity ratio” (Berk, DeMarzo 2nd edition
2011, page 461). Given an all equity financed firm, as the firm starts to lever up with cheap debt, the risk of the equityholder increases
proportionally. When the debt level reaches a sufficiently high enough level, the risk of bankruptcy surfaces. Additional leverage above this
level results in an increase in risk for both equity- and debtholder. As a result of the increased risk, the equity- and debtholders will
demand a higher risk premium and therefore a higher expected return. The levered return of equity formula and Figure 2 shows this
relationship:
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the way the firm finances its new investments does not change the value of the firm, as the NPV of the cash flows are
discounted with the same WACC regardless. This causes the value of the firm to remain unchanged.
Where:
The trade-off theory rationalizes the use of a certain debt ratio. This is because the incurred interest cost from the debt
is tax-deductible on the firms’ taxable income. As a result, the tax paid on the firm’s income is offset by the interest
tax-shield created by the interest expense, leading to a lower taxable income for the firm. However, with increased
debt levels the probability of financial distress increases. In this respect, the trade-off theory says that a firm will
increase its leverage to the point where the marginal net present value of the interest tax shield is just offset by the
increased net present value of possible costs of financial distress (Myers, 2001).
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Where:
The net present value of financial distress can be separated into direct and indirect cost. The direct costs refer to the
legal and administrative fees relating to lawyers, accountants, and other professionals involved in the bankruptcy
filing (Weiss, 1989).
While the indirect costs consist of a variety of unobservable expenses and opportunity costs
that are difficult to measure. These include loss of: customers, suppliers, employees, receivables and fire sale of
assets (Berk, DeMarzo, 2011).
A study by Andrade and Kaplan (1998) shows that financial distress costs of highly leverage firms that became
distressed, make up between 10-20% of the firm value.
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The theory suggests that all firms should lever up as long as the costs of financial distress are less than the benefit from the
added tax shield. Empirically this does not hold, since studies show that the most profitable firms tend to borrow the least
amount. This is counterintuitive to the trade-off theory, since these firms would have large taxable incomes that would benefit
from the deductible interest tax-shield, created by the added debt (Myers, 2001).
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The pecking order theory created by Myers and Majluf (1984) describes the firms’ hierarchal view on use of financing
options. In their analysis, they looked at a firm with asset-in-place that required further financing to realize a growth
opportunity.
4. In the case where external finance is needed, the firm will issue the safest security first; from safe to riskier debt, and
finally equity as a last resort (Brealey, Myers, Allen, 2011) (Myers, 2001).
The reason firms prefer to issue debt over equity is that there exists information asymmetry between the management and
the market. Assuming that the management is acting in the best interest of the existing shareholders, the management will
not issue equity when they view the company as undervalued, as this would be a gift to new shareholders. If they view
the firm as overvalued they will be more willing to issue equity, as this would benefit the existing shareholders. However,
since the market is aware of the information asymmetry between management and shareholders, it will quickly react to
the issuance of equity, and drive down the stock price, eliminating this overvaluation. Therefore, assuming both
management and shareholders are rational, the management will issue debt over equity whenever this is possible.
The pecking order theory does not give a target debt ratio, since the two types of equities, internal and external, are
situated on top and bottom of the pecking order list. The observed debt ratio of a firm is therefore a sign of the cumulative
requirements for external finance.
Compared with the trade-off theory, the pecking order theory actually explains why the most
profitable firms have the lowest debt ratio. This is because they have excess internal funds, and therefore do not require
external funds to finance new projects. Less profitable firms on the other hand, need to borrow to make up for the funding
gap between their capital expenditure and the internal funds available (Brealey, et al., 2011).
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The market timing theory refers to a hypothesis put forward by Baker (2002), which states that firms will choose the cheapest source of
financing at point of time when the financing is needed. They will hence pay attention to the market conditions and attempt to time the
market, choosing the best alternatives of financing from equity and different debt instruments.
The theory is based on behavioural finance and differs from the traditional pecking order theory and trade-off theory, as this theory does not
try to choose between equity and debt. The theory rather tries to find which source of capital that benefits the firm the most. The goal is not
to find the optimal capital structure, but rather to take advantage of the market conditions by regulating the firms' capital structure.
The theory further separates itself from the pecking order and trade of theory by not trying to explain why mispricing occurs or why the firm
has a better ability to price the firm than the market. The theory rather assumes that mispricing does exist, implying that that the market is
not perfect and that the management knows better.
The empirical evidence for this theory is, however, mixed, like many other hypotheses in behavioural finance. Baker and Wurgler (2002)
claimed in their paper that an index of financing from market trough and upswings illustrated this hypothesis, while other papers, such as
Alti’s paper (2006), have found that this effect falls away after two years. It has furthermore been difficult to prove that certain firms are able
to consequently beat the market, hence questioning the reliability of the theory.
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According to Grammenos and Papapostolou (2012), the shipping industry has in the three past decades
gone through a significant shift in the use of financing options. During the 80s and 90s, the Pecking
Order theory fit the behaviour of shipping firms. Shipping firms mainly used debt, as the retained
earnings was generally too small to finance a large ship investment. Stopford (2009) supports such
statement by describing ship financing as dominated by bank loans, with bonds as the second choice of
capital as long as the firms had the creditworthiness to issue debt.
However, according to Grammenos and Papapostolou (2012), the development during the last decade
suggests a shift from the Pecking Order theory to the Market Timing Theory. This has been especially
evident in the US shipping market during the period 2003-10, where there has been a shift from the
traditional debt financing towards the more untraditional equity financing.
The main reasons for the shift towards the equity market were:
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- The banking crisis of the 1980’s that led to large losses in the financial sector.
- The depletion of the equity base of shipping firms in the mid-80s.
- The large scale-vessel replacement programs with increased capital requirements as well as high vessel prices in the 1999 and 2000.
- A new generation of ship-owners and management that has a different perspective and academic background (Merikask,
Gounopoulos, Nounis, 2009)(Grammenos, Papapostolou, 2012).
In addition to the increased use of the equity market, there was also an increase in the popularity of the high-yield bond market. This
development suggests that shipping firms raise their external capital based on their perception of the cost of equity and debt, and in that respect
what is the best for the particular firm in the current state of the economy.
Given the cyclical and volatile nature of the shipping industries, we do, however, believe the financing choices and preferences of the industry
operators are likely to diverge from the norm. We, therefore, believe that we will see divergences from the general financial theory, which
consequently may explain why financial theories only hold for a certain period of time for the shipping industry.
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The shipping industry is one of the most capital intense industries in the world. Therefore is the choice of financing imperative for the
success of new investments. Because of the truly mobile nature of the shipping industry, shipping firms face a less rigorous corporate and
legal structure compared to other industries that are as capital intense. The volatility of the earnings and the value of the assets contribute to
make it an exciting industry for shipowners, while more challenging for lenders, who seek stability and transparency.
During normal market conditions, where the shipping industry generates respectable profits, shipping firms will generally have little
problem to secure financing for their new investments. In fact, some would even say that the industry has been plagued by an abundance of
capital, thereby resulting in an oversupply of ships (Stopford, 2009). Bank loans have been the prominent source of capital for the industry.
However, in times when the financial sector experiences deteriorating credit markets, they will cut back on loans, thereby limiting the
supply of credit to the shipping firms (Stopford, 2009).
When the "cheap" bank loan source dries up, shipowners have to look for alternative financing sources. The second prominent source of
capital is the public equity and debt markets. As we will later discuss, there has been an upswing in the use of equity during the last decade.
In addition, the lack of bank funding led to the resurrection of the high-yield bond market from the mass defaults seen in the late 90's
(Grammenos, Papapostolou, 2012).
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- In a capital intense and volatile industry such as the shipping industry, with
vessel values tying up the majority of capital, there is a real threat of financial
distress. Therefore, the way the firm finances its vessels is a key
component of the busines
- For the shipping industry, the capital markets acts as a link between investors
and shipowners, providing capital to fund new investments and growth. With
changing market conditions, shipping companies have explored new ways to
finance their investments.
- Equity financing can be separated into externally and internally raised equity
1. Internal equity refers to the use of the owner’s private equity, retained
earnings from operations and the profit from selling ships (asset play) to
fund investments.
2. External equity refers to public or private equity offerings in the
capital markets (Stopford, 2009) (Merikas et al., 2009) (Grammenos,
Papapostolou, 2012).
The most common form of equity financing in the shipping industry is the private
placement of equity. This is mostly due to the fact that most shipping companies
are relatively small and an IPO carries large up-front costs. Therefore, equity is
often injected from the owner, family, friends, private equity funds or hedge
funds, who want to diversify their portfolios. While historically, retained earnings
and family’s and friends’ money have dominated the equity financing, today
private equity companies and hedge funds show large interest in the business.
https://www.investopedia.com/terms/i/ipo.asp
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tps://www.investopedia.com/terms/i/ipo.asp
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4.4 Private
Placement
- Private placement is the process where a company, that is either public or private,
offers securities to individuals or a small group of accredited investors. Securities
offered, can either be of equity or debt, and private placement will hence also be
described under our debt section. In such offerings, the investor can for example be in
the form of banks, mutual funds or private equity firms. In the US, this does not qualify
as a public sale of securities; therefore it does not have to be registered with the
Securities and Exchange Commission (SEC) or fulfill the usual reporting
requirements. Contrary to an IPO, private placement is a cost effective and less time
consuming procedure for a firm to raise capital (Private Placement of Securities, n.d.).
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- equity funds differs according to the nature of their investment and their means of
realizing the profits from the transaction. The profits can either come from operational
income or from exit strategies such as IPOs, mergers and acquisitions, selling or
leveraging of the assets (Snow, n.d.)(Imhof, n.d.).
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DIFFERENT
PUBLIC
EQUITY &
PRIVATE
EQUITY
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As stated at the begging of this thesis there is an ascending relationship of risk, priority of
payment and consequently cost, between the three major financing methods. Going from
senior and collaterized debt to convertible bonds and finally equity the corresponding risk and
cost substantially increases. Regarding the priority of payments, either regularly or in a
liquidation scenario, mezzanine capital is subordinate to senior debt, like commercial lending
and bonds, while it is senior to common equity capital.
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CONVERTIBLE BONDS
- A widely used sub-category of bonds’ financing is that of convertible bonds. As their name
implies, these bonds provide the ability to be converted, under certain terms though, to
common shares of the issuing company. At their issuance, they are simple bonds functioning
just like a straight bond and making coupon payments regularly, usually in a semi-annual
basis. When a conversion into shares takes place, the same bonds will cease acting as a
fixed income security by paying coupons but they may pay dividends according to what the
convertibles’ initial reported prospectus stipulates.
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CONVERTIBLE BONDS
- Conversion provisions incorporated in the bonds’
indenture make the creditor to become shareholder
and the debt instrument to become hybrid
respectively. As long as the bondholder has not yet
exercised his conversion option he receives fixed
income under coupon payment form, while at the time
he decides to convert all or a part of his bonds into
shares, he may receive discretionary dividends or
realize capital gains.
- When these bonds are outstanding are subject to YTM fluctuations, while if they
convert into shares they are going to be subject to stock’s fluctuations. The
indenture governing the convertible bonds stipulates in detail when and how the
bonds’ conversion into shares shall take place. Apart from the most important
terms of convertibles, such as exercise time, conversion price and ratio etc, the
convertible bond’s prospectus contains every other related detail as well as the
cost of the bonds’ issuance breakdown.
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CONVERTIBLE BONDS
- ADVANTAGES & DRAWBACKS
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CONVERTIBLE BONDS
- ADVANTAGES
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CONVERTIBLE BONDS
- ADVANTAGES
Lower required return than common equity: At their issuance and before being converted the
convertible notes constitute debt securities and their holder is one of the company’s creditors. Given
this, convertible notes, like any other type of debt financing, cost less for the company compared
with the financing through equity. Obviously, this is not the case if the notes convert into common
stocks where they will encompass all the pros and cons of a common equity share.
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CONVERTIBLE BONDS
- ADVANTAGES
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CONVERTIBLE BONDS
- ADVANTAGES
CONVERTIBLE BONDS
- ADVANTAGES
Less dilution effect in common shareholders:
Given that convertible notes are issued with a
higher exercise price than the share’s current
market price, the company’s shares will have to
substantially perform so as the option’s exercise to
be materialized. This serves as a kind of protection
against over dilution in common equity
shareholders.
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CONVERTIBLE BONDS
- ADVANTAGES
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CONVERTIBLE BONDS
- DRAWBACKS
Higher financing cost than bank loans: Convertible notes may have lower coupon rate than that of
the “plain vanilla” notes, but they are still notes and as notes they bear higher risk and cost compared
with that of commercial bank lending.
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CONVERTIBLE BONDS
- DRAWBACKS
Downward pressure on share's price: Due to the potential common shareholders’ dilution the
conversion option of these notes entail, there is a downward pressure on the share’s price. Some of the
existing shareholders in the light of a potential dilution of their portion may decide to sell their shares
leading the share’s price to fall. Additionally, some of the potential equity investors may be
discouraged to put their money for purchasing a portion of ownership that in a while may be smaller,
leading again the share’s price and the firm’s market capitalization to fall.
[2]
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CONVERTIBLE BONDS
- DRAWBACKS
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CONVERTIBLE BONDS
- DRAWBACKS
Covenants imposed mainly by firm's senior
lenders: Considering that this debt mezzanine
capital ranks junior to almost all other types of
debt financing, the covenants included shall be
in accordance with that of senior debt capital.
Apart from the new covenants, former
covenants already being imposed by senior
lenders may be included in the notes’ indenture.
Hence, a thorough examination of the covenants
imposed directly or indirectly by the firm’s
senior lenders would be beneficial for the
mezzanine capital providers before investing.
The most common covenants’ package
incorporated in mezzanine debt securities refers
to restrictions in sale of assets, change of
control, liens, restricted payments and affiliate
transactions.
[2]
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Lower required return than common equity: Despite being an equity item, convertible preferred
shares do not bear the same risk as common shares since they promise a dividend to their holders
and they give the right of converting them into common. Due to their lower risk, preferred
shareholders require lower return than common shareholders do, else, financing by issuing
preferred shares costs less than by common shares. Obviously, that is the case until converted into
common stocks.
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No management involvement
entailed: Preferred shareholders
normally do not have voting rights and
they do not participate in the
company’s Board of Directors (BoD)
and the decision making process.
Thus, the firm’s management enjoys
flexibility and privacy always until the
conversion of preferred shares, if
same is exercised.
[2]
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Constitute Tier 1 capital: This advantage refers to banking institutions. Tier 1 Capital1, the
measurement of a Bank’s capital strength or adequacy, is of critical importance for the good
performance and sustainability of a bank. Regulations on Banking Institutions such as Basel I, II and
III have set specific requirements a Bank shall be in compliance to. Since there is gradual increase in
the level of required Tier 1 Capital of a bank, the issuance of preferred shares seems to be rather
preferable.
[2]
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CONCLUSIONS
- Although the mezzanine financial instruments are not so popular among shipping companies, they
are gradually gaining ground since they are coming to fill the gap between debt and equity
capital in a continuously altering national and international economic landscape.
- There are indeed, many cases that a mezzanine financial product is the most advantageous as
regards to the other types of financing.
- When, for instance, it comes to a highly leveraged company seeking to raise additional funds but
either not willing or not able to issue more shares, the financial solution that suits it better is that
of mezzanine capital.
- The improvement of debt to equity ratio, the lower cost than the equity capital and the flexibility
they provide, with all the terms and clauses, constitute some of the major advantages. The fact
though that the mezzanine financing includes many different features, since it shares
characteristics from both debt and equity capital, is either a benefit or shortcoming for a firm
considering that the flexibility the company enjoys from these hybrid attributes can be switched to
complex operations.
- Indeed, with no careful handling and no well-educated personnel to be in charge of the finance
department, adverse effects might occur. Being closer either to debt or to equity, mezzanine
financing constitutes a valuable tool for the shipping companies provided the management has
weighed in advance the benefits and shortcomings each type of this hybrid instrument entails.
[2]
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- Generally speaking, debt financing charges interest rates, which are in principal lower
than the shareholders’ required return, thus, making instantly the debt’s cost of capital
lower than the equity’s.
- The latter briefly explains why shipping companies have historically preferred
borrowing debt capital than raising equity, magnifying their leverage and sometimes
facing adverse effects.
- Moreover, financing methods via debt enjoy payment priority in each fiscal year,
simply because of the payment ranking in a shipping company.
- In particular, in a first to last order, the labor gets paid, creditors get paid, tax
authorities get paid and finally shareholders get paid
- According to the basic finance and investment principal, the higher the risk the higher
is the return required. Based on this, shareholders are entitled for the residual income
(net income), given in the form of dividends, if any.
- Debt financing comprises Commercial loans, Bonds and Leasing.
[2]
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COMMERCIAL LOANS
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COMMERCIAL LOANS
COMMERCIAL LOANS
COMMERCIAL LOANS
COMMERCIAL LOANS
COMMERCIAL LOANS
CRITICAL POINTS
- When it comes to conclude a loan, ship-owners shall be aware of some specific terms
and points incorporated in the agreement. They determine and significantly affect the
borrower’s liquidity position, the ability to meet his financial obligations and to generate
profit, as well as the level of his exposure to risk. Some of these crucial points are
presented below:
[2]
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CRITICAL POINTS
Interest rate
The lender charges the borrower with the interest rate in order to be remunerated for
not having the right to use the amount he has loaned. Debt can be issued on an either
floating or fixed rate according to each separate case, but the former seems to be more
common. Loan concluded on a floating rate does not restrain its swapping to fixed rate
in the future or vice versa. In general, fixed rates seem to be higher than the floating
yet this does not surely constitute a rule.
[2]
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CRITICAL POINTS
Loan’s repayment schedule determines when the installments have to be paid. In London,
same shall be paid either semiannually or quarterly. Tenor is another important point for a
loan indicating the exact time of its repayment. For example, a 20-year senior mortgage debt
has a 20-year tenor. Tenor is for loans what maturity is for bonds and other fixed-income
instruments. Not only defines the initial length of a loan, but also the remaining, meaning that
a senior debt issued with a 20-year tenor after a 5-year period will have a 15-years tenor.
Another important issue is that when a loan’s tenor is prolonged then the installments ae
reduced.
[2]
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CRITICAL POINTS
- Through this schedule both the borrower and the lender can monitor what proportion of the
installment goes toward interest and what toward principal repayment.
- In essence, it is a quite simple table, which provides a breakdown of the periodic installments
- One borrower with a fixed rate loan will be well in advance informed of both interest and principal
amount since the interest payable is calculated by multiplying a fixed rate with the loan balance
[2]
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CRITICAL POINTS
Payment methods
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CRITICAL POINTS
Payment methods
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CRITICAL POINTS
Payment methods
CRITICAL POINTS
Payment methods
Balloon payment: he term "balloon" indicates that the final payment is significantly
large. Balloon payments tend to be at least twice the amount of the loan's previous
payments.. “Balloon” is the pre-agreed principal given as a lump sum amount at the
loan’s maturity. It is reckoned as a percentage of loan payable at the end of the term.
Loan concluded with a 50% balloon payment means that the half principal will be paid at
the last tranche and all the other periodic payments will consist of the other half
principle allocated equally plus the interest. Note that the interest is calculated on the
loan’s balance, which decreases only by the principle payable until its term. This type of
payment is quite preferable by shipping companies especially when the freight market
downturns.
[2]
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CRITICAL POINTS
Gearing (loan to asset value ratio):
- The ratio given from the bank varies depending on several factors. The most popular
among them are the bank’s own economic situation, the name and credibility of the
borrower, the age and type of the ship (new-building or second-hand), the collateral
given, the right to recourse other assets or not, the overall lending policy and the
competition between banks.
- Not only determines this ratio how much capital will be provided by the bank but also
how much it remains and needs to be funded by other ways of financing. In historically
high freight market this ratio regarding the reputable clients has surged to 80% requiring
from the owner to place only another 20% to materialize the investment. Nowadays, yet
at the shadow of global economic crisis, the hitherto dominant players of commercial
[2] lending are endeavoring either to decrease their shipping portfolio or to give a quite low
gearing.
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CRITICAL POINTS
Currency Risk
- There is a risk for the borrower in regards to the currency in which the debt is issued.
Banks usually lend in dollars, euros or other major currencies thus the expected cash
flow must be in the same currency so as the borrower not to be exposed to currency
risk.
- Verily, most shipping companies borrow money with the three-month Libor in US-dollar
since their revenues and operating cash flows are in the same currency. Due to freight
market’s volatility and high risk, few are the borrowers opting to bear concurrently both
the financial and the currency risk.
- The strategy of finding a stronger currency and swapping the debt from USD from
example to CHF may seem attractive, but the hazard of CHF currency decrease lurks. The
[2] borrower the moment of swapping maybe owes less to the lender but in a potential CHF
fall he will owe more than prior to swapping.
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CRITICAL POINTS
[2]
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CRITICAL POINTS
ADVANTAGES
Lower cost of financing: Bearing in mind the simple payment hierarchy prevailing in every
shipping company, «labor gets paid, debt gets paid, taxes get paid and finally shareholders get
paid” it is clear why bank lending has the lower cost. Debtors, such as bankers, are exposed to
the lowest risk among the other capital providers, thus they normally charge the lowest cost.
Apart from preceding in the payment hierarchy, bankers most of the times grant secured loans
having as a mortgage at least the purchased vessel, if not even more vessels or other assets as
cross-collateral. Thus, they bear lower risk compared, for instance, to the bondholder of an
unsecured bond. Indeed, all loans in the examined companies have embedded vessels’
mortgages and stand senior in ranking. As for their cost of commercial lending, it ranges
between 3.9% -4.6% with DSX having achieved the lower of 1.5% averagely in the last 4 fiscal
years.
[2]
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CRITICAL POINTS
ADVANTAGES
Negotiable payment methods and terms: The ship-owner along with the banker’s own
consent may choose the terms and payment method that suit better his interests and
business. Stable installments, balloon or bullet payments are some of the methods a bank can
offer, always depending on each company’s profile. After the loan has been granted the two
counterparties can renegotiate on the terms, if need be, or certain circumstances taken place.
Undeniably, the commerciality that a loan may offer enhances the company’s flexibility, a
rather crucial fact when considering the volatile shipping market.
[2]
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CRITICAL POINTS
ADVANTAGES
No need for public exposure, no management intrusion: In contrast to bonds or equity capital
raised from markets, commercial lending does not only address to publicly traded companies
but to every single company, from a small scale traditional private shipping company to the
most sophisticated and complex public shipping enterprise. Therefore, there is no need for
public exposure; a private company has access to loans without having to enter the capital
markets. Additionally, the company has the privilege to share with the bank only certain,
predefined in the agreement activities, for instance selling the vessel, and not every
management movement and decision. Traditional ship-owners really appreciate this
advantage due to the fact that privacy, hands-on approach and intuitive knowledge have
always been precious attributes for them.
[2]
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CRITICAL POINTS
ADVANTAGES
No risk of losing firm’s control: In case of a breach on the agreement, the firm’s control will
not be at stake unless differently stipulated in the agreement. If the ship-owner cannot fulfill
his obligations against the bank then the latter shall run after the embedded in the loan
collaterals so as to be remunerated.
[2]
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CRITICAL POINTS
ADVANTAGES
Partner on vessel purchased by loan: The bank being a partner on the vessel purchased
protects the ship against potential third party claims. There have not been a few times that
Banks intervened in disputes between ship-owners and third parties so as to guarantee or
even to pay third parties for dismissing the vessel. Since disputes are in day-to-day life of
ship’s operation and may raise significant expenses, this advantage is quite important for ship-
owners leading even those in no need of financial aid to ask for a loan. Consider only that the
charterer has the right to seize either the cargo (voyage charter) or the vessel (time charter)
thus causing the vessel to lose hires for days.
[2]
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CRITICAL POINTS
DRAWBACKS
Partner on vessel purchased by loan: Being a partner is not only a blessing but also a curse
considering that if the loan to asset’s value ratio drops below the accepted level then the
Banker has the right to force the sale of the vessel to mitigate damages.
Prerequisite collateral, strict covenants imposed: No loan can be concluded without
collateral, the least collateral that a Bank will require for lending money will be the ship
purchased, or alternatively, more ships or other assets (cross-collaterals). Covenants on
corporate governance issues and certain financial ratios are usually imposed restricting
management’s flexibility. The most commonly imposed covenants, as noticed in the panel
companies, are certain members of the Board of Directors to remain in their positions and
ratios such as loan to asset value, debt to equity, quick ratio as well as restricted cash to
maintain at specified levels.
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CRITICAL POINTS
DRAWBACKS
No ample source of capital: Bank lending is not an ample source of capital but the amount
lent depends on various factors both microeconomic and macroeconomic. The various factors
affecting Banks and determining whether they shall invest in shipping or not, are stated
above.
Risk on property: As aforementioned, in a default case the lender may seize or sell the
mortgaged property and even chase other assets in case of recourse right or cross collateral.
Furthermore, many loans have incorporated provisions of a corporate guarantor or a personal
guarantor to compensate the bank if the collateral’s sale has proven not to be enough.
[2]
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CRITICAL POINTS
DRAWBACKS
Restrained flexibility of vessel’s operations: The flexibility’s restriction derives not only from
the covenants imposed, stated above, but also from some cases that the bank does not
permit the vessel to trade freely wherever the management elects to, for instance the bank
sets specific trade zones exclusions.
[2]
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CRITICAL POINTS
CONCLUSIONS
- Regardless the latest decrease of banks’ shipping portfolios, commercial lending will
continue to be a fundamental source of capital for shipping. Every shipping company,
either public or private, has borrowed funds from a spectrum of international as well as
national banks. This preference is not haphazard at all.
- Banks provide a relatively low cost of debt capital through a variety of financial instruments
tailored to firm’s unique needs without, at the same time, having any ownership to
company’s own equity. Moreover, if need be and when circumstances allow it, re-
negotiations of loan terms are permitted.
- On the other hand, the limited source of funding, the properties that may be at stake, if
default occurs or certain covenants are breached, do constitute disadvantages that shall be
considered. Yet, the advantages far outweigh the drawbacks of commercial lending making
bank financing a crucial and dominant source of funding for the shipping industry.
- All these sources have formed a new trend of raising money in the industry. Whether these
[2] alternatives will benefit the firms it remains to be proven.
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- Shipyard credit scheme refers to a financial aid scheme offered by various governments to
shipowners, in order to add incentives to put in orders at respective domestic shipyards.
- There are three ways in which a government can make its shipbuilding credit more
attractive than commercial bank credit to the shipowner.
- Government guarantee: Here the government stands as a guarantee for the shipowner’s
loan, hence helping the firm to borrow from a commercial bank. The value of the
guarantee depends on the credit standards that the government agency applies in issuing
the guarantee.
- Interest rate subsidy: Here the government subsidizes the interest rate that the shipowner
has to pay for the debt financing.
- Moratorium: A moratorium refers to a period of time in which there is a suspension on
interest or principal payments. This is typically agreed upon with the government in
difficult times, in order to lighten the burden and give the firm time to stabilize itself. A
[1] moratorium usually does not last longer than one or two years.
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Private placements
Private placements
[1]
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Public Debt
[1]
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Public Debt
- The coupon rate the issuer offers depends upon the respective interbank rate (the
interest rate that banks charge each other for internal bank loans), the duration of the
bond and the credit rating the borrower has. If it becomes more expensive to borrow,
then this will be reflected in the interest rate.
- An important distinction when considering bonds, is to separate between investment
grade and junk bonds. All bonds rated BBB or higher are considered investment grade.
[1] Those below are called junk bonds, or high-yield bonds.
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Public Debt
- The credit rating is decided by the rating agencies. The most
worldwide-recognized rating agencies are Standard & Poor
(S&P), Moody’s, and Fitch Rating. Between these there are
two different rating systems. Moody's assigns bond credit
ratings from Aaa to C, where Aaa represent the best and C
the worst. They divide each letter group ex (Aa) into three,
where three indicates that the company is considered to be
at the lowest segment of the letter group. S&P and Fitch,
rate based on a different system than Moody’s, where AAA
rated companies are considered to be the safest and D rated
firms is the lowest rated class of companies. Each letter
grouping here receives a plus, a minus or neither based on
its rating within that particular rating group. Even though
the rating systems differ, the systems are fairly similar, and
firms are often rated in the “similar” class. The difference is
[1] illustrated in Figure 4. We have here not included the
segment of each letter group (1,2,3 /+,-) (Moody’s, 2009)
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Public Debt
One can with bonds, as with private debt, divide public debt up according
to its seniority and degree of secured claims. Unsecure public debt can be
divided up according to maturity into notes and debentures, while secured
public debt can be separated into mortgage bonds and asset backed
bonds.
[1]
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Public Debt
Public Debt
[1]
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BONDS
A rather not traditional way of shipping financing but
currently quite popular constitutes bonds. Bonds appear lot
of differences related to commercial loans with the most
evident being the nature of lender. With this financial
instrument lenders are not banks but investors and the
borrower does not address to commercial lending markets
but to international capital markets. Primarily, the bond is a
debt security issued by the shipping company itself in a
nominated value called par value or face value. The
investors willing to place their money in this company
purchase its bonds having as an incentive to be paid
semiannually or annually the interest, where here same
called coupon, and at bond’s maturity the bond’s face value.
[2]
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BONDS
MAIN BOND TYPES
Zero-coupon bond
- The holder of this bond does not
receive regular payments during
the bond’s tenor but does receive
the interest payment either
discounted at the beginning or,
more frequently, lump sum at
the end together with the face - Due to the lack of regular payments, zero-coupon bonds are
value repayment (future zero- normally issued with a relatively high coupon rate serving as
coupon bonds). an incentive for the investors to buy them. Furthermore, this
type of bonds entails a higher risk than, for instance, the
straight bonds making them not likely to appear on a risk
averse investor’s portfolio.
[2]
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BONDS
MAIN BOND TYPES
Vanilla or straight bond
- Vanilla bonds pay their holders the coupon
payment regularly either semiannually or
annually, providing them with a constant
source of income. Through this stable cash
flow stream, investors are more likely to
collect their initial capital even before bond’s
maturity and consequently they are to face
less risk but to gain fewer yields. Vanilla
bonds are quite preferable from risk-averse
investors requiring regular yield with
relatively low risk.
[2]
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BONDS
MAIN BOND TYPES
Floating rate bond
- In contrast to bonds having fixed coupon rate,
therefore, stable coupon payment, there are
bonds whose coupon rate and similarly
coupon payment fluctuate according to the
variations of the major interest rates such as
Libor and Euribor. Volatile though the bond’s
coupon payments may be, they are paid - The bond’s coupon rate is the predefined
regularly providing to its investors certain interest rate (Libor, Euribor) plus a spread and
income. the interest paid is computed by multiplying this
coupon rate with the bond’s face value. Floating
rate bonds protect investors from interest rate
risk becoming attractive to investors reluctant
[2] to take great risks.
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BONDS
MAIN BOND TYPES
High-yield bonds
- High-yield bonds, also called junk bonds, On account of that, there are many shipping
address to rather risk-taker investors. companies issuing high-yield bonds and a lot of
Companies ranked by the international credit investors worldwide willing to invest in and take the
rating agencies as below investment grade risk. Concerning also the present financial shortage
usually issue these bonds. Particularly, of bank’s market, shipping companies by issuing
companies rated by Moody’s and S&P as high-yield bonds can gain access to larger funds than
below “Baa” and “BBB” respectively are by borrowing from the commercial banks. High-yield
considered to be of high risk and in order to bonds usually constitute a non-amortizing debt
remunerate the investors bearing this risk meaning that the periodic payment refers only to
they offer very high yields. interest and not to principal repayment, as the
general rule for bonds. In some cases, in order the
company to be facilitated of not paying a huge capital
[2] outflow at maturity the sinking fund provision has
been embedded
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BONDS
MAIN BOND TYPES
Callable bond
- Companies issuing these bonds are
protected or have the option to be protected
from paying more interest to the Indeed, selling expensive bonds in low
bondholders than the interest prevailing at interest rates and repurchasing them back
the market and this right is charged with a when interest rates go up and same are
higher repurchase (call option) price than cheaper constitutes a quite common
the one paid at maturity date. The difference practice to materialize gains in shipping
between call price and maturity price is called firms’ involved in bond markets.
call premium and in essence is the
“premium” paid to the bondholders for
indemnification.
[2]
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BONDS
MAIN BOND TYPES
Redeemable bond
- In contrast to callable bonds, redeemable
bonds offer the right to investor to sell (put
option) his bonds back to the issuing - On account of this protection against
company under certain conditions and potential lower rates and/or
during a predefined time frame before unforeseen losses, put price is usually
maturity date. Same to the callable bonds, lower than maturity price.
redeemable bonds have embedded only an
option not an obligation for investors.
[2]
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BONDS
MAIN BOND TYPES
Mortgage bond
- Mortgage bonds offer the same right to investors as mortgage
loans to commercial banks. Both owe the right to seize and sell
the collateral securing the bonds if the likelihood of company’s
default occurs. Particularly, companies owning many assets and
wishing to lend money at a lower cost issue bonds with an asset
embedded as collateral. Thus, investors are secured from losing
their money and on account of lower risk they normally accept a
lower yield. Mortgage bonds and mortgage debt in general are
widely used in shipping owing that to many assets’ possession,
vast capital needs to purchase more assets or to assist the
operation of existing and volatility of freight market. In shipping
the bond’s mortgage is usually either the vessel purchased by the
[2] bonds issuance or firm’s other vessels which solely serve as a
security of bonds.
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BONDS
MAIN BOND TYPES
Debentures
- High-yield bonds without being
secured by collateral and with paying
off at a long-term maturity date are
called debentures.
- Manifestly, it is about a highly risky
investment whose investors shall be - Debentures are usually issued by large
compensated by a high yield and is corporations or well-established companies
addressed mainly to institutional and whose name and fame constitute their
not individual investors. guarantee and in shipping language their “word
is their bond”.
[2]
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BONDS
MAIN BOND TYPES
Bonds with sinking fund provision
- Essentially, sinking funds stipulate an
obligation of the company issuing
such bonds to set aside money in
order to repurchase or redeem some
of its outstanding bonds before
reaching maturity. More clearly, an - Due to less default risk these bonds entail, they
independent corporation, else, a can normally be offered at a lower interest rate.
trustee is appointed to receive and As for accounting treatment, sinking fund is
deposit regularly payments made by deemed as a restricted asset shown in firm’s
the issuing company for future balance sheets just below its current assets, if
bonds’ redemption. method of decreasing liquidity is applied. Sinking
fund provision can be embedded in many types
[2] of bonds like high-yield, debentures etc.
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
MAIN BOND TYPES
Convertible bonds
- Convertible bonds, as their name
witnesses, may be converted from debt
securities into equity stocks. Bond’s
conversion into equity is carried out
under predetermined conditions and
- Whether this conversion shall only be an option
during certain time spans. Thus, the
by the investor, by the issuer or shall be done
issuing company by converting to equity
mandatorily constitutes an issue agreed
a fraction of bonds can decrease debt
reciprocally but in the majority of cases is up to
and increase equity equivalently.
investor’s own decision.
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
MAIN BOND TYPES
Perpetual Bonds
- Unlikely with other bonds, these bonds
pay interest to their holder to
perpetuity, to wit, forever. Before
becoming overenthusiastic with this fixed
income security’s feature, paying forever
- Perpetual bonds have usually embedded redemption
interest means having forever debt
rights so as the company can repurchase them back
outstanding, or more precisely not
repaying in whole the bondholders. Redemption rights
having stated a specific date of
will normally be exercised if interest rates go
redemption.
significantly down or if the issuer wishes to wipe away
the bonds’ debt. In the former case the issuer will be
benefited by issuing a new bond at lower coupon rate
whilst in the latter case by not having to make the
[2]
coupon payments.
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
MAIN BOND TYPES
Bond with warrants
- Some companies issue bonds with
warrants attached wishing to grip
attention of potential investors. Warrants
grant the investor the right to purchase
the common stock of the company
- At the time of bonds issuance, warrants’ exercise price
issuing the bonds at a specified price
is usually higher than the current market’s price but in
and usually during an also specified time
highly fluctuating stocks, like those of shipping sector
period.
and especially of dry-bulk subsector, the high
possibility of market’s steep upturn add to bonds with
warrants a quite appealing feature. Bonds by
incorporating warrants become a hybrid financial
instrument sharing properties from both debt and
[2]
equity financing.
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
ADVANTAGES
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
ADVANTAGES
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
ADVANTAGES
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
ADVANTAGES
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
ADVANTAGES
Capital gains can be acquired: Another advantage the issuer may reap
when the indenture includes an early redemption right is the capital gains
realization. When interest rates go up the outstanding bond is by
definition undervalued, thus the issuing company can realize gains by
repurchasing the bonds with less money than the required at maturity
date.
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
DRAWBACKS
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
DRAWBACKS
[2]
Departement Teknik Sistem Perkapalan ITS
BONDS
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
PANEL
COMPANIES’
FINDINGS
As it is clearly seen, convertible bonds issued in 2009 at a 5% coupon rate had a yield to maturity jumped
sky high at approximately 20% in 2011 and approched the coupon rate only when maturity date was
close, in 2013.
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
BONDS
CONCLUSIONS
Bonds and debt capital markets constitute an entry into a deep source of funding without
though bearing the high cost of equity.
Corporate notes is an indispensable financing tool for repaying their indebtedness, acquiring
vessels and support their operations and growth plans.
Moreover, when designed properly, notes may incorporate terms that benefits a shipping
company like the early redemption right. In fact, this right contained in all companies’ bonds
functions protectively against interest rates’ drop giving the right to the issuing corporation of
redeeming its notes earlier than maturity.
Therefore, when the interest rates are below the bonds’ coupon rate the firms with this right can
redeem them and issue new ones with lower interest rate. In every case though the financing
cost of bonds are higher than that of commercial lending and their issuance’ requirements block
the path for many firms making the corporate bonds a preferable but usually second in a row
funding solution
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
affiliates, ship-yards
affiliates, ship-yards’ affiliates aiming to
facilitate shipping companies to acquire
vessels and, finally, other standalone entities
engaged in providing leasing solutions
As for prerequisites, lessors normally do not
require any lessee’s asset serving as cross
collateral neither any mortgage to secure their
leasing agreement but the vessel(s) leased
stands as the only collateral.
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
LEASING
LEASING
2. Operating leasing
- The major differences of operating and financial
leasing are summing up to three critical points: the
duration of the lease agreement, the balance
sheet treatment and the residual risk
- Owning to the operating leasing own nature of
granting the right to the lessor merely for
operational management, such agreements
concern shorter time-periods than that of financial
leasing, normally ranging between 5 and 7-year
contracts.
- As for the operating risk, it normally burdens the lessee, but in order to avoid any
misinterpretation of the costs that a ship or machinery breakdown entails, a separate
[2] contract, which incorporates operating issues, is worth being attached.
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
SHIP
SHIP LOAN VS
LEASING
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
VS SHIP
SHIP LOAN
LEASING
SHIP-LOAN VERSUS SHIP-LEASING
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
CONCLUSIONS
As long as the commercial banks are narrowing the margins of financing and
imposing more stringent terms on loans, lease financing is going to gain ground
and provide an advantageous financial solution. However, bank’s credit facilities
will continue to be the first choice leaving the leasing to be another financing
option to consider under unfavorable banking conditions or in highly geared
corporations. The advantages though that leasing encompasses shall not be
neglected since they form a financing solution rather preferable under certain
conditions.
[2]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
LEASING
CONCLUSIONS
By leasing vessels, the company would have to make high lease payments taking into account that the
market is bull but concurrently would receive abnormal hire rates without increasing its leverage at
all.
In a first stage, as long as the lease payments are lower than the hire rates, the company generates
profit. Furthermore, when the market plummeted, the company that had leased the vessel will give her
back to the lessor, while if this company had opted to acquire the vessel by concludinag loan it will have
to continue servicing its obligations. In this particular case, if the company defaults to pay its
installments, the bank will not only force it to sell the vessel but will also chase firm’s other assets
since the loan value will be higher than the vessel’s current market price. Having said that, leasing
seems to be a supplementing financial solution, yet advantageous if employed under specific
conditions, rather than a firm’s basic source of funding.
[2]
Departement Teknik Sistem Perkapalan ITS
Table of Contents
7.1 BASEL
Basel can be used as a consideration for a series of central bank policies from
around the world. Before entering the basel discussion, we first know the
significance of capital for banks. The bank is a liaison with people, which can be
interpreted as a channel for bank customers and the money can be used by other
customers. The bank has a very important role for the community in saving,
channeling funds and investing public funds, for which banks must have a high
reputation in terms of capital for the bank itself
Source: Investopedia
Departement Teknik Sistem Perkapalan ITS
Basel 1
The first Basel Accord, Basel I was issued in 1988. Basel I focuses on capital
adequacy of financial institutions. Capital adequacy risk (the risk to be borne by
financial institutions against unexpected losses) is categorized as an asset divided
into five risk categories, namely 0%, 10%, 20%, 50% and 100%.
In Basel I banks operating internationally are obliged to meet the needs of the Bank's
Minimum Capital Ratio or known as a CAR of 8%.
The 0% risk category consists of cash, the central bank and government debt, and every
organization for economic and development cooperation or the Organization for Economic
Cooperation and Development (OECD).
Public sector debt is placed in the 0%, 10%, 20% or 50% categories, depending on the
debtor.
Bank debt for development, OECD debt securities companies, non-OECD bank debts that
fall below one year, non OECD public sector debt and cash in the 20% category.
The 50% category is housing loans, and the 100% category is represented by private debt,
non-OECD bank debt (maturity of more than one year), real estate, factories and
equipment, and capital instruments placed in other banks.
Banks must maintain capital of at least 8% of weighted assets at risk. For example, if the
bank has a risk-weighted asset of US $ 100 million, then a minimum capital adequacy of US
$ 8 million is needed.
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“COOKE” RATIO
Named after Peter Cooke (Bank of England), the chairman of the Basel
committee)
Cooke Ratio=Capital/ Risk Weighted Assets≥8%
Definition of Capital
Capital= Core Capital
+ Supplementary Capital
- Deductions
Source: FBF FR
Departement Teknik Sistem Perkapalan ITS
TIER 1
Paid-up share capital/common stock
Disclosed reserves (legal reserves, surplus and/or retained profits)
TIER 2
Undisclosed reserves (bank has made a profit but this has not appeared in
normal retained profits or in general reserves of the bank.)
Asset revaluation reserves (when a company has an asset revalued and an
increase in value is brought to account)
General Provisions (created when a company is aware that a loss may have
occurred but is not sure of the exact nature of that loss) /General loan-loss
reserves
Hybrid debt/equity instruments (such as preferred stock)
Subordinated debt
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0% Risk Weight:
Cash,
Claims on central governments and central banks denominated in national
currency and funded in that currency
Other claims on OECD countries, central governments and central banks
Claims collateralized by cash of OECD government securities or guaranteed by
OECD Governments
50 % Risk Weight
Source: www.alrajhibank.com.sa
Departement Teknik Sistem Perkapalan ITS
Banking regulations in each country vary before there is a Basel Accord. The
integrated framework of Basel I and then Basel II helped to alleviate the
concerns of member countries about the differences in banking regulations
and capital requirements that differed in each country.
Source: Europa EU
Departement Teknik Sistem Perkapalan ITS
In Basel II, the calculation of bank capital is contained in the Minimum Capital
Requirement I Pillar. In various alternatives the above approaches can basically be
grouped into two major groups, namely the standard approach applies to all banks
and models developed internally in accordance with the characteristics of business
activities and the risk profile of individual banks (internal models) so that it is
more sophisticated.
True improvements to the BCBS market risk framework have been carried out
several times. In 2009 BCBS published improvements to Basel II with the Basel 2.5
concept.
An assessment of the stability of the financial sector of a country will not be based
on the implementation of Basel but rather based on the fulfillment of the country
towards the 25 Basel Core Principles for Effective Banking Supervision (BCP).
Departement Teknik Sistem Perkapalan ITS
2) Standard Approach
Despite Basel II’s quantitative basis, much will still depend on the judgment
1) of banks in formulating their estimates
and
2) of supervisors in validating the assumptions used by banks in their models
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In July 2010, an agreement was reached regarding the design of the entire capital
and liquidity reform package known as Basel III.
Basel III also provides additional requirements for financial institutions that have a
systemic influence on the world banking industry. But in general, the capital
adequacy regulations remain at the level of 8%.
Basel III implementation has been started in stages since January 2013, and is
expected to be fully implemented on January 1, 2019.
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However, another impact is that the implementation of Basel III can also
reduce overall bank credit growth.
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Pillar 1
requires banks to hold a minimum total capital level of 8% as a function of their risk
level, similar to what was proposed in Basel I. What has changed from the initial Basel
accord is the definition of risk-weighted assets and the division of capital. The hallmark
of Basel II is the alteration in the treatment of risk, as well as the explicit incorporation
of operational risk in risk-weighted assets. The bank capital has been divided up into
two tiers: Tier I and Tier II capital. A requirement for the degree of Tier I capital has
also been set. After Basel II, each bank is required to have 4% of Tier I capital, and
common equity of 2 %, known as core Tier I capital.
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Pillar 2
the administration will evaluate the activities and risk profiles of each individual bank
in order to decide whether the organization needs to adjust and consequently hold more
capital than the minimum requirements of Pillar 1. The concept is hence that well-
managed banks should seek to go beyond simple compliance with the minimum capital
requirements, and perform a comprehensive assessment of whether they have sufficient
capital to support their own individual risk profile. These assessments are known as
Internal Capital Adequacy Process (ICAAP)
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Pillar 3
The Basel accord seeks to complement the framework set forward in Pillar 1 and 2, by
improving transparency of the banking sector. Pillar 3 aims to do this by requiring the
banks to publish details on the scope of their operations, capital, risk exposure, risk
assessment processes, and capital adequacy. These disclosures are required to be made
at least twice a year, except for the qualitative disclosures, which are only needed
annually and provide a summary of the general risk management objectives and
policies. This pillar allows the public to evaluate the individual bank's risk profile,
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To improve the quality, consistency and transparancy of the capital base the
following
changes are proposed under the new Basel III framework:
• Increase of requirements on minimum Tier 1 (T1) capital.
• Increase in the standards for instruments to qualify as T1 capital.
• Harmonisation of Tier 2 (T2) capital instruments and the elimination of Tier
3 (T3) capital.
• Revision of appropriate capital deductions such as minority interests and
deferred
tax assets.
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The minimum requirement for common equity will be raised from the current
2% level to 4.5%. The T1 capital requirement will increase from 4% to 6%. The
capital conservation buffer above the regulatory minimum requirement must
be calibrated at 2.5% and be met with common equity. A countercyclical
buffer within a range of 0-2.5% of common equity or other fully loss-absorbing
capital is implemented according to national circumstances
a) The Liquidity Coverage Ratio (LCR) The LCR is implemented to promote the
short-term resilience of a banks' liquidity risk profile. It achieves this by requiring
that a bank holds an adequate stock of high-quality liquid assets that can be
converted into cash immediately in private markets, in order to meet its liquidity
needs for a 30 calendar day liquidity stress scenario. This requirement will
strengthen the banking sector's ability to absorb shocks arising from financial and
economic stress, thus reducing the risk of spillover from the financial sector to the
real economy.
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b) The Net stable funding ratio (NSFR) This ratio aims to ensure banks are able
to survive an extended closure of wholesale funding markets. The Net stable
funding ratio establishes a minimum acceptable amount of stable funding to
exceed the required amount of stable funding over a one-year period of
extended stress. The ratio comes as a response to severe shortage of funding
many banks experienced in the recent crisis, caused by their significant
reliance of short term funding through the interbank market.
Departement Teknik Sistem Perkapalan ITS
1.1.2 The Basel Accord’s effect on the Banking industry PT. MUARA JAYA
Following the latest change in the Basel Accord; many banks have been struggling to
fulfill the requirements set forward. As we have discussed, the required quality of the
minimum capital has increased and several additional capital buffers have been
required. This has forced the banks to readjust their balance in order to optimize the use
of equity.
In addition, this would be a strategy of high risk, as deposits often represent
30-40% of the bank's funding (Gade Greve, 2013). Banks hence rarely turn to
this option in order to increase revenues. Following the fall of the market,
several banks have downsized, and made cuts in less crucial areas. This has
happened either by selling out some of the assets or reducing staff.
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When a firm cannot meet its debt obligations the firm is in default. The creditors can
then take legal action against the firm to collect the outstanding payments by taking
control over the firm's assets. Hence the control of the firm is transferred from the
equityholders to the debtholders. Since a firm generally has several creditors there exist
bankruptcy codes to ensure fairness and coordination between the creditors. These
codes differ from country to country and so does also the friendliness towards the
creditors and debtors.
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Since firms generally have multiple creditors there exists a hierarchy that
states the priority of claims for the different debtholders. This hierarchy is
known as the "Absolute Priority Rule" (APR)
The rating agency Moody's has compiled a database of the recovery rates for
debtholders holding different priorities in non-financial US corporations. The
database dates back from 1987 and consists of over 3500 loans and bonds
taken from 720 non-financical coperations. Figure bellow shows the recovery
rate for the different seniorities. The higher the seniority, the more the
creditor will one average recover.
Source: OECD.org
Departement Teknik Sistem Perkapalan ITS
Source: PropTiger
Departement Teknik Sistem Perkapalan ITS
Source: Pimco
Departement Teknik Sistem Perkapalan ITS
Success factors for the rapid economic growth PT. MUARA JAYA
Resources
• Climate and geography
– Mountains, rivers and Gulf stream
– Electricity
– The fjords and fertile soil – fish,
timber and livestock
• Oil
– Increasing oil prices in the sixties
and seventies made it possible to
exploit oil from the North Sea.
• Terms of trade
– ”China-effect” → improved terms
of trade.
– Cheap imports and expensive
exports
Source: Norewegian Economy
Prestmo
Departement Teknik Sistem Perkapalan ITS
Success factors for the rapid economic growth PT. MUARA JAYA
Success factors for the rapid economic growth PT. MUARA JAYA
Success factors for the rapid economic growth PT. MUARA JAYA
Success factors for the rapid economic growth PT. MUARA JAYA
Hypothesis
Testing
Procedures
Parametric Nonparametric
Wilcoxon Kruskal-Wallis
Rank Sum H-Test
Test
One-Way
Z Test t Test
ANOVA
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Corresponding
Purpose of test Parametric Test
Nonparametric test
Mann-Whitney U test;
Compares two t test for independent
Wilcoxon rank-sum
independent samples samples
test
Compares groups
classified by two Friedman Two way Two way analysis of
analysis of variance variance
different factors
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Items on an ordinal scale are set into some kind of order by their position on the
scale. This may indicate such as temporal position, superiority, etc.
The order of items is often defined by assigning numbers to them to show their
relative position. Letters or other sequential symbols may also be used as
appropriate.
You cannot do arithmetic with ordinal numbers -- they show sequence only.
Example
The first, third and fifth person in a race.
Pay bands in an organization, as denoted by A, B, C and D.
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• Discrete data usually occurs in a case where there are only a certain
number of values, or when we are counting something (using whole
numbers).
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Wilcoxon rank sum test (or the Mann-Whitney U test) PT. MUARA JAYA
Wilcoxon rank sum test (or the Mann-Whitney U test) PT. MUARA JAYA
Wilcoxon rank sum test (or the Mann-Whitney U test) PT. MUARA JAYA
8.1 T-Test
The t-test is a statistical test that can be used to determine whether there is
a statistical significant difference between two populations’ means. For our
analysis, we will use the one-tailed t-test to determine if there has been a
decrease or increase of the respective variable from the pre to the post
financial crisis data.
Source: ResearchGate
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The use of the rejection region method has a number of disadvantages. The
most prominent drawback is the yes or no answer the method provides. To
better understand the reasoning for rejecting the null-hypothesis, one can use
the p-value.
The p-value is defined as “the probability of observing a test statistic at least
as extreme as the one computed given that the null hypothesis is true”
(Keller, 2008). In other words, the p- value measures the statistical support for
the H1 hypothesis.
Source: Fixya
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Source: Fixya
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The null hypothesis states that the means of the two group are equal, thus the
closer the means are to each other, the larger the p-value will be and vice
versa. The smaller the pvalue is, the more significant the result, hence
leading us to reject the null-hypothesis.
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When the data points are not normally distributed, one can theoretical not
use the t-test. In this case, one will have to use a non-parametric hypothesis
test, like the Wilcoxon Ranked Sum/Mann Whitney-U test to compare
populations that are non-normally distributed.
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When the data points are not normally distributed, one can theoretical not
use the t-test. In this case, one will have to use a non-parametric hypothesis
test, like the Wilcoxon Ranked Sum/Mann Whitney-U test to compare
populations that are non-normally distributed.
Departement Teknik Sistem Perkapalan ITS
When the data points are not normally distributed, one can theoretical not
use the t-test. In this case, one will have to use a non-parametric hypothesis
test, like the Wilcoxon Ranked Sum/Mann Whitney-U test to compare
populations that are non-normally distributed.
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The sampling test can be used to test if two proportion of a population are
statistically different.
Proportion is defined as: where x is the number of observations and n
is the sample size.
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Shipping Business is the act of carriage of cargo from point A to point using the
ships which falls under the Maritime industry
Source: FreightWaves
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International seaborne trade gathered momentum, with volumes expanding by 4 per cent. This
was the fastest growth in five years. Reflecting the world economic recovery and improved global
merchandise trade, UNCTAD estimates world seaborne trade volumes at 10.7 billion tons in 2017
(tables 1.3 and 1.4, figure 1.1). Dry bulk commodities have powered nearly half of the volume
increase.
Major dry bulk commodities – coal, iron ore and grain – accounted for 42.3 per cent of total dry
cargo shipments, which were estimated at 7.6 billion tons in 2017. Containerized trade and minor
bulks represented 24.3 per cent and 25.4 per cent of the total, respectively. Remaining volumes
were made of other dry cargo, including breakbulk shipments.
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Global industrial activity and manufacturing improved in 2017. In countries of the Organization for
Economic Cooperation and Development, industrial production increased by 2.8 per cent, up from
0.2 per cent in 2016. Industrial activity in developing regions also picked up. In China, industrial
production, at 6.5 per cent, was up, compared with 6 per cent in 2016. In Brazil, industrial
production recovered and rose by 2.4 per cent, following the 6.4 per cent contraction recorded
during the 2016 recession.
With GDP expanding by 3.1 per cent in 2017, up from 2.5 per cent in 2016, the global economy
experienced a broad upswing, generating positive impacts on seaborne trade (table 1.1)
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Seaborne trade measured in ton-miles to reflect distances travelled and the employment of ship
capacity increased by 5 per cent in 2017, up from 3.41 per cent in 2016. Overall ton-miles
generated by seaborne trade in 2017 amounted to an estimated 58,098 billion tons (figure 1.4).
Much of the growth was driven by crude oil and coal shipments, which have greatly benefited the
shipping industry, given the growth in volumes and distances. Crude oil trade contributed 17.5 per
cent to ton-mile growth while major dry bulks contributed nearly one third. Together, minor bulks
and other dry cargo accounted for 17.7 per cent of ton-mile growth, while containerized
shipments contributed 17.4 per cent. The contributions of gas and petroleum products were much
smaller.
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1. Tanker shipments
The year 2017 witnessed the geographical dispersion of oil trade, as oil trade patterns became less
concentrated on usual suppliers from Western Asia and benefited from increased trade flows from
the Atlantic basin to East Asia. These trends have supported and boosted long-haul tanker trade and
tanker demand. Crude oil seaborne trade expanded at a slower pace – 2.4 per cent in 2017 –
compared with stronger growth – 4 per cent – in 2016 (table 1.5).
UNCTAD estimates world crude oil trade in 2017 at 1.87 billion tons, supported by increasing
exports from the United States, rising global refining activity – especially in Asia – declining oil
inventories and steady crude oil shipments from Western Asia.
Departement Teknik Sistem Perkapalan ITS
2. Vessel types
Dry bulk carriers, which carry iron ore, coal, grain and similar cargo, account for the
largest share of the world fleet in dead-weight tonnage and the largest share of total
cargo-carrying capacity, at 42.5 per cent (figure 2.2). They are followed by oil tankers,
which carry crude oil and its products, and account for 29.2 per cent of total dead-
weight tonnage. The third largest fleet is container ships, which account for 13.1 per
cent of the total. As container ships carry goods of higher unit value than dry and liquid
bulk ships and usually travel at higher speeds, they effectively carry more than half of
total seaborne trade by monetary value. In 2017, almost all vessel types recorded
positive growth rates, except for general cargo ships, which continued to show a long-
term decline in their share of the world fleet (table 2.1). In January 2018, general cargo
ships accounted for only 3.9 per cent of total dead-weight tonnage, a further decrease
from their 4 per cent share in 2017. The long-term trend towards the containerization of
general cargo may be illustrated by comparing the general cargo fleet with the container
ship fleet. In 1980, container ships had one tenth the total tonnage of general cargo
ships; at present, container ships have 3.4 times more total dead-weight tonnage. The
order book for general cargo ships is at its lowest level since UNCTAD began to
monitor this indicator and 58.8 per cent of such ships are older than 20 years. Table 2.2
Departement Teknik Sistem Perkapalan ITS
2. Vessel types
Departement Teknik Sistem Perkapalan ITS
2. Vessel types
Departement Teknik Sistem Perkapalan ITS
2. Vessel types
Departement Teknik Sistem Perkapalan ITS
1. Shipowning countries
The top five shipowning countries together account for 49.6 per cent of the world fleet in dead-
weight tonnage. Greece has expanded its lead, adding 21 million dwt in 2017; it now has a market
share of 17.3 per cent, followed by Japan at 11.7 per cent, China at 9.6 per cent and Germany at 5.6
per cent. Shipowners from Greece specialize in oil tankers, in which Greece has a market share of
24 per cent, as well as dry bulk carriers. Japan and China have their largest market shares in dry
bulk carriers, with 20 and 16 per cent, respectively. Shipowners from Germany specialize mostly in
container ships, in which Germany has a market share of 20 per cent. Among charter owners, that
is, owners that do not themselves provider liner services but instead charter ships to liner
companies, Germany has a market share of one third, down from two thirds in 2013, and owners
from Canada, China and Greece have expanded their markets. A typical example of this trend is the
sale of six container ships by Commerzbank of Germany to Maersk in March 2018, for around $280
million (Dynamar BV, 2018b).
The largest shipowning country in terms of vessel numbers is China, with 5,512 commercial ships
of 1,000 gross tons and above, many of which are deployed in domestic trades, under the national
flag (table 2.3).
Departement Teknik Sistem Perkapalan ITS
1. Shipowning countries
Departement Teknik Sistem Perkapalan ITS
1. Shipowning countries
Departement Teknik Sistem Perkapalan ITS
1. Shipowning countries
With regard to the commercial value of the world fleet, the largest shipowning country is the United States, followed
by Japan and Greece (figure 2.6). The difference between the ranking by tonnage and by value is due to the vessel
types owned by different countries. For example, shipowners from Greece specialize in dry bulk carriers and oil
tankers, which have a large carrying capacity; shipowners from the United States, by contrast, have greater shares in
cruise ships and other vessels, primarily offshore, which are not used for trade in goods .
Departement Teknik Sistem Perkapalan ITS
Table 2.4 depicts container ship fleet ownership in TEUs. Germany continues to be the
largest owner, with a market share of 20.22 per cent, a decrease of 1.2 percentage points
from 2017. France, Denmark, Hong Kong (China) and Switzerland own the container
Departement Teknik Sistem Perkapalan ITS
PRELIMINARY
- First Offshore Activities in 1947
- Exploration & Exploitation of oil and gas fields
- Oil / gas price volatility affects development
BLP technology
- considering that BLP is far more expensive than
structures on land and is more risky,
depends:
- Location of oil / gas fields
- Depth of sea operating area
- Distance to the nearest boundary
- BLP operational costs are about 5 ~ 10 times more Source: Hess Corporation
expensive than buildings on land,
considered necessary:
- Offshore industries only build structures that fulfill
specific functions
- Pre-fabrication is landed and completed in the sea to a
minimum
- Need detailed considerations to avoid the risk of:
- human soul
- unit
- Investation
- Sea pollution
Departement Teknik Sistem Perkapalan ITS
Public terminals
All the shipping lines share with each other the facilities of public terminals in
loadinganddischarging,andarechargedattariffrates,generallywitha‘first
come,firstserve’principleandwithoutanypriorityinberthusageexcept paying priority tolls.
Container handling and other charges are calculated at common tariff rates, or paid at
quantity discount rates in case container volume is over the fixed quantity agreed upon in
contracts. Singapore (PSA before 1997), Busan, Keelung are categorized into this operation
pattern.
Source: suara.com
Departement Teknik Sistem Perkapalan ITS
Source: medium
Departement Teknik Sistem Perkapalan ITS
Source: JOC.com
Departement Teknik Sistem Perkapalan ITS
Source: MFame
Departement Teknik Sistem Perkapalan ITS
Source: MFame
Departement Teknik Sistem Perkapalan ITS
Source: ptc.mx
Departement Teknik Sistem Perkapalan ITS
Source: FleetMon
Departement Teknik Sistem Perkapalan ITS
Source: eTurboNews
Departement Teknik Sistem Perkapalan ITS
Source: CiteSeerX
High potential for developments
Objectives
1. To describe the strategic planning process
2. To explain how organizational resources and opportunities affect the planning
process
3. To understand the role of the mission statement in strategic planning
4. To examine corporate, business-unit, and marketing strategies
Source: coschedule
Departement Teknik Sistem Perkapalan ITS
Strategic Planning
When deciding on a topic for our thesis, we decided to combine our interest for
shipping and finance.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10. Hypotheses JAYA
Our final choice of topic was sparked by the many news articles and constant
complaining in the media of the challenging capital conditions shipowners faced in the
aftermath of the Lehman Brother crash.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10. Hypotheses JAYA
We hence wish to put these claims to the test and examine the change in the financial
environment shipping firms have faced the last 8 years.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10. Hypotheses JAYA
We have therefore come up with several hypotheses, which we wish to look further
into.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10. Hypotheses JAYA
We have in this paper divided the different types of funding up into: M&A, Bank Loans,
Bonds (Certified Bonds +Convertible Bonds), Public Equity Offerings (IPOs+ FOs) and
Private Placements.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
For each asset class defined we have tested whether there has been a substantial
change from the pre-crisis period to post-crisis period on the:
The amount raised per issue
The number of issues raised
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Our premise for testing these variables is that the product of multiplying the two
variables gives us the total volume of that asset class.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Our hypotheses are that we believe both the amount raised per issue and the number
of deals have on average decreased post the crisis for bank loans, private placements
and public equity offerings, while we expect to see an increase in number of bond
deals.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
The development of bonds and M&A deal sizes, in addition to that of M&A activity are,
however, more unsure variables.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Our predications landed on a decline in deal size and number for M&A deals, while we
expect an increase in bond deal sizes.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Our basis for such hypotheses is that after the financial turmoil caused by the crash of
2008, the financial picture changed.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
With most banks severely affected by the crisis, and some having already gone through
restructuring, it is likely that the number of bank loans issued and the average deal size
have decreased.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Such predictions are based on the fact that banks are clearly more risk averse after the
crisis (Von Hagen, Schuknecht, Wolswijk, 2011).
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
They are less willing to take on additional risk and interested in reducing their risk per
loan issued.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
This view is also in line with DNB’s future projections for the banking sector (DNB,
2012).
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
As for public equity offerings, they are, as described earlier, more common in booming
periods than troughs.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
This is the case as management only wishes to sell shares when the price reflects or
overvalues the underlying assets.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Given the booming pre period, a fall in both amount and numbers of issues were hence
expected in the post period.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Private placements are likely to behave in a similar manner as public equity offerings.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
After a pre period of highly cooperative investors, private placement have likely
struggled to convince its investors to invest in the post period with investors being
more risk averse and more vary of their investments.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
As private equity (PE) does, however, go under this category, and there has been a
significant increase in PE investment in shipping, this could pull up our results.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Our premise for testing these variables is that the product of multiplying the two
variables gives us the total volume of that asset class.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Given the private nature of these transactions, we do, nevertheless, not expect to see a
drastic increase in PP activity.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
With a decline in both equity offerings and bank lending, shipowners need to finance
through alternative sources.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
The reasoning behind this conclusion is that investors have historically turned to the
bond market in times when the capital market has contracted, and the shipowners
have in the recent crisis had few other options to turn to. .
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Such a switch in financing would hence involve an increase in number of bonds issued.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
When it comes to our projections of bond deal sizes, there are factors dragging in
different directions.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
At one side, if bonds are going to replace the funding gap left by loans and equity, one
would expect an increase in bond sizes, as the funding gap likely is quite severe..
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
On the other side, with freight rates declining steeply in the later years, one would
expect the fleet market value to have declined, hence lightening the financing needed
to undertake new investments.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
Their reasoning was that banks would seek a more simplistic lending relationship,
trending towards a larger degree of bilateral deals.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
The macroeconomic events leading to these conclusions are discussed in more detail
under the “Macroeconomic Events” section for bonds.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Given the discussed fall of shipping market values, a decrease of amount per M&A deal
are also to be expected.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
In regards to numbers of deals, there are also here forces dragging in different
directions.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.4 Bond interest rate and tenor JAYA
This view is based on the theory that as the market steps into a
time of greater uncertainty were the solvency of the borrowers
is questioned; the interest rate demanded is likely to increase.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
At one side, consolidation is fairly normal in poor economic times given the companies’
wish to maximize economy of scale.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Low market values could also lead to an increase in acquisitions, as increasing ones
market share could be done a low cost.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
On the other side, it is hard to finance such deals in the current situation of the capital
market.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
With many operators struggling enough as it is with their own operation; they are
unlikely to take on more capital draining fleet capacity.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
Given the banks seeking to mitigate risk in the post period, we further wish to examine
the change of consortium sizes from the two periods
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Private placements are likely to behave in a similar manner as public equity offerings.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
After a pre period of highly cooperative investors, private placement have likely
struggled to convince its investors to invest in the post period with investors being
more risk averse and more vary of their investments.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
Our hypothesis is that we have seen a significant increase in the syndicate sizes.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
In this test we only consider bank loans, as consortium sizes for equity and public debt
offerings are of little relevance in terms of risk of the issuer.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
Their reasoning was that banks would seek a more simplistic lending relationship,
trending towards a larger degree of bilateral deals.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
The macroeconomic events leading to these conclusions are discussed in more detail
under the “Macroeconomic Events” section for bonds.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.4 Bond interest rate and tenor JAYA
This view is based on the theory that as the market steps into a
time of greater uncertainty were the solvency of the borrowers
is questioned; the interest rate demanded is likely to increase.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.4 Bond interest rate and tenor JAYA
In this test we only consider bank loans, as consortium sizes for equity and public debt
offerings are of little relevance in terms of risk of the issuer.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.4 Bond interest rate and tenor JAYA
As these are times were the lenders have much power, but also
hold much risk, we expected that we would experience an
increase in interest rate and a drop of the average tenor.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
Such a switch in financing would hence involve an increase in number of bonds issued.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
We wish to focus this test on the debt market, as this is the key
source of ship funding.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
For total debt issuances, we believe there has been less equity
financing in the aftermath of the crisis.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10..1 Amount per issue/ number of deals JAYA
In regards to numbers of deals, there are also here forces dragging in different
directions.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
Our basis for doing this test has been that we believe there
have been shifts in sources of financing on the global scale.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
Given the banks seeking to mitigate risk in the post period, we further wish to examine
the change of consortium sizes from the two periods
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
In this test we only consider bank loans, as consortium sizes for equity and public debt
offerings are of little relevance in terms of risk of the issuer.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
We believe this is the case based on the fact that United States
is the origin of high-yield bond (Grammenos, Papapostolou,
2012), and also the key area of issuance in the pre period
(Lloyd's List, 2010).
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
However, the main driver for the high issuance volumes seems
to be investors’ search for yield in a low interest rate
environment.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
Lastly for total debt issuances, we believe there has been less
equity financing in the aftermath of the crisis.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
We believe this is the case based on the fact that United States
is the origin of high-yield bond (Grammenos, Papapostolou,
2012), and also the key area of issuance in the pre period
(Lloyd's List, 2010).
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
As the peak grew bigger, so did the demand for capital, finally
resulting in the supply of ships far outweigh the demand when
seaborne trade started to decline.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
These were just some of the more renowned firms that were
struggling, and with most of these operators previously being
top ranked by the credit rating companies.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
With the freights rate at a low, many shipping firms were losing
money, with operating costs exceeding freight rates, even with
slow steaming.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
Most exposed were those who were highly geared and had
gambled by operating larger parts of their fleet in the spot
market and therefore were not able to maintain the high
interest rate repayments
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
As the freight rates came out of the worst trough by the end of
2009 (Clarksea Index), optimism was again to be found in the
market.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.1.2 Pecking Order Theory and Market Timing Theory JAYA
This could therefore affect the choice of funding and give a bias
towards debt financing, as we will discuss further in the debt
section.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
As the freight rates came out of the worst trough by the end of
2009 (Clarksea Index), optimism was again to be found in the
market.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
As the peak grew bigger, so did the demand for capital, finally
resulting in the supply of ships far outweigh the demand when
seaborne trade started to decline.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.1.1 Trade-off Theory JAYA
To quickly recap, the market timing theory implies that the firm
does not choose between equity or debt, but rather tries to
find the source of capital that is most beneficial to the firm. It
is, however, important to remember that the financial crisis
created havoc, thus limiting the supply of financing sources
available.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.1.2 Pecking Order Theory and Market Timing Theory JAYA
This could therefore affect the choice of funding and give a bias
towards debt financing, as we will discuss further in the debt
section.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.1 Capital Structure Theory JAYA
This upswing created a viable market for IPOs, which the PWC's
Global IPO Report (2012) confirms. The post period was
characterized by bleak market sentiment, forcing shipping firms
to utilize the bond market, private equity and FOs as the credit
from banks dried up.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.1.2 Pecking Order Theory and Market Timing Theory JAYA
The reason for zero values could be that details of the deal
have not been made public, thereby listing it as zero. The total
amount is therefore not as interesting as before. Thus one
cannot look at the graph and say that the average M&A deal
has decline in the post period.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.1.2 Pecking Order Theory and Market Timing Theory JAYA
Pre Post
Mean deal size* 465.802 329.359
Observations 184 49
T-value 1.005
In our test we have excluded the zero values for comparing the
average amount; however, on the overall number of M&A
deals we have included the deals with zero value.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
Results JAYA
From the results, we can see that there has been a significant
drop in the number of deals executed in the post period.
Declining from an average of 61.75 in the pre period to only
16.2 in the post period.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
Results JAYA
This is in line with our hypothesis, as well as, with the DVB
report (2012), where they find that M&A activity has
significantly dropped in the aftermath of the crisis.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
Results JAYA
The DVB Bank report (2012) predicts the shipping M&A activity
in 2013 and onwards will be driven by the aim to reduce costs,
maintain market positions and negotiation powers.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.1.2 Pecking Order Theory and Market Timing Theory JAYA
They also note that the volatility of the equity and debt
markets will continue to make it hard to secure funding for
deals. However, there is a large amount of money on the
sideline, waiting to be placed by both strategic and financial
investors.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
Results JAYA
The premise for the increase of IPOs and FOs came mainly after
the down turn of the Dotcom crisis from the good investment
sentiment from the period between 2004 and 2007.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
12.3 Equity JAYA
Our final choice of topic was sparked by the many news articles and constant
complaining in the media of the challenging capital conditions shipowners faced in the
aftermath of the Lehman Brother crash.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
These were just some of the more renowned firms that were
struggling, and with most of these operators previously being
top ranked by the credit rating companies.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
As private equity (PE) does, however, go under this category, and there has been a
significant increase in PE investment in shipping, this could pull up our results.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
For each asset class defined we have tested whether there has been a substantial
change from the pre-crisis period to post-crisis period on the:
The amount raised per issue
The number of issues raised
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
As the freight rates came out of the worst trough by the end of
2009 (Clarksea Index), optimism was again to be found in the
market.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
With most banks severely affected by the crisis, and some having already gone through
restructuring, it is likely that the number of bank loans issued and the average deal size
have decreased.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
11. Macroeconomic Development JAYA
Our premise for testing these variables is that the product of multiplying the two
variables gives us the total volume of that asset class.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.5 Location of debt funding JAYA
Low market values could also lead to an increase in acquisitions, as increasing ones
market share could be done a low cost.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.2 Size of consortium JAYA
Our hypothesis is that we have seen a significant increase in the syndicate sizes.
Departement Teknik Sistem Perkapalan ITS
PT. MUARA
10.4 Bond interest rate and tenor JAYA
High returns in
shipping
Market Reduced
Collapses margins
Closed
250
200
155
USD bln
150 125
97
100
50 103 37
64 83
25
0
2009 2010 2011 2012
Equity Debt
Source: Clarksons
Departement Teknik Sistem Perkapalan ITS
0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Q1 Q2 Q3 Q4
25 77 74
80
20
60
15
34 34 33 40
30
10 24
5 20
0 0
3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09
30.000
USD mln
25.000
20.000
15.000
24.257
17.521
21.486
22.778
14.181
26.079
25.351
17.726
10.351
20.443
10.848
21.113
11.901
16.311
3.610
5.473
4.408
4.739
10.000
2.382
2.503
2.963
1.436
2.005
1.068
1.584
3.610
1.315
2.730
3.036
1.018
2.201
7.641
5.000
635
680
360
889
0 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09
Source: Dealogic
Departement Teknik Sistem Perkapalan ITS
Table of Contents
Europe:
Clients
North
Asia:
America:
Funding
Funding
Clients
Middle East:
Funding
Table of Contents
Conventional Bank
Fortis Bank Nederland
(like ABN AMRO in NL)
Sold to
Merchant Banking RBS
Commercial
Banking
Private Banking
Retail Banking
Departement Teknik Sistem Perkapalan ITS
Oslo
London Amsterdam
Rotterdam
New York
* Athens
Singapore
Sao Paolo
Our capabilities:
Strong Origination network
Strong Structuring and execution capabilities
Operational excellence in our Commodities and Shipping
mid and back office
Adequate capital resources to meet (some of) your
funding requirements
Innovative approach to breach the funding gap (if any)
Departement Teknik Sistem Perkapalan ITS
KEXIM at a Glance
Departement Teknik Sistem Perkapalan ITS
Establishment 1976
5
6
9
Departement Teknik Sistem Perkapalan ITS
Financial Highlights
Summary of Financial Statements
(U$ Bn) 2011 2012 2013 2014 2015
30.0
(U$ Bn)
25.0 25.0
25.0
19.7
20.0 18.8
17.3
16.0 15.5 15.5 15.3
15.0 13.6 13.3 13.1
12.2
10.0
5.0
0.0
DNB HSH Nordea KfW IPEX Bank of China Credit DVB KEXIM SuMi BNP NORD/LB ABN Amro
Nordbank China EXIM Agricole TRUST Paribas
CIB
5
7
1
Departement Teknik Sistem Perkapalan ITS
Purpose of Establishment
Maritime Finance
Group
Financial
Support for DirectLo
Shipping an & Fin
Companies ancial G
uarante
e/Bond
KEXIM Provides Customized
G u a rFinance
ant Support that Shipbuilding &
Shipping companies needeaccording
e to the Shipbuilding Stage
Departement Teknik Sistem Perkapalan ITS
Senior Facility
}
Non-Recourse
Limited Recourse
Guarantee
As an ECA, our export credit for ship financing generally follows the rules
under the OECD Arrangement for its terms and conditions.
Maximum
Within the amount regulated in OECD guideline(Up to 80% of contract price)
Amount
Security
Mortgage, Assignment of Earnings, Pledge over Earning Accounts, etc.
Package
Departement Teknik Sistem Perkapalan ITS
Banks
6.5bn
ECA (37)
2.6bn 4.2bn
Guarantee Repayment Loan 965m (19) (25)
79m (14) 291m
(2) (2) (in $)
Investor
①Diversifies funding sources to the capital market
ECA Bond
Guarantee Repayment proceeds
②Direct access to broader investor bases
Buyer
③Stable and long term financing/investment
Capital Market
Departement Teknik Sistem Perkapalan ITS
Ship Owner
Corporate Guarantee
Equity Injection
Shipbuilding
Loan Agreement Contract
Lenders Borrower Korean
(KEXIM, CB) (SPC) Shipbuilders
Repayment BBC/BBCHP
Escrow
Charterer
Account Charter Rate
Departement Teknik Sistem Perkapalan ITS
Bond Commercial
Contract Payment Proceeds P+I Beneficiary Bond Investors
Banks
Bond
Contract Proceed
Buyer Note Tenor Up to 12 years
Charterer
(Issuer) Trustee
Hire P+I
Premium Upfront
Guarantee
Repayment Amortization
KEXIM
Mortgage, Lease Contract, Earning
Security
Assignment, etc.
Departement Teknik Sistem Perkapalan ITS
Project Outline
Financing
Structured Finance
Type
Bonds Bonds
Proceeds Proceeds
Guarantee
Guarantee Loans Repayments
Loans Repayments
Option
to
Guarantee Direct Loans
convert Loans Covered
Bond
Guarantee
Kexim changes to
KEXIM KEXIM CB
Direct Loan Commercial KEXIM
Bank
(U$1억)
Kexim KEXIM
Covered Loan covered
Bond
<2 4 1
> 7
Departement Teknik Sistem Perkapalan ITS
KEXIM
KRW 250 Billion (25%)
Investment
Program
Pension Funds, Insurance Companies, Commercial Banks, Investment Banks
Co-Investors
Currency &
Each project fund enters into currency and/or interest swap agreements
Interest Swap
Departement Teknik Sistem Perkapalan ITS
①
• KEXIM anchors transactions, making
(Portion : 25%) approvals first.
Investment
Manage
Project Funds Funds for
Project Manager Fund 1 Fund 2 Fund 3 Fund 4 Each Project
(KRW/USD)
Institutional
Investors
(25%) (75%)
Investment/Withdrawal
Senior Financing
Eco-Ship Order
Senior Lender SPC Ship Builder
Repayments
*KEXIM and other
ship financing Institutions
Guarantee BBC-HP
L/T Cargo
Contract Shipping
Shipper
Companies
Departement Teknik Sistem Perkapalan ITS
Dynagas
Dynagas LTD. 4
Thenamaris LNG Holding INC.
LNG Carriers
3 LNG Carriers, 196mil
246mil
Ocean Rig 1
Drillship OCEANUS Container Carriers LLC 4
300mil LNG Carriers, 348mil
22
Departement Teknik Sistem Perkapalan ITS
USD 167,000,000 USD 408,000,000 USD 300,000,000 USD 267,400,000 USD 260,000,000
Eight container ships Nineteen LPG Carriers One Drillship Seven LPG Carrier T w o LNG C a r r i e r s
Joint Arranger with Joint Arranger with Joint Arranger with Joint Arranger with
Joint Arranger with
C A -CIB DNB Bank, DVD Bank, DNB Bank, SEB Bank C A -CIB
ABN-AMRO, ING Bank
Credit Sussie
Eco-Ship Fund
0
Departement Teknik Sistem Perkapalan ITS
• We have one of the largest foreign bank networks in China, with around 7,000 employees,
spanning 29 cities with 27 branches, 78 sub-branches and 1 village bank, 106 outlets in total.
We have strategic partnership with China Bohai Bank (19.9% shareholding) and the
Agricultural Bank of China (~5% shareholding).
• Our full suite of comprehensive capabilities across Transaction Banking, Financial markets
and Corporate Finance fundamentally allow us to deliver tailor-made well-rounded solutions,
in particularly, to support Chinese firms going global and multi-national corporate expanding
in China.
Departement Teknik Sistem Perkapalan ITS
• Finance of new-build on clients‟ order • Acquiring asset from 3rd Party and lease
book or new contract. Third party onward to clients on long term
2
Newbuild • Construction period loan converting to 2 purchase • Provides flexibility for clients in event
financing term facility on delivery. when capacity required in short term
and lease
• Client retains supervisory and • Limited / zero upfront investment
management role during construction
• Standard Chartered Saadiq offers • Financing new-builds on clients‟ order-
financing that are Shariah compliant book or new contract, providing pre-
3
Islamic Newbuild
products 3 delivery loans and converting into a sale
Financing financing and leaseback at delivery
• In accordance with the rules known as
„Fiqh al-Muamalat‟ (Islamic rules of • Provides alternate financing solution for
transaction) clients‟ new-builds
Debt Terms
Lease Terms
• Credit Facility
• Loan period 3-10yrs, balloon payments, structured amortisation profiles • Bareboat Charter
• Age of vessel to be less than 10yrs at inception of credit facility and • Lease Tenors of 7 – 12 years
vessel to be less than 18yrs upon maturity of facility • Age of vessels to be less than 10 years old at inception of lease. Age
• Fixed/floating rate (bilateral or syndicated) of vessels to be less than 18 years old at the expiry of lease
• Repayment and prepayment options, extension options • Fixed rate lease payments preferred
Departement Teknik Sistem Perkapalan ITS
•Smaller business
Operating Lease •Residual Value appetite
•May not cover all vessel types
-Assignment of Shipbuilding
Contract
Pre delivery instalments -Assignment of Refund
Pre delivery loan
Borrower/ Shipyard Guarantee (from Refund
Vessel Owner Guarantor acceptable to
Lender)
Pre delivery - Corporate Guarantee
Corporate Guarantee
– Pre delivery and
Post delivery
Bank Corporate
Guarantor
Security package:
Standby Letter of
Senior Credit for P+I 100% Owner Leasing
Bank
Lender Company
100% Owner
70% Asset
Backed Loan
Lease Agreement
Lessor/SPV Lessee/Client
Lease Payments
Purchase of vessel
Sales Proceed
Departement Teknik Sistem Perkapalan ITS
Standby Letter of
Senior Credit for P+I 100% Owner Leasing
Bank
Lender Company
100% Owner
70% Asset
Backed Loan
Bareboat charter, plus call
option (1)
Lessor/SPV Lessee/Client
Bareboat charter hire
Call option
Purchase of vessel
Sales Proceed
Note:
(1) Profit sharing between Leasing and Client Company upon sale of vessel (for any amount above call option)
Departement Teknik Sistem Perkapalan ITS
3
Lender(s) ECA(s)
Commercial and Political risk 1. Supply Contract signed between Borrower
Guarantee
and Shipyard
2. Lender(s) signs Loan Agreement with
2 ECA Loan Borrower
Agreement
3. ECA issues guarantee in favour of Lender(s)
Borrower 1
Shipyard
(Shipping Company) Export Contract for USD 100m
5. Case Study
Chinese Leasing
USD 1 Billion To the Lessor: Sole Advisor and Company
Sole Advisor andSecurity Security Intermediary
Intermediary 100% Owner
Advised on Financing the
Sale and Leaseback ofOne
FPU Lease Agreement
Purchase of vessel
Sales Proceed
Transaction highlights
Scalable Opportunity. This transaction demonstrates SCB’s ability to deliver high quality clients and products. SCB is well positioned to arrange and advise on
further finance lease and operating lease transactions for other major clients of the Bank. This adds a new business line beyond SCB’s lending and operating
leasing businesses.
Seamless Execution & Cross Sell. SCB introduced the transaction to the Chinese leasing company (lessor) and structured the transaction to meet the
requirements of both the Chinese leasing company (lessor) and the seller / lessor. SCB also engaged Transaction Banking to provide the required escrow services.
Departement Teknik Sistem Perkapalan ITS
TANKERS CONTAINERS
$k/day Clarksons Average Tanker Earnings $k/day Clarksons Average Containership Earnings
45 12
40 11
35 10
30
9
25
8
20
15 7
10 6
5 5
0 4
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
BULKERS
$k/day Clarksons Average Bulker Earnings
20
18
16
14
12
10
8
6
4
2
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Departement Teknik Sistem Perkapalan ITS
FREIGHT RATES MAY STAY LOW FOR LONGER, SINCE SUPPLY Freight rates remain low in most segments
CONTINUES TO INCREASE WHILE ECONOMIC GROWTH IS But the ClarkSea Index has increased 27% during 2017
60,000 115%
DEMANDING FEWER UNITS SHIPPED PER DOLLAR GROWTH.
FREIGHT RATES REMAIN LOW BUT ARE INCREASING
The shipping markets continue to struggle with overcapacity. 45,000 105%
Implied fleetutilisation
% of the worldfleet
Freight rates remain low across the board, indicating that
ClarkSea Index
USD per day
utilisation is poor in most ship segments. The ClarkSea Index
30,000 95%
stood at USD 13,000 per day in October 2017, up approximately
USD 5,500 per day from its all-time low in August 2016 (fig. 1).
The leading freight rate indices for Crude and Product Tankers, 15,000 85%
USD 23,000
LPG Carriers and Container vessels are only USD 3-7,000 per day per day
above their all-time lows. Offshore-related vessels are likewise USD 12,000 per day
facing very difficult times. The Dry Bulk segment has regained 0 75%
2001 2003 2005 2007 2009 2011 2013 2015
some lost ground during the past 18 months and is now 2017
approximately USD 10,000 per day above the all-time low from ClarkSea Index
Sources: Clarksons, Danish Ship Finance
February 2016.
by the Dry Bulk and Container segments. This may signal that
some investors are afraid of missing the bottom of the cycle and
Index
Index
110 110
The growing optimism facilitated an increase in sale and purchase
activity of almost 30% during the first nine months of 2017
compared with the same period last year, with 1,300 vessels 80 80
traded. The appetite for ordering new vessels has also increased
in 2017, although it remains at a low level. The number of vessels
ordered during the first nine months increased by approximately 50 50
2010 2011 2012 2013 2014 2015 2016
30% year-on-year. Crude and Product Tankers together with Dry 201
7
Bulk drove most of the increase (fig. 3).
Sources: Clarksons, Danish Ship Finance Secondhand Price Index Annual average
Departement Teknik Sistem Perkapalan ITS
fewer than 600 vessels were ordered. Global active yard capacity
has remained relatively stable in 2017 at around 45 million cgt,
135 135
distributed among around 600 yards. However, approximately
360 yards, representing around one-quarter of active capacity,
Contracting
Contracting
Milliondwt
Milliondwt
have not received any new orders during the last 18 months. We 90 90
challenge is that most ship segments are struggling to handle Bulk Container Crude Tanker Product Tanker Gas Chemical Tanker Offshore Others
surplus capacity in an environment with low demand growth and
Sources: Clarksons, Danish Ship Finance
few obvious scrapping candidates. It is hard to tell which segments
will order new vessels and hence continue to employ some of the
global yard capacity. Only 9% of the fleet is currently 20 years or
65% of the world fleet is younger than 10 years
older, which means that surplus capacity will most likely persist Only 9% of the world fleet is 20 years or older
for some time unless young vessels are scrapped prematurely (fig. 700 40%
33%
32%
SECONDHAND PRICES ARE DECLINING AMID PREMATURE SCRAPPING 525 30%
Percentage offleet
The average age of vessels scrapped has been declining since
Million dwt
Million dwt
of older vessels. We therefore expect freight rates to stay low for 40 18
4 Crude Tanker
LNG
2 Product
Tanker
Dry Bulk
1 Chemical
Tanker
Offshore
0
LPG
0% 5% 10% 15% 20% 25% 30%
Orderbook / fleet
Sources: Clarksons, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
SHIPBUILDING
Departement Teknik Sistem Perkapalan ITS
SHIPBUILDING
THE NEXT GENERATION OF SHIPS WILL LIKELY BE SIGNIFI- Figure SB.1
CANTLY MORE ADVANCED THAN THOSE CURRENTLY BEING The order covers of the three major Asian shipbuilding
BUILT. FEW YARDS ARE EXPECTED TO BE CAPABLE OF BUILDING nations continue to decline
THESE VESSELS AT PRESENT. CONSEQUENTLY, MANY YARDS 4 2,800
MAY HAVE TO EXIT THE MARKET, WHILE OTHERS WORK TO UP-
GRADE THEIR CAPABILITIES. THE CURRENT ORDERBOOK IS
all regions but Europe are falling fast, and South Korea in partic- Figure SB.2
ular has struggled to attract enough new orders to employ its
Around one-quarter of global yard capacity has not
domestic yard capacity (fig. 1). More yards have been closed, or received any new orders during the last 18 months
idled, and more workers have been laid off. 150%
Second-tier yards
24%
However, approximately 360 yards, representing one-quarter of 26% 33% 32% 39%
active capacity, have not received any new orders during the last
18 months. We label these yards second-tier. The average order 50%
90%
cover at these yards has dropped to only 0.8 years (fig. 2), 74% 67% 68% 61%
76%
ters of 2017, and by the start of October was down to 76 million Second-tier (no new orders in the last 18 months)
First-tier (new orders in the last 18 months)
cgt, or approximately 3,000 vessels - the lowest number of ves- Sources: Clarksons, Danish Ship Finance Order cover for second-tier yards
Departement Teknik Sistem Perkapalan ITS
Contracting
Tanker vessels were accountable for much of the increase in con- 40 120
tracting. One-third of new orders in the first three quarters of
2017 were for Tankers, while the Cruise and Bulk segments also
Million cgt
Million cgt
Orderboo
0 80
represented a sizeable share (fig. 4). South Korean yards in par-
vs.
ticular benefited from the uptick in Tanker ordering, but the coun-
k
Deliveries
try’s orderbook still fell by 20% during the period. As of October, -40 40
the South Korean orderbook was only slightly larger than Japan’s,
which would have been unheard of just a year ago. Hence, even << Deliveries
-80 0
though all shipbuilding regions except Europe are struggling in 2012 2013 2014 2015 2016 2017
the low demand environment, South Korea has experienced the Jan-Sep
The higher prices indicate that with fewer and fewer yards at- 4
tracting new orders, these yards have gained more bargaining
power when setting prices. The 16 million cgt contracted in the
first three quarters of 2017 was placed at 160 different yards, 2
one-fifth of global capacity have received a little more than half Bulk Container Gas Offshore Others ex. Cruise Cruise Tanker
OUTLOOK
THE ORDERBOOK IS RUNNING OUT RAPIDLY AT MANY YARDS. Scheduled orders for 2018 are not enough to employ
THERE IS LITTLE TO INDICATE THAT FUTURE ORDERING WILL annual active yard capacity of around 45 million cgt
60 80%
BE SUFFICIENT TO EMPLOY MORE THAN ONLY THE MOST COM-
PETITIVE YARDS. NEW DIGITAL SHIPS OR NEW BUSINESS MOD-
<< Global annual activeyard capacity
ELS MAY SHAPE THE SHIPBUILDING INDUSTRY IN THE NEXT FIVE
Share of orderbook(%)
45 60%
TO TEN YEARS, BUT FEW SHIPYARDS ARE CURRENTLY EQUIPPED
Total orderbook
TO BUILD THE NEXT GENERATION OF SHIPS.
Millioncgt
2 42%
30 40%
Despite some minor market improvements, such as the small rise 3
7
in newbuilding prices and higher contracting, the global Shipbuild-
2 25%
7
ing industry is still facing major challenges. Some yards have re- 15 2
3 2
21% 20%
4
ported better results during 2017, but large parts of the industry 4
4
13 7%
are still struggling to stay afloat. We expect the industry to con- 8 5 2
2 2% 2% 0%
0
tinue to be challenged in the coming years. The next upswing for 2017 Q4 2018 2019 2020 2021 2022
the industry might be sparked by the introduction of new stand- Scheduled deliveryyear
China South Korea Europe Rest of the world Share of orderbook
ards for digital ships (e.g. smart or autonomous ships). The ques-
Japan Sources:
tion is, though, if such an upswing would be inclusive or simply Clarksons, Danish Ship Finance
accelerate the consolidation of the industry.
sequently, the share of yards with less than one year of order 250
No. of activeyards
(fig. 6) – 90% of these were second-tier yards. There are only Millioncgt
around 30 yards left with more than three years of order cover. 14 140
No. of activeyards
890
860
the first three quarters of 2017, 66% of scheduled orders were
Million cgt
740
delivered, up from 61% in the same period in 2016. From a li- 40
650
600 700
quidity standpoint, this is good for the shipyards, but from an
employment perspective it means that the need to attract new 340
20 350
orders is becoming more urgent.
building yards left by the start of 2018 (fig. 7). These yards have
Millioncgt
Millioncgt
estimated active capacity of around 41 million cgt, which would 9 10
3M cgt
imply a reduction of 10% in global active yard capacity compared 12M cgt 12M cgt (30 yards)
(65 yards) (10 yards)
with the 2017 level. Hence, the consolidation seems to be pro-
5 6M cgt 5
gressing, and we continue to expect the number of active new- (40 yards) 1M cgt 2M cgt
(80 yards) (160 yards)
building yards to be drastically reduced in the coming years. 2M cgt 2M cgt
(60 yards) (55 yards)
- -
THERE ARE STILL AROUND 600 ACTIVE YARDS IN THE INDUSTRY China South Korea Japan Europe Rest of
the
Experience has taught us, however, that the number of active world
First-tier Second-tier capacity
yards drops much more slowly than the numbers indicate. In the capacity
NB: The numbers might not add up due to rounding
Sources: Clarksons, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
last couple of reports, we stated that the number of active new- sition, trying to navigate its way through the myriad of new tech-
building yards could fall below 400 yards by 2017. In October nologies and business models being introduced across the indus-
2017, the status is that there are still around 600 active new- try. The characteristics of future vessels play an important role in
building yards in the industry (fig. 7). this transition. Will the next generation of vessels become even
more standardised, will they be fuelled by LNG, will they be au-
ORDERBOOK BLIPS ARE HOLDING UP THE NUMBER OF ACTIVE YARDS…
tonomous, and will vessel components to a greater extent be sold
Let us briefly run through our methodology for assessing whether
as service contracts rather than actual components? The jury is
a yard is active or not: a yard is considered active when it has an
still out, but when it becomes clear which technologies and busi-
orderbook or has delivered newbuildings within the current year.
ness models will prevail, it could have a major impact on the Ship-
Hence, our forecasts are based on orderbook developments, and
building industry.
if orders are postponed, the number of active yards stays higher
for longer. This mechanism can be seen when looking at the num- THE RACE TO DEVELOP THE VESSELS OF TOMORROW
ber of different yards with orders at a given point over the last Many industry players, from shipyards and shipowners to compo-
five years, which has remained relatively stable. However, the nent suppliers and third-party players, are entering into partner-
number of different yards that have received new orders each ships with the aim of developing the vessels of tomorrow. We ex-
year has dropped from around 600 yards in 2012 to 160 in 2017. pect these partnerships to start to bear fruit within the next five
to ten years. Not only do we expect new vessel standards to
…AS ARE ORDERS ABANDONED BY SHIPOWNERS emerge, we also believe that the new forces driving seaborne de-
On top of the order postponements that have characterised the
mand could call for more smaller-sized vessels to be built (please
industry over the last couple of years, there could still be a size-
see the General Review and Outlook section for more details).
able share of ‘abandoned’ orders keeping up the number of active
yards. There continues to be some uncertainty over how many of NOT ALL YARDS WILL HAVE THE NECESSARY EXPERTISE IN THE FUTURE
the orders in the orderbook still exist and how many have been Not all yards active today will have the expertise required to
‘abandoned’ by shipowners, either because of poor market condi- build the next generation of vessels. Thus, it could be that yards
tions or because they were contracted at high prices compared with a certain minimum size and high technical standards will be
with current market levels. Some of these orders may still be reg- better- equipped to meet future newbuilding demand than less
istered in the orderbook, blurring the overall picture. This is pri- sophisti- cated yards. Some will argue that shipowners just want
marily a concern for the Chinese orderbook. These temporary fac- vessels at the cheapest possible price – and few currently seem
tors holding up the number of active yards are bound to subside willing to pay for technology if it does not contribute to a vessel’s
at some point, and if ordering stays at its current low, we expect cash flow. But this might change if, five or ten years down the
to see a permanent correction in the number of active yards in road, a ship’s connectivity and the real-time data it generates
the short to medium term. becomes a vital component of value creation.
A WAVE OF NEW TECHNOLOGIES COULD RESHAPE THE INDUSTRY YARDS WITH THE RIGHT CAPABILITIES WILL CONTROL FUTURE DEMAND
The next upswing in newbuilding demand could still be some Not only does the low contracting environment indicate a smaller
years away. The shipping industry is undergoing a period of tran- Shipbuilding industry in the future, the emergence of digital ships
will add to this development.
Departement Teknik Sistem Perkapalan ITS
CONTAINER
Departement Teknik Sistem Perkapalan ITS
CONTAINER
THE CONTAINER SEGMENT IS OVERSUPPLIED. LINERS ARE CON-
SOLIDATING THEIR CAPACITY, WHILE TONNAGE PROVIDERS The average box rate out of China is still low, even
ARE FINDING IT INCREASINGLY DIFFICULT TO FIND ATTRACTIVE though it has improved significantly in 2017
EMPLOYMENT. MANUFACTURING MAY BECOME REGIONALISED, 1,500 1,500
Index
Index
THE CONTAINER MARKET AT A GLANCE
1,000 1,000
A SIGNIFICANT NUMBER OF LARGE SHIPS (+12,000 TEU) CON- Annual average
declined by 2% in the period, whereas the fleet of larger vessels 400 400
(i.e. above 8,000 teu) grew by 4%, measured in teu. Within these
structures, we distinguish between liner operators, which have 300 300
(2004 = Index1,000)
Profitability Index
Profitability Index
vessels. Liners are reducing their operational oversupply by en- 200 200
by 17% on the 2016 average (fig. 1). Sources: Clarksons, Drewry, Danish Ship Finance Profitability Index Annual Average
Departement Teknik Sistem Perkapalan ITS
Million USD
Million USD
last year. Approximately 4% of the fleet below 8,000 teu was 50 50
traded during the first nine months of 2017, while only 2% of the
fleet in the larger segments was traded. 25 25
Only vessels smaller than 8,000 teu were scrapped. The average Sources: Clarksons, Danish Ship Finance
Million USD
vessels continue to be anchored to their newbuilding prices. The
23
earnings potential of these vessels may, however, be significantly 20 20
below current values. Few new orders have been placed during
the year, and most orders have been for vessels smaller than 10
12
10
Lowest 10 percent 9
8,000 teu. Some of the larger liner companies did, however, start
4 5
to place sizable orders for super-large vessels towards the end of
0 0
the third quarter. NB 5YR 10YR 15YR Scrap
OUTLOOK
CONTAINER TRANSPORT IS INCREASINGLY BECOMING A COM- The Container fleet is young with few obvious scrapping
MODITY, WHICH AMPLIFIES PRICE COMPETITION, EVEN IN A candidates in the larger segments
The orderbook amounts to 14% of the fleet
MARKET WITH BALANCED SUPPLY AND DEMAND. THIS ENTAILS 8 40%
PERMANENTLY LOW BOX RATES AND PUTS PRESSURE ON LONG- 37% Percentageof fleet
>>
TERM ASSET VALUES. THE NEED FOR NEW REVENUE STREAMS 32%
6 30%
AND COST CUTTING IS BECOMING INCREASINGLY IMPORTANT
Container fleet
FOR THE LINERS, WHICH IN TURN IS PUTTING DOWNWARD
% of fleet
Millionteu
PRESSURE ON CHARTER RATES. 4 20%
19%
Container transportation is increasingly becoming a commodity,
14%
with limited product differentiation. Box rates are structurally ex-
2 10%
pected to be driven down closer to the marginal cost per moved 8%
unit, and the industry is expected to continue its consolidation
3%
push to maximise economies of scale. The successful liners will 0 1% 0%
be those that are best at driving down costs and finding new 0-5 5-10 10-15 15-20 20- 25+ Orderbook
15,000+ teu containership 25 8-11,999 teu containership
sources of revenue. The tonnage providers will continue to find it 6-7,999 teu containership 12-14,999 teu containership
3-5,999 teu Old Panamax
difficult to secure long-term employment for their vessels that containership Sources: Clarksons, Danish Ship Finance
THE LABOUR MARKET OUTLOOK IS DETERIORATING vessels’ trading routes, but that does not improve utilisation (not
The implications of these recent developments are massive for to mention the effect on port facilities and inland infrastructure,
future job creation in Asia and Africa. Some of the sectors on the which would have to be upgraded).
frontline of the next wave of automation (such as textiles, or call
centres using AI and voice recognition software) have been im- BOX RATES MAY STAY LOW FOR LONGER
We envisage a scenario where box rates could stay low for a pro-
portant for job creation and expanding economic growth in China
longed period and secondhand prices of larger vessels stay under
and India in past decades. Thus, for all the countries in Asia and
pressure. To prosper, liner companies need to identify and grow
Africa with burgeoning cohorts of young people entering the
additional lines of revenue. This process has already begun and
workforce, the prospect of not being able to capitalise on low-cost
several liner companies seem to be working on multiple frontiers:
labour to attract manufacturing investment is a particular concern
from platforms to blockchain to trade financing. In the future,
and may lower the medium to long-term outlook for economic
owning and trading vessels could go from being the core
growth in these countries.
business to just one of several prerequisites for value creation.
THE CONTAINER INDUSTRY IS IN TRANSITION The liners that are best at identifying and extracting value from
The demand outlook for the Container industry is being shaped their entire ecosystem will be the ones that drive the
by forces that point towards more regionalised trading networks, consolidation process. ▪
while the supply side continues to focus on larger ships with low
marginal costs. This could turn out to be a toxic cocktail, since it
may lower not just head-haul volumes but also back-haul vol-
umes. The extensive networks of component trades (often pow-
ering volumes on the back-haul routes) may be shortened and
simplified by the new technologies.
DRY BULK
Departement Teknik Sistem Perkapalan ITS
DRY BULK
THE DRY BULK MARKET HAS COME A LONG WAY SINCE HITTING
THE BOTTOM IN 2016. THE MARKET COULD CONTINUE TO IM- The Baltic Dry Index is on average up by 60% in 2017
compared to 2016
PROVE IF THE DILIGENT APPROACH TO ORDERING IS UPHELD. IF
NOT, WE COULD SEE THE START OF ANOTHER DOWNTURN, SINCE 4,000 4,000
Baltic DryIndex
Baltic DryIndex
AFTER A SIGNIFICANT MARKET UPSWING DURING THE FIRST
QUARTER OF 2017, MOMENTUM WEAKENED SOMEWHAT. HOW- 2,000 2,000
MillionUSD
Million USD
0.24 million dwt, while it reached 5.5 million dwt during the first 34
30 30
three quarters of 2017.
less than half the tonnage scrapped in the same period in 2016.
MillionUSD
MillionUSD
Shipprice
Shipprice
Highest 10 percent
This led to an increase in the average scrapping age from around 80 80
OUTLOOK materials somewhat. Moreover, the gradual push to reduce the role
TWO IMPORTANT FACTORS ARE EXPECTED TO SHAPE THE OUT- of fossil fuels in the energy mix is expected to erode some of the
LOOK FOR THE DRY BULK MARKET: FUTURE ORDERING AND CHI- demand for transporting coal over time.
NESE DEMAND. THE ORDERBOOK HAS DECLINED SUBSTANTIALLY …BUT CLEAN ENERGY TECHNOLOGIES SHOULD SUPPORT THE MARKET
AND IF CONTRACTING IS KEPT LOW, IT COULD SUPPORT A MAR- At the other end of the spectrum, the fight against climate change
KET RECOVERY OVER THE NEXT COUPLE OF YEARS. HOWEVER, and pollution is driving a push towards clean energy technologies
CHINESE DEMAND IS EXPECTED TO BE UNSTABLE OVER THE which could create additional Dry Bulk demand. At present, these
NEXT FIVE YEARS, AND THE RISK OF EXTENDED PERIODS OF are mostly related to wind turbines, solar panels and batteries,
LOWER DEMAND IS MATERIAL. which all require large amounts of different metals (e.g. copper,
The Dry Bulk market continues to move in the right direction with aluminium, lithium and steel). Imagine a future where the majority
strong support from Chinese imports. Nonetheless, at current of the car fleet is battery-driven and most homes have a solar panel
freight rate levels, many owners are still struggling to make a on the roof and a home battery in the garage. During the build-up
profit. This indicates that the market oversupply is still significant phase, this would boost the consumption of metals significantly,
and that a cautious approach to new ordering should be main- whereafter consumption would begin to decline as the market ma-
tained in the coming years. tured and a larger share of materials were recycled. These trends
indicate that Dry Bulk could be one of the most resilient shipping
MACROECONOMIC DRIVERS LAY THE FOUNDATION FOR OUR ANALYSIS segments in the transition towards a new and less resource-
We have had a cautious long-term outlook for the Dry Bulk market
intensive energy regime.
since 2007, primarily due to our concerns over the market’s de-
pendence on the Chinese economy. In our outlook, we strive to CHINESE DELEVERAGING COULD CAUSE CORRECTION IN VOLUMES
Even though we are relatively optimistic about the long-term out-
identify fundamental trends and changes that may affect medium
look for Dry Bulk, we believe the market could see a correction in
to long-term market behaviour, an approach that sometimes fails
transported volumes in the medium term. Our stance on the sus-
to predict the shorter-term market opportunities that may arise.
tainability of Chinese Dry Bulk demand is unchanged: the country
Despite our caution, our long-term demand outlook for the Dry
is in dire need of reforms related to its industrial overcapacity,
Bulk segment is one of the most promising across the major ship-
state-owned enterprises, banking system, social security system,
ping segments. The future need for transporting building materi-
etc. We expect China to continue to play a vital role for the Dry
als, food and feedstocks of different kinds is expected to remain
Bulk market in the future, but the deleveraging cycle that might
robust over the coming decades, which will keep Dry Bulk demand
be about to commence could cause extended periods of lower
relatively strong.
demand.
EMERGING TRENDS COULD REDUCE DRY BULK DEMAND SOMEWHAT…
CHINESE LEADERSHIP CHANGE CREATES DRY BULK UNCERTAINTY
That said, there are forces that have the potential to impact de-
In late October, the 19th National Congress of the Communist Party
mand for raw materials negatively going forward. Emerging trends
of China took place and President Xi revealed his new leadership
related to the circular economy, whereby materials are increas-
team of the Politburo Standing Committee for his second five-year
ingly recycled and remanufactured, could curb demand for raw
term. It has been said to be one of the last steps in the process of
establishing himself as one of the most powerful leaders in Chinese
Departement Teknik Sistem Perkapalan ITS
BELT AND ROAD INITIATIVE A DRIVER OF DRY BULK DEMAND? 270 34% 33%
Percentage offleet
It is essential for the Chinese government that the deleveraging
Million dwt
efforts do not result in massive job losses and social unrest. How-
ever, lowering the country’s industrial overcapacity will require 180 22%
Deliveries
in China and abroad, and support Dry Bulk demand in the medium Annual fleet growth
term, counterbalancing some of the effects of the expected reform
Million dwt
6%
efforts. However, for BRI to be a success, many obstacles must be 40
4% 4%
overcome. Several of China’s neighbouring countries are very re- 3%
2% 2% 2%
luctant to give it more influence in the region, and many projects
1%
0
are being implemented in countries with high geopolitical risk and
Scrapping
low credit ratings. Some argue that these risks will not hamper the
execution of the initiative, since China is primarily concerned with
-40
domestic job creation. That might be true, but if too many projects 2012 2013 2014 2016 2017 2018 2020
2015 2019
fail or turn out to be underutilised, they will end up adding to Orderbook
Capesize Panamax Handymax Handysize
Sources: Clarksons, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
Fleet renewal
Fleet renewal
A MARKET RECOVERY IS WITHIN REACH FOR MOST SEGMENTS 1 1
Handymax
If the industry refrains from a new round of excessive ordering,
freight rates and secondhand prices could increase to much more Handysize
sustainable levels within the next two years. The orderbook has 0.5 0.5
Average scrappingage
tracting, as it has the fewest natural scrapping candidates in the 34
Years
point where their orderbooks can be absorbed into their fleets by 25
means of scrapping alone, without putting further pressure on av- 25
25
erage scrapping ages. This means that the downward pressure on 20 20
23
20
secondhand prices stemming from a shorter operating life could
begin to ease. Assuming orderbooks are delivered on schedule, no 15 15
new orders are placed and that every time a vessel is delivered the 2013 2014 2015 2016 2017e 2018e 2019e
2020e
Capesize Panamax
oldest vessel in the fleet is scrapped, all segments except for Handymax
e: the estimated average Handysize
scrapping age if each time a vessel
Capesize would have higher average scrapping ages when the last Sources: Clarksons, Danish Ship Finance is delivered, the oldest vessel in the fleet is scrapped.
Departement Teknik Sistem Perkapalan ITS
orders are delivered in 2020 than they have today (fig. 8). The Capesize segment, on the other hand,
would see the average scrapping age approach 20 years again by 2020, illustrating how sensitive this
segment is to higher contracting or periods with low demand.
THE ORDERBOOK AND FLEET ARE BETTER BALANCED THAN TWO YEARS AGO
It should be stressed that such a scenario will never play out, since many older vessels serve a specific
purpose, such as cabotage trading, but it does illustrate that the fleet in its current form is more capable
of absorbing the orderbook than previously. Going back to the start of 2015, applying the same approach
would have resulted in average scrapping ages of no more than 16 years for Capesize and Handymax,
20 years for Panamax and 27 years for Handysize.
Annual change
EARNINGS POTENTIAL.
3%
100 0%
THE OFFSHORE SUPPLY MARKET AT A GLANCE
-6%
THE FLEET IS BEING POORLY UTILISED, MANY VESSELS ARE IN -13% -14% 75
-10%
In our previous report, we discussed how technological advances << Offshore Supply Vessel, freight rate index, annual average
0 -50%
in renewable energy have lowered the long-term outlook for 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
global oil demand. Offshore oil production remains a significant
contributor to the global oil supply, but the short- to medium-term Sources: IHS Energy, Clarksons, Danish Ship Finance E&P spending, Offshore
outlook for offshore oil exploration seems significantly reduced
following the low oil price and the advances made within oil drilling
techniques and alternative energy sources. Secondhand prices and timecharter rates continue to
decline
SECONDHAND PRICES CONTINUE TO DECLINE 100 80,000
The market for offshore supply vessels is in dire straits: the fleet
AHTS > 16,000 BHP ( << Secondhand price; 1YR T/C >>)
is being poorly utilised, many vessels are in some degree of lay-
5-year-old secondhand price
up, few vessels are being scrapped and charter rates are low. 75 60,000
Secondhand prices are low but may not yet have come down far
Timecharter rate
enough to reflect the vessels’ current earnings potential (fig. 2).
Bid-ask spreads remain wide, which explains the relatively illiquid 50 40,000
Still, the increased activity has supported spot rates and pulled 33%
29%
some vessels out of lay-up, but not enough to lift charter rates
22%
significantly. Charter rates have plateaued, however, since the 40
16%
20%
start of 2017. We expect that many of the vessels that won short-
term contracts during the summer period will go back into lay-up 0 0%
when their contracts expire. Approximately one-quarter of the 0-10 10-20 20+ 0-10 10- 20+
20
PSV 3-4,000 dwt
fleet of larger supply vessels (PSVs larger than 3,000 dwt and AHTS >16,000 bhp
bhp
AHTS 12-16,000
PSV >4,000 dwt
AHTSs larger than 12,000 bhp) remain in lay-up. Younger vessels Sources: Clarksons, Danish Ship Finance
Number of vessels
ongoing consolidation process. Oil majors tend to prefer to do OSV fleet
business with the shipowners that have the strongest balance 2,000 2,000
sheets. Shipowners that have not yet restructured their financials 3,090 1,030
may find it more difficult to employ their vessels on contracts with
1,000 30 1,000
the oil majors.
950 1,000
91
A REDUCTION IN SUPPLY IS REQUIRED FOR THE MARKET TO BALANCE 270
0 0
When E&P spending was at its peak in late 2013 the OSV market In service Laid up In service Laid
up
was seeing signs of an oversupply. Therefore, the road to a more OSV
OSV fleet
fleet Large vessels*
Large vessels*
balanced market will require many vessels to be scrapped and Active class certificate No active class
certificate
exploration activity to resume. There are currently almost 2,500 *Large vessels: AHTS >12,000 bhp and PSV >3,000 dwt
Sources: Clarksons, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
OUTLOOK
THE OUTLOOK FOR OFFSHORE SUPPLY VESSELS IS HIGHLY UN- Limited offshore E&P spending in the years to come
CERTAIN. NEW ONSHORE OIL PRODUCTION APPEARS MORE AT- 250 600
E&P spending
E&P spending
350
Billion USD
Billion USD
VAST MAJORITY OF THE FLEET IN THE SHORT TO MEDIUM TERM.
0
The global energy landscape is changing. The outlook for the oil 225
and gas industry is shrouded in uncertainty. New sources of en-
ergy supply are being added to the global energy mix and existing -125
100
production methodologies are being upgraded by new technolo- Offshore E&P spending
(e.g. solar PV, wind or electric vehicles) break the price parity with
existing technologies. The penetration period for new technologies
Global oil production up by 3.1 million barrels, 2018-21
is highly uncertain. Estimates vary greatly, but it appears that Offshore crude oil production up by 600,000 barrels per day
most industry players are expecting earlier adoption than previ- 2.4 2.4
equivalent to unlocking an additional 1 trillion barrels of oil equiv- unconventional Sources: IHS Energy, Danish Ship Finance
Number of vessels
2021+
advantage over offshore projects in the current market. The un-
conventional onshore oil sector in the US has proved very respon- 2,000 2,000
2020
sive and resilient in recent years. It is currently expected that for No
every dollar invested in global E&P up to 2021, onshore projects 2019
class
1,000 1,000
will receive approximately three-quarters (fig. 5). 2021+ 2021+
2020 2020
2018 2019 2019
OFFSHORE OIL PRODUCTION EXPECTED TO INCREASE UNTIL 2021 2018 2018
0 0
Global oil production is expected to continue to increase. Onshore In service Laid up In service Laid
up
oil production, both conventional and unconventional, has added OSV fleet Large vessels*
2018 2019 2020 2021+ No Class
strongly to the global oil supply in 2016 and 2017 and is currently Sources: Clarksons, Danish Ship Finance
dwt
Large vessels: AHTS >12,000 bhp and PSV >4,000
Departement Teknik Sistem Perkapalan ITS
Number of vessels
% of the fleet
The offshore oil industry accounts for almost one-third of global
oil supply. Oil markets looks well supplied until 2020, but this is 400 40%
mainly because of projects that received FID prior the oil price 29%
collapse. This means that offshore FIDs need to pick up signifi- 200 21% 20%
cantly to offset depletion rates in the future. Offshore projects 12%
15%
MANY VESSELS WILL NOT BE REACTIVATED there is still a considerable way to go. For a more balanced market
Still, there needs to be a significant reduction in the future supply to be achieved, older and smaller vessels will have to be scrapped
of vessels for charter rates and secondhand prices to improve in and exploration activity will need to resume.
the current market. Currently, there are more than 2,500 vessels
(44% of the OSV fleet) either in lay-up or without active class A LONG-TERM RECOVERY REMAINS DISTANT
certificates (28%, or fewer than 400 vessels in the larger seg- The long-term outlook for the offshore supply vessel industry is
ments) (fig. 4). For many of these vessels, significant reactivation subject to significant uncertainty, due to potential factors ranging
costs would be required before they were ready for new short- from significant increases in the onshore oil supply to the timing
term employment. This number could increase in the next three of peak oil demand. In general, the OSV industry prospers when
years, as an additional 2,000 vessels are due for class renewal new fields and infrastructures are being built and maintained. Oil
(680 vessels in the larger segments) between 2018 and 2020. majors have more than 120 projects that are being recycled or
postponed in their portfolios. Many of these projects received final
SUPPLY NEEDS TO SHRINK investment decisions in the period from 2012 to 2014. Several
It is uncertain how many of these vessels will stay active in the major projects are in Brazil. And if the current drilling campaign
market, but to us it seems clear that the supply side will need to in the Barents Sea proves successful, this could also create sig-
shrink significantly before charter rates and secondhand prices nificant demand for large OSV vessels. If these projects are sanc-
can start to recover. There are more vessels on order still, alt- tioned and oil demand continues to increase, our hopes for a bet-
hough it remains to be seen how many of these will be delivered ter OSV long-term outlook would be bolstered. ▪
(fig. 9). In other shipping segments, many of the out-of-work and
elderly vessels would be prime candidates to be sold for scrap.
But OSVs tend to fetch relatively low scrap prices: the largest
AHTS would struggle to command a scrap price over USD 1 mil-
lion, which might not even be enough to cover the cost of trans-
porting the vessel to a breaking location. Still, many of the older
laid-up vessels appear to have been effectively written off by own-
ers via a lack of investment in maintenance. More action will still
be required to reduce vessel supply to address the current imbal-
ance in the market.
SUBSEA VESSELS
Departement Teknik Sistem Perkapalan ITS
SUBSEA VESSELS
THE MARKET FOR SUBSEA VESSELS IS SUFFERING FROM OVER-
CAPACITY. SECONDHAND PRICES AND CHARTER RATES REMAIN Subsea charter rates have halved since the peak in 2014
LOW. A CONSOLIDATION PROCESS HAS STARTED, AND MANY but the market seems to have found the bottom
Charter rates are up 5% since November2016
SHIPOWNERS HAVE EXITED THE INDUSTRY, WITH MORE EX- 250,000 250,000
PECTED TO FOLLOW SUIT. A SLOW RECOVERY IS EXPECTED FROM June 2014
LATE 2018 ONWARDS, BUT IT MAY NOT BE FOR EVERYONE. 200,000
GBP 195,000 perday
200,000
in 2014 to GBP 97,500 per day in August 2017 (fig.1). This drop
clearly reflects the poor utilisation of the fleet. The low demand for
Number of subsea trees
28 vessels (4% of fleet) delivered in the first ten months of 2017. The orderbook is
heavily front-loaded and stands at 11% of the fleet. The fleet generally has a
significant share of older vessels that could be scrapped to absorb the delivery of
new vessels with- out putting too much downward pressure on charter rates and
secondhand prices. Subsea vessels are typically larger than OSVs and therefore
have a marginally higher steel value. Few new ves- sels have been ordered in
2017.
OUTLOOK
SEEMS TO BE LITTLE TO INDICATE THAT THE SITUATION WILL - Cable layer (fibre optic) cable -Diving support
- Umbilicals & fp/flowline lay -Multi-functionalsupport
-Rov/submersible support
BEGIN TO IMPROVE BEFORE THE END OF 2018.
- Derrick/lay vessel
400
- Pipelayer
Well stimulation (4)
33%
Global E&P spending currently seems to favour onshore oil pro-
Heavy lift (3) -Extendedwell testvessel
- Heavy lift/crane ship -Well stimulation
300
jects. Low break-even rates and short-cycle projects are giving
both conventional and unconventional onshore oil production a 19%
200
competitive advantage over new large-scale offshore projects. This 10%
development is clearly sensitive to the oil price. If the oil price
100
stays at current levels for a prolonged period, the demand outlook
for both Offshore Supply vessels and Subsea vessels will be struc- 0
turally reduced. In the event of this, smaller players would likely 0-10 10-20 20+ Orderbook
continue to be forced out of the market. Cable layer (1) Multi-purpose (2) Heavy lift (3) Well stimulation (4) Percentage of fleet
A RECOVERY MAY NOT BE FOR EVERYONE Sources: Clarksons, Danish Ship Finance
These forces are driving a transition process in the subsea industry
whereby larger vessel owners are entering into strategic alliances
with oil companies to lower costs and enhance their capabilities. Merged backlog for the three largest SURF companies is
However, strategic alliances with oil companies may not be for recovering
Backlogs have increased 13% since June 2016
everyone. Smaller vessel owners are at risk of becoming tonnage 45 120
providers to an oversupplied market. Still, national oil companies Merged backlog for the three
(NOCs) have a history of awarding contracts to smaller shipown- largest SURF companies
ers, partially due to national interests, but also to keep their supply
Billion USD
tinental Shelf. However, the vast majority of new projects are tie-
back projects which mean less vessel employment than new
8
projects that require installation of new production infrastructure.
years and it may not be for everyone. We recognise that this is a -11% Annual percentage growth
good time for owners to acquire vessels at discounted prices, but 3 -40%
Billion USD
0
2014 2015 2016 2017 2018 2019 2020 2021
FEED (Front End Engineering Design) spending Annual growth
CRUDE TANKER
Departement Teknik Sistem Perkapalan ITS
CRUDE TANKER
TOO MANY NEW DELIVERIES HAVE EXACERBATED THE OVERCA- Figure T.1
PACITY IN THE CRUDE TANKER MARKET IN 2017. ALTHOUGH FU- The Crude Tanker spot market has experienced strong
TURE OIL DEMAND IS EXPECTED TO BE HEALTHY, THIS WILL NOT downward pressure on freight rates in 2017
Average spot earnings are down 49% year-to-date, and VLCC earnings are worst
BE ENOUGH TO EASE THE PRESSURE ON FREIGHT RATES AND hit with a 60% decline year-to-date
SECONDHAND PRICES IN THE NEXT TWO YEARS, AS THE FLEET 120,000 120,000
Average earnings
Average earnings
THE CRUDE TANKER MARKET HAS DETERIORATED SIGNIFI-
Suezmax and USD 15,000 per day for an Aframax – an average 100 100
decline of 17% from the December 2016 level (fig. 2). VLCC and
Million USD
Million USD
50 50
from Brazil, counterbalancing falling imports from Venezuela.
40
INCREASED DEMOLITION BUT FLEET GROWTH REMAINS HIGH 30
Higher scrap prices (fig. 4) seem to have led owners to increase 25 25
26.3 million dwt delivered so far in 2017, compared with 25.6 mil-
lion dwt in the whole of 2016. Sources: Clarksons, Danish Ship Finance VLCC Suezmax Aframax
Million USD
Million USD
down to some of the lowest levels since 2000 (fig. 4), perhaps
reflecting a shortening of economic life as pointed out previously. Sources: Clarksons, Danish Ship Finance Median Current
Departement Teknik Sistem Perkapalan ITS
OUTLOOK
Percentageof fleet
Fleet distribution
EXPECTATION THAT ‘PEAK OIL DEMAND’ IS LURKING. 24%
Milliondwt
OPEC’s decision to lower production is currently supporting the 70 18%
Crude Tanker market by increasing travel distances and reducing 14%
13%
fleet availability due to inadequate US export facilities. Still, the
35
Crude Tanker market is oversupplied. Freight rates and 9
%
secondhand prices are low. Freight rates continue to decline, 3%
whereas it seems that vessels’ secondhand prices are being sup- 0 0% 0%
ported by high expectations for future earnings. We see little to 0-5 5-10 10-15 15-20 20-25 25+
Orderboo
indicate that market fundamentals will improve significantly k
Sources: Clarksons, Danish Ship Finance VLCC Suezmax Aframax Share of fleet
within the next year or two. The fleet is scheduled for further
growth, while demand for Crude Tankers looks unlikely to be able
to employ the new deliveries, even though global oil demand con-
tinues to grow at a healthy rate. The Crude Tanker orderbook can only be characterised
as fleet renewal if we consider vessels as young as 15
THE LONG-TERM OUTLOOK IS BLEAK years eligible scrapping candidates
The temporary factors that are currently supporting Crude Tanker 5 5
Fleet renewal
3.2 3.1
has yet to be priced into younger vessels’ secondhand prices is 3 3
‘peak oil demand’ which looks likely to occur within the lifetime of
most vessels currently trading. Industry executives argue that 2 2
global oil demand will peak within the next ten to 15 years.
1 1
0.7 0.8
YOUNGER VESSELS’ SECONDHAND VALUES MAY DECLINE 0.7
ture earnings are high. Older vessels are priced at a relatively Orderbook / 20+ year old Orderbook / 15+ year old
Sources: Clarksons, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
The low premium for a 15-year-old VLCC relative to its scrap price
MillionUSD
25
MillionUSD
older vessels (i.e. older than 15 years) will be scrapped. This hy- 38
pothesis is supported to some extent by the size of the orderbook 36 36
16
5). The orderbook is so large that it almost looks like a fleet re- 18 6 18
newal exercise aimed at replacing most vessels older than 15 16
years (fig. 6). In the event of this, we would expect further down- 0 0
ward pressure on older vessels’ secondhand prices in the years to Scrap 15YR 10YR NB
5YR
come, but prompt demolition of older vessels may improve freight Cost of accessing additional years of cash
Current prices
we believe the free cash flow equivalent is more relevant for de-
900
termining an investor’s reservation price than gross earnings. We
therefore argue that younger vessels could be overvalued com-
450
pared with their actual future earnings potential.
CRUDE TANKER DEMAND SET TO RISE 2.4% ANNUALLY UP TO 2020 Annual fleet growth
7%
We expect nominal Crude Tanker demand to grow by approxi- 6%
7%
6%
28
mately 2.4% annually up to 2020 (fig.8). The Crude Tanker fleet
Deliveries
is expected to grow at a gross rate of 7% in 2017 and 6% in 2018
Million dwt
3% 3%
(fig. 9). Longer travelling distances are currently supporting dis- 14 2%
tance-adjusted demand, but we consider the OPEC production cut 1%
0.3%
a short-term event that will not add much additional demand to
0
the market and hence will not absorb the front-loaded orderbook
Scrappin
in the short to medium term. Travel distances are likely to decline
when OPEC ends the production cut. -14
g
2012 2013 2014 2015 2016 2017 2018 2019 2020
the duration of the OPEC production cut. When OPEC increases production, oil prices could start to
decline again, bringing the oil markets back into contango. This could support the Crude Tanker
market by encouraging oil storage but would at the same time shorten average travel distances. The
impact on US shale produc- tion of an OPEC production increase remains uncertain, but in previous
cycles we have seen that US shale production is highly responsive to changes in the oil price. Still, we
find it unlikely that Crude Tanker utilisation will see sustainable improvements from these effects.
***
In short, the overriding factor affecting the Crude Tanker outlook is high fleet growth. A shortening of
average travel distances when OPEC oil production increases again will only deteriorate the outlook
further. We expect the Crude Tanker market to stay chal- lenging at least until the end of next year. ▪
Departement Teknik Sistem Perkapalan ITS
PRODUCT TANKER
Departement Teknik Sistem Perkapalan ITS
PRODUCT TANKER
THE PRODUCT TANKER MARKET IS OVERSUPPLIED, AND THE LR
SEGMENTS ARE AT RISK OF ADDING FURTHER TO THE OVERCA- Average Product Tanker earnings remain low and have
PACITY. THE HIGH FLEET GROWTH IS OUTPACING DEMAND declined by 28% year-to-date
Annual average earnings in 2017 are 17% below the 2016 level
GROWTH, AND DEMAND IS EXPECTED TO GROW SLOWLY IN THE 40,000 40,000
COMING YEARS. FREIGHT RATES AND SECONDHAND PRICES Clarksons' Average Clean Products Earnings
ARE LOW, ALBEIT INCREASING.
July 2015
30,000 USD 28,000 per day 30,000
THE PRODUCT TANKER MARKET AT A GLANCE
freight rates at very low levels in 2017 (fig. 1). Sources: Clarksons, Danish Ship Finance
MillionUSD
MillionUSD
Africa. Additionally, MR rates have been supported by growth in
30 30
intra-Asian petroleum products trade. But Product Tanker 32 26.5
24
timecharter rates remain near historical lows. By end-October,
the 1-year timecharter rate stood at USD 13,500 per day for MRs, 15 15
USD 13,400 per day for LR1s and USD 15,300 per day for LR2s.
MR ship prices
1.5 million dwt in the whole of 2016. Activity in the secondhand
MillionUSD
MillionUSD
34
market has also increased, with 4.8 million dwt changing hands
in the first nine months of 2017, up from 2.9 million dwt in 2016. 24
20 20
ASSET PRICES ARE IMPROVING SLOWLY Lowest 10 percent 16
On average, Product Tanker asset prices have been lower in 2017
9
than in 2016. But, year-to-date all Product Tanker secondhand 4
prices have risen, with the exception of five-year-old LR1 vessels 0 0
NB 5YR 10YR 15YR Scrap
(fig. 3). MR asset prices have fared best in 2017 and are up 9%
and 5% for five-year-old and ten-year-old vessels, respectively,
Sources: Clarksons, Danish Ship Finance Median Current
year-to-date, although this is from a very low base (fig. 4).
Departement Teknik Sistem Perkapalan ITS
OUTLOOK
THE OUTLOOK FOR THE PRODUCT TANKER MARKET IS FOR SLOW Seaborne trade in petroleum products is expected to
DEMAND GROWTH AND THERE ARE SIGNIFICANT DOWNSIDE grow by 1.9% anually up to 2020
RISKS. HIGH SCHEDULED FLEET GROWTH AND A SCARCITY OF 500
4.6% 5.6%
OLD VESSELS FOR SCRAPPING TARNISH THE OUTLOOK FOR THE 2.9% 1.8%
Million tonnes
300
DEMOLISHED FOR NEW DELIVERIES TO BE ABSORBED.
The short-term outlook is characterised by modest growth in de-
200
mand and a front-loaded orderbook (fig. 5 and 7). Inventory
drawdowns could pave the way for regional imbalances again and
100
strengthen arbitrage trade. Still, we do not believe demand
growth will be adequate to employ the new vessels, and thus we
0
assume many vessels will have to be scrapped to keep freight Asia North Latin Europe Africa Other Middle Oceania FSU
America America East
rates and secondhand values stable, especially younger LR ves-
sels. Premature scrapping could reduce the economic lifetime of
Sources: IHS Global Insight, Danish Ship Finance Import volumes 2020
vessels by up to five years, which could lower the value of older
vessels. The medium-term outlook is highly sensitive to Asian de-
mand and few new orders being placed.
Volumes of seaborne petroleum products are expected
YOUNG VESSELS SENSITIVE TO TIMING OF ‘PEAK OIL DEMAND’ to grow more slowly in the fut ure than in the
Product Tanker demand is expected to grow by an annual average 1,500 past 1,500
Million tonnes
CAGR 3.8%
seems reasonable to hold back ordering in the coming years.
DIESEL DEMAND IS EXPECTED TO INCREASE, BUT ONLY SLOWLY bally dominate an emerging industry in contrast to the ‘old’ inter-
The outlook for diesel demand is positive, but growth is expected nal combustion engine car industry. Chinese car manufacturers
to grow slowly by around 1% per year up to 2025. This will be are producing the largest number of electric vehicles globally and
driven by increased demand for road freight (i.e. heavy-duty ve- Chinese consumers are buying the most electric vehicles in the
hicles), particularly in China. world. However, both the electric vehicle industry and consumers
in China are aided by aggressive subsidies – for consumers, the
GASOLINE DEMAND CAUGHT BETWEEN A ROCK AND A HARD PLACE
subsidies are second only to those in Norway. Six Chinese cities
In the OECD region, low oil prices have led to a brief resurgence
account for approximately 70% of electric vehicle sales, and in
of gasoline demand in the past few years, but a structural decline
these cities licence plates for internal combustion engine cars are
is expected to set in from 2018. Globally, gasoline demand is ex-
available only by lottery. It could be that the ease with which a
pected to peak any time from 2025. In the short term, fuel effi-
licence plate can be obtained has been the main incentive for pur-
ciency gains will hold back demand growth, while electric vehicle
chasing an electric vehicle rather than any other considerations.
penetration will cause a deceleration in the long term.
Either way, this illustrates the power of policy. Exactly how soon
ELECTRIC VEHICLES MOVING FRONT AND CENTRE the government wants the Chinese only to drive electric vehicles
The approaching electric vehicle revolution seems to be gaining is the single biggest uncertainty for gasoline demand going for-
traction among car manufacturers and regulators. Volvo has ward.
pledged to sell no new cars without electric engines from 2019.
AIR TRAFFIC GROWTH AND PETROCHEMICALS ARE BRIGHT SPOTS
Other car manufacturers have similarly ambitious plans for ‘going
Rising living standards, especially in non-OECD countries, are set
electric’. Regulators are advancing the agenda, with France and
to boost global demand for air travel and consumer products
the UK joining, among others, Norway, the Netherlands and India
strongly and thereby feedstock for the petrochemical sector be-
in setting deadlines for when sales of light-duty vehicles with in-
yond the peak as demand for other petroleum products decline.
ternal combustion engines will no longer be allowed. Chinese reg-
This will support jet fuel and naphtha demand. The increase in
ulators are also planning to ban internal combustion engine
naphtha demand will primarily be seen east of Suez. However, jet
vehi- cles, but the timing remains uncertain. As we have
fuel and naphtha account for only a small share of total oil demand
discussed in previous reports, forecasters have continuously
compared with diesel and gasoline, and thus despite their good
underestimated the rate of adoption of electric vehicles. With
growth prospects, they are unlikely to compensate for declines in
the recent an- nouncements and China signalling its intention to
demand elsewhere.
jump on the bandwagon, forecasts could be set for major
revisions and ‘peak gasoline demand’ could come much sooner ATLANTIC BASIN REFINERIES FACE STRONG COMPETITION
than we currently an- ticipate. Due to the expected slowdown in demand growth, only half the
historical rates of refinery capacity additions in Asia are needed.
CHINA IS THE BIGGEST RISK TO GASOLINE DEMAND GROWTH
New Asian refineries tend to be globally competitive, which threat-
China is pushing aggressively for electrification of its car fleet,
ens the Atlantic Basin refineries’ ability to export petroleum prod-
and has at least three reasons for doing so. Electric vehicles do
ucts competitively to distant growth markets. US refineries’ pri-
not aggravate air pollution and neither do they add to demand for
mary export market is Latin America, but exports to Asia have
oil imports. Thirdly, they present an opportunity for China to glo-
increased sharply over the past two years. If Asian refinery capa-
Departement Teknik Sistem Perkapalan ITS
Percentage offleet
27%
Fleet distribution
23%
Million dwt
PRODUCT TANKER SUPPLY TO CONTINUE TO OUTGROW DEMAND…
36 22%
With little growth in demand expected and further fleet growth
scheduled, supply will continue to outpace demand in the Product
9%
Tanker market for at least another year. Gross fleet growth is 18 7% 11%
tinue to be an issue in the Product Tanker market beyond 2018, Annual fleet growth
6%
since most of the vessels ordered in 2017 are not scheduled to be 6% 6%
10
delivered until 2019 (fig. 8). 4% 4%
Deliveries
Million dwt
Scrapping
the orderbook (fig. 7 and 9). Therefore, we maintain our opinion
that the MR segment is well-positioned to withstand fleet growth
-5
despite the oversupply. Increased demolition of older vessels 2012 2013 2014 2015 2016 2017 2018 2019 2020
Fleet renewal
Fleet renewal
due to a shortening of the vessels average operating life (fig. 10).
6
LR1 SEGMENT INCREASINGLY MARGINALISED 6.1
6
On several parameters, the LR1 segment seems to have become
increasingly marginalised in recent years. Since 2011, just 9% of 3 3
2.1
all Product Tanker orders have been for LR1s. And of the 72 Prod- 1.4 1.1
uct Tanker orders placed in 2017 only two were for LR1s. LR1 0
0.5
0
vessels have also traded at a discount to MR vessels in terms of LR2 LR1 MR
timecharter rates for most of 2017, and five-year-old LR1 vessels Orderbook / 20+ years old Orderbook / 15+ years old
are the only benchmark to have shown a price drop in 2017 (fig. Sources: Clarksons, Danish Ship Finance
Years
during the next two years could have repercussions for the Prod-
uct Tanker market. Many Crude Tankers could be competing with 20
20 20
Product Tankers on their first East to West voyages as they are 18
16
delivered from the yards, since earnings are close to parity and
fewer crude oil cargoes are available. This could become an issue
10 10
particularly for LR2s, with new Aframax and Suezmax vessels po- 2013 2014 2016 2018e 2019e
tentially encroaching on their market. 5
201 2017 2020e
e e:LR1 MR
the estimated average scrapping age if each time a vessel
LR2*
Sources: Clarksons, Danish Ship Finance is delivered, the oldest vessel in the fleet is scrapped.
Departement Teknik Sistem Perkapalan ITS
LPG TANKER
Departement Teknik Sistem Perkapalan ITS
THERE HAS BEEN NO LET-UP IN VESSEL OVERSUPPLY FOR THE Annual average
Spot rate
Spot rate
CONTINUED.
60 60
VLGC FREIGHT RATES HAVE DECLINED SINCE APRIL Apr 2017
After marginal freight rate improvements in the first four months 32
Oct 2017
(>65,000 cb.m.). In the second quarter, the northern hemi- Oct 2016 29
0 23 0
sphere’s summer season weakened LPG demand and unfavoura- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ble arbitrage conditions between the US and Asia led to cargo
VLGC spot rate (Middle East to Japan)
cancellations, resulting in ample vessel supply and declining Sources: Clarksons, Danish Ship Finance
freight rates (fig. 1 and 2). However, stockpiling for the northern
hemisphere’s winter season started to support rates from Sep-
The 1-year VLGC timecharter rate is stabilising at around
tember onwards. By October, the VLGC spot and timecharter rate USD 18,000 per day
were around USD 29 per tonne and USD 18,500 per day, respec- The 1-year MSG timecharter rate hit an all-time low in October
80,000 80,000
tively.
THE MGC TIMECHARTER RATE HAS HIT A NEW ALL-TIME LOW IN 2017
1-year timecharter rate
sels to secure employment at decent rates. The ammonia trade VLGC Oct 2017
18,535
has declined on the back of increased domestic production from
20,000 20,000
the US, the world’s largest importer. The low VLGC freight rates
VLGC all-time low
leave little room for MGCs to broaden their LPG trades. Since Jan- 14,663
MGC Oct 2017
14,014
uary, the MGC timecharter rate has fallen by around 15%, reach- 0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ing a new all-time low of around USD 14,000 per day in October
VLGC MGC
(fig. 2).
Sources: Clarksons, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
have been placed in the last 12 months and the orderbook is ex-
pected to run out at the end of 2018. Note that we do not normally Highest 10 percent
90 90
include coastal LPG carriers in this report and we exclude the seg- Output range, Q2 2003 to Q2 2017
MillionUSD
Ship price
Million USD
Ship price
64
60 60
NEWBUILDING AND SECONDHAND ACTIVITY IS INCHING UP 57
in 2017 – six more than in all of 2016. Ten of the vessels are 10
7
scheduled for delivery in 2019. In the secondhand market, four 0 0
NB 5YR 10YR 15YR 20YR Scrap
VLGCs, five MGCs and nine SGCs have changed hands – five more
Median Current
than in the whole of 2016. Five sales were newbuild contracts,
Sources: Drewry, Danish Ship Finance
two were resales and the other 11 were eight years or older (av-
erage age of 15 years).
MGC ship prices
ASSET PRICES REMAIN UNDER PRESSURE All prices except the 15-year-old and scrap are at all-time lows
Despite the slight rise in newbuilding activity, the total number of 80 80
Ship price
Million USD
Million USD
and 14%, respectively. In the MGC segment, only the 15-year- 40 42
old secondhand price and the scrap price are not at all-time lows. 40 31
percent
Lowest 10 23
SCRAPPING REMAINS LOW 20 20
17
The depressed market conditions have not yet led to any mean-
10
ingful scrapping. In the first ten months of 2017, one VLGC, three 4
MGCs and seven SGCs were scrapped, far from sufficient to coun- 0 0
NB 5YR 10YR 15YR 20YR Scrap
terbalance the 54 vessels (21 VLGCs, 24 MGCs and 9 SGCs) en-
tering the fleet during the period. Median Current
Sources: Drewry, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
OUTLOOK
MARKET FUNDAMENTALS SHOULD IMPROVE SLIGTHLY IN 2018. The orderbook is equivalent to 11% of the LPG fleet
HOWEVER, OVERSUPPLY IS NOT LIKELY TO SUBSIDE MUCH UN- Only 2% of the fleet is older than 30 years, limiting scrapping potential
16 50%
TIL 2020. DEMAND IS EXPECTED TO REMAIN RELATIVELY 44%
Percentage of fleet
LPG markets. Most suppliers are defending market shares by
Million cb.m.
25%
pushing exports. This has saturated the global market with LPG, 8 25%
with the surplus being directed to Asia. The market is now at a
point where demand growth could decline to single digits due to
11% 11%
4 13%
structural barriers. Increased demand from households will con- 7% 7%
4%
tinue to be the backbone of the market, particularly in Asia. How- 2%
ever, additional demand as a result of lower LPG prices seems 0 0%
Order-
unlikely, since much of the potential has already materialised. 0-5 5-10 10-15 15-20 20-25 25-30 30+
book
THE ORDERBOOK WILL CONTINUE TO PRESSURE RATES AND VALUES VLGC LGC MGC SGC
The orderbook is equivalent to 11% of the fleet, with one-fifth Sources: Clarksons, Danish Ship Finance
scheduled for delivery before the end of the year (fig. 5 and 6).
The LPG market is already oversupplied and expected fleet growth
of 9% in 2017 will maintain the downward pressure on freight Fleet growth is expected to pick up in 2019
A yearly demolition rate of 50% is forecast for vessels older than 30 years and
rates and secondhand values. Only 2% of the fleet is older than due for special survey. Yearly contracting is constant at 1.2 times Jan-Sep 2017
contracting
30 years and it is therefore not possible for the incoming vessels
6.0 18%
to be absorbed without vessels being scrapped prematurely or 17%
9%
Deliveries
7%
3.0
OVERSUPPLY IS NOT EXPECTED TO SUBSIDE MUCH UNTIL 2020 5% 5%
3% 4%
Demand is expected to outpace supply in 2018, only to fall short 1% 2% 2%
again in 2019. The short-lived potential we see for improved mar- 1.5
ket fundamentals over the next year may not be enough to raise
0.0
freight rates substantially due to the current oversupply. The sup-
Scrap-
ping
ply surplus may dominate the market until 2020 (fig. 6 and 7).
-1.5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
SUPPLY AND DEMAND BALANCE WILL BE FRAGILE IN 2019
Expected scrapping from 2017 to
Orders placed in 2017 scheduled for delivery in 2019 will increase 2020 equals 2% of 2017 primo fleet
LPG demand
LPG demand
Milliontonnes
Milliontonnes
11%
tractive if oil prices decline significantly. This could happen if 60 7% 60
Million tonnes
LPG import
LPG export
60 60
petrochemical sector could cause negative growth in the country’s 38%
overall result should be relatively strong and stable, but single- 47%
more details. 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022
Export Import
SLOWING GROWTH IN THE CHINESE PETROCHEMICAL SECTOR Middle East North America CIS Africa Asia Europe Latin America
For reasons of product purity, Chinese propane dehydrogenation Sources: IHS Energy, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
future LPG demand growth unlikely to originate from a production 30,000 30,000
Million tonnes
Million tonnes
increase at existing plants. Demand growth driven by new PDH
LPG
LPG
20,000 20,000
plants is also expected to be limited. A conservative estimate is
that over the next four years an average of one new plant per 10,000 10,000
year is expected to come online and growth in PDH capacity dur-
ing the period could decline compared with the last four years. If 0 0
this happens, Chinese LPG imports will be affected, and the im-
-10,000 -10,000
port growth rate is likely to slow. Asia Europe Latin America Total
Million tonnes
9
% Japan 12%
ern provinces. A large part of the industry is expected to have
LNG
LNG
70 70
switched back to natural gas this year, and in provinces where India 18%
the price differential remains in favour of LPG added growth from Household and 62%
switching is limited, as most companies are already using LPG. 35 commercial 35
Fuel switching is therefore unlikely to generate any growth in the China 39%
NEW REGULATIONS SHOULD MAKE FUTURE SWITCHING LESS LIKELY remains favourable. However, if the price spread becomes unfa-
The Chinese government has issued new regulations for natural vourable, price-sensitive LPG demand is likely to decline, alt-
gas distribution in 2017. Once implemented, the regulations hough there might be some mitigating effect as the new PDH
should lower the price of industrial natural gas. This will make plants reach optimal utilisation. Therefore, it is uncertain whether
switching from natural gas to LPG less likely to happen, as LPG South Korean LPG demand will generate additional imports in the
prices will need to decline further for the price differential to be next five years.
favourable.
THE INDIAN HOUSEHOLD SECTOR CONTINUES TO GROW
JAPANESE LPG IMPORTS ARE EXPECTED TO DECLINE India is expected to overtake Japan as the world’s second-largest
Japanese LPG imports have been on a downward trajectory for LPG importer in 2017. India’s LPG imports are primarily driven by
more than a decade and the negative development is expected to demand from the household sector, and in 2016 accounted for
continue. The Japanese household sector accounts for more than 15-20% of Asia’s LPG imports. The Indian government has en-
half of the country’s LPG demand, but competition from natural couraged a switch from dirty-burning fuels, like wood and char-
gas has steadily increased. In densely populated areas (i.e. cities coal, to cleaner-burning LPG in the household sector through
and large towns), natural gas (citygas) is fulfilling an increasing fuel subsidising reforms and massive investments in
share of household demand. Potential LPG demand growth is infrastructure, which have brought LPG coverage to over 70% of
thereby being shifted from cities to rural areas, where consumers the nation. The aim is to increase coverage to over 90% within a
are more dispersed and LPG usage is usually lower. In 2016, Jap- two-year period. This could contribute to overall growth in
anese LPG imports are estimated to have accounted for around India’s LPG demand of around 9% per year in 2018 and 2019.
20% of all Asian LPG imports – roughly 10% of global LPG trade. In this period, India’s domestic LPG production is expected to
It is expected that Japanese LPG imports could decline around remain stable and de- mand growth is therefore likely to be met
10% in 2017 and the trend could continue in 2018. through increased im- ports. If these assumptions hold true,
Indian LPG imports could increase by more than 15% per year
SOUTH KOREAN IMPORT GROWTH IS UNCERTAIN
over the next two years.
In 2016, South Korean LPG imports increased by around 30%,
reaching a record high and accounting for around 10% of Asian DEMAND MAY TEMPORARILY BE BETTER FOR THE REMAINDER OF 2017
LPG imports. This growth was driven by the petrochemical sector The 2020 outlook remains challenging, since single-digit demand
and was due to a combination of new PDH capacity coming online growth is unlikely to be able to employ the incoming vessels. Still,
and price-sensitive demand. Low LPG prices relative to naphtha the short-term prospects may be better, since stockpiling for the
prices sparked increasing use of LPG as feedstock in petrochemi- winter season in the northern hemisphere may temporarily em-
cal plants. Asian plants generally allow 10-15% of feedstock to ploy an increasing share of the fleet. ▪
be LPG and plants are quick to substitute naphtha with LPG up to
this limit when prices are favourable, and demand is therefore
unlikely to increase further even if the LPG-naphtha price spread
Departement Teknik Sistem Perkapalan ITS
LNG TANKER
Departement Teknik Sistem Perkapalan ITS
THE LNG MARKET IS STILL OVERSUPPLIED, BUT FREIGHT RATES 100,000 100,000
July 2012 until they bottomed out in March 2016 at USD 27,500 6% 6%
Growth rate
Growth rate
per day. Rates have since recovered almost USD 23,000 per day
to USD 50,250 per day (October 2017), reflecting improved utili- 3% 2% 3%
sation of the fleet (fig. 1). 1%
1%
SPOT RATES SUPPORTED BY STRONG DEMAND IN 2017 0% 0%
Spot rates have been supported by strong import growth from
-1%
Asia. Strong Chinese demand and an unexpected outage of South
-3% -3%
Korean nuclear power plant capacity account for most of the in- 2011 2012 2013 2014 2015 2016 2017
Sources: IHS Energy, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
265 265
LIQUEFACTION CAPACITY CONTINUES TO GROW Output range Dec 2006 to Oct 2017
Australia has delivered 65% (46 million tonnes per annum
Highest 10 percent
(Mtpa)) of new liquefaction capacity since 2015. This has short- 240 240
Ship price
Million USD
Million USD
Ship price
more regional. In the first nine months of 2017, global liquefac- 215
Jan 2016
199 215
tion capacity increased by 5% to 355 Mtpa. The incremental ca-
pacity was added in Australia, Malaysia and the US. However,
190 190
start-up difficulties in both Australia and Malaysia have limited Lowest 10 percent
Jul 2017
the new capacity contribution to incremental exports, although 179
OUTLOOK
Percentage of fleet
However, the current upswing may be over before many of the
Million cb.m.
18 24%
current newbuilding orders have yielded a proper return on in-
17%
vested capital. Still, indications are that we will see increased fleet
12 16%
utilisation in the next three years. This will be driven by Asian and
European demand, while increased US exports are expected to
6 5% 8%
4% 5%
add tonne-miles. Vessel supply could run ahead of demand for
1%
short periods, though. 0 0%
0-5 5-10 10- 15-20 20-25 25-30 30+ Order-
RISK IS BUILDING UP 15 book
The long-term outlook is weakening, as risk is building up. First, >140k cb.m. 100-140k cb.m. 60-100k cb.m. 40-60k cb.m.
the market is veering more towards spot trades and vessels are Sources: Clarksons, Danish Ship Finance
Deliveries
event of this, gas-fired power plants could eventually be turned 6.0 4% 4%
3%
into peak capacity instead of providing baseload capacity for the 4.5
0%
energy grid. This would clearly reduce long-term demand for gas.
3.0
Scrap
ping
pected to be delivered within the next three years. Most of the
-1.5
-
vessels on order are linked to long-term contracts, but some 10- 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
15% have been ordered without long-term import contracts. The >140k cb.m. 100-140k cb.m. Expected scrapping from 2017
to
scrapping potential is limited, as only 5% of the fleet is older than 60-100k cb.m. 40-60k cb.m.
Sources: Clarksons, Danish Ship Finance fleet
2020 equals 2% of 2017 primo
Departement Teknik Sistem Perkapalan ITS
Milliontonnes
Milliontonnes
LNG import
LNG import
balance between supply and demand but longer travel distances 200 200
(i.e. US exports to Asia) should reduce vessel availability and
hence improve the balance between supply and demand.
100 100
to short-term fluctuations in vessel availability. The orderbook is 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
more front-loaded than we illustrate in fig. 5, since we assume Japan South Korea China India Other Asia Europe Latin America Middle East Other
that a number of orders will be postponed from one year to the Sources: IHS Energy, Danish Ship Finance
next. If that is not the case, freight rates may experience periods
of decline until demand absorbs the surplus capacity.
NEW LIQUEFACTION CAPACITY SHOULD INCREASE TRAVEL DISTANCES Growth in liquefaction capacity will be driven by the US,
Liquefaction capacity is set to increase by 25% to 451 million Australia and Russia
New US capacity should drive an expansion in travel distances
tonnes (Mt) over the next three years (fig. 7). Growth will be
500 500
driven by the US, Australia and Russia with a combined capacity 11% 0.3%
Liquefaction capacity
10%
Annual growth
cremental capacity is expected to be added in the US (Gulf of 6%
4%
Million tonnes
Million tonnes
3% 2% 2%
Mexico/Atlantic Basin). This is the basis for the expected increase 250 250
in travel distances since US exports are expected to increase in-
ter-regional trade, particularly between the US and Asia.
125 125
ASIA AND EUROPE ARE EXPECTED TO DRIVE DEMAND
Asia is the end destination for almost three-quarters of all sea-
borne LNG volumes. The region is expected to increase imports 0 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
by an average of around 7% per year over the next three years and
Qatar Asia-Pacific Africa Australia US Russia Other
should account for almost half of all growth in the LNG market. Sources: IHS Energy, Danish Ship Finance
Departement Teknik Sistem Perkapalan ITS
Japan, South Korea, China and India are the largest importers in
the Asian region and comprise 60% of the total LNG market. Ja-
pan and South Korea have limited domestic production and have Expected 2017 gas consumption by sector and region
3,000 3,000
no pipeline supply that could limit their LNG import volumes. Eu-
rope is expected to see a massive increase in LNG imports, driven
Africa
by falling domestic production and a projected decline in pipeline LNG
Other Latin America
Gas consumption
Gas consumption
Commercial
Million tonnes
Million tonnes
Europe
JAPANESE DEMAND IS EXPECTED TO DECLINE Household
Japan’s LNG imports reached a record high in 2014, as the Fuku- Russia
shima disaster increased LNG demand in the power sector. Japan Industrial
1,000 1,000
is planning a gradual restart of nuclear power, although the time- Asia-Pacific
mand driver is the group of other Asian countries (fig. 6). This
includes Indonesia, Malaysia, Thailand, Singapore, and Pakistan.
For most of these countries, demand will be driven by declining LNG is expected to increase its share of European
gas supply by 2020
domestic production or falling pipeline imports. These countries
400 400
are expected to add as much incremental demand as China and
India during the period.
Million tonnes
Million tonnes
absorbed by higher-priced markets (fig. 9). Even though Euro-
pean gas demand is expected to increase by only around 2% until 200 200
higher market share for LNG. out. First, the decline in competitiveness of LNG relative to coal
RENEWABLE ENERGY MAY REDUCE THE LONG-TERM OUTLOOK (Europe) and shale gas (North America) has freed up volumes to
The long-term demand outlook is being shaped by the global be re-directed elsewhere. Second, the growth in LNG contracts
economy’s transition towards a less fossil fuel-intensive growth with destination flexibility has facilitated diversions to markets
model and by gains in energy efficiency. This is a long-term play, with higher prices (e.g. Asia). Third, the lower initial capital cost
structural by design and irreversible when new technologies (e.g. of ‘Floating Storage and Regassification Units’ (FSRUs) compared
solar PV, wind or electric vehicles) break the price parity with ex- to onshore regasification has allowed new countries to enter the
isting technologies. The penetration rate for new technologies is LNG market. Fourth, the large growth of the LNG fleet, especially
highly uncertain, however. vessels ordered without a long-term charter, has allowed low-cost
LNG imports. The LNG market is expected to continue to move
*** towards more destination flexibility and more short- and medium-
This is the first edition of our LNG Tanker report. The market is term contracts. The expiration of older contracts will most likely
relatively small (approximately 500 vessels) and around two reinforce this trend. The impact of these changes on the ships’
thirds of the volumes are moved on long-term contracts. But the future spot and charter dynamics is more uncertain to us. We do
underlying dynamics of the industry are changing. The volume of acknowledge that prices are only settled among available candi-
LNG cargo traded without a long-term contract has more than dates, but whether that will shelter timecharter rates from poten-
doubled from the amount traded a decade ago. Four factors stand tial pockets of supply surplus remains to be seen. ▪
Departement Teknik Sistem Perkapalan ITS
PRESENTATION OBJECTIVES
PRESENTATION OUTLINE
RECENT DEVELOPMENTS
RECENT DEVELOPMENTS
SOURCES OF FINANCING
Bank lending
Leasing
Government funding
Equity
financing
Bond
financing
Venture capital
Offshore financing
Islamic financing
Departement Teknik Sistem Perkapalan ITS
BANK LENDING
LEASING
GOVERNMENT FUNDING
EQUITY FINANCING
BOND FINANCING
VENTURE CAPITAL
OFFSHORE FINANCING
ISLAMIC FINANCING
LENDERS’ PERSPECTIVES
LENDERS’ PERSPECTIVES
LENDING CONSIDERATIONS
RISKS INVOLVED
Credit / financial
risk
Market / business
risk
Timing risk
Sovereign risk
Security risk
Residual value risk
Legal risk
Operating risk
Departement Teknik Sistem Perkapalan ITS
RISK MITIGATION
Ship mortgage
Assignments – earnings /
insurances / contracts / proceeds
Guarantee / indemnity
Pledging of assets, deposits,
shares
Debenture
Covenants
Departement Teknik Sistem Perkapalan ITS
METHODS OF APPRAISAL
BORROWERS’ PERSPECTIVES
Shipping companies generally perceive
local FIs as lukewarm towards shipping.
Small shipping companies say local
banks’ demands are too stringent.
A chicken-egg situation persists as
banks will only lend money to solid
companies.
Shipping companies feel the current ‘it
takes money to borrow money’ situation
is not helpful to boost SF.
Departement Teknik Sistem Perkapalan ITS
BORROWING CONSIDERATIONS
Demand and supply elasticity
Fleet upgrading / expansion
Maritime trade pattern
Opportunity cost of investments
Shared ownership of vessels
Rate of scrapping of vessels
Legal framework
Availability of competitive financing
Departement Teknik Sistem Perkapalan ITS
SUMMARY OF MALAYSIAN SF
Today’s
Topics
1. The Growth of Ship Finance in Asia
2. What caused Asian Ship Finance to Expand?
3. The Rise of Export Credit Finance
4. Leasing: the next big thing in Asian Ship Finance
5. Some words of Warning
Departement Teknik Sistem Perkapalan ITS
The Shipping
Market Cycle Ship
prices drop
Excess of shipbuilding Over-ordering by
capacity speculators/bargain hunters
Demolition
Fleet shrinks
increases
Source: DVB
Departement Teknik Sistem Perkapalan ITS
The 2003 to 2008 shipping cycle had a peak of four years for the
following reasons:
•The upswing started with too little yard capacity needed for
normal fleet renewal process
•Then the LNG wave came where people started to build ships for
projects and the offshore boom came
2.The rise of China after entry to the WTO in 2001 and massive
investment in infrastruture in the years to follow3
Source: BBC
Departement Teknik Sistem Perkapalan ITS
Material Contraction in
Shipping Portfolio of Selected European Banks Ship lending capacity
among major shipping
banks
70
60 Distressed exposures to
non-core names and
50
excessive lending at the
40 2008 cycle peak caused a
2009 retreat to narrower
30
target market and
20 greater focus on
existing clients
10
0 Some prominent
shipping banks were
nationalized and some
faced over-exposure to
unique ship finance
conditions in home
markets
Source: Marine Money
Departement Teknik Sistem Perkapalan ITS
Source: Citibank
Departement Teknik Sistem Perkapalan ITS
Advantages of ECAs
•As the Seller’s Credit is a loan, the Seller may even receive interest
accrued on the principal
•Seller’s Credit – A financial arrangement in which the seller provides credit to the
buyer in respect of part of the purchase price of the good
Typical Buyer’s
Credit Structure
Shipowner
Refund Guarantor
Shipbuilder
Buyer’s Credit
Classification Export Credit
SPV Agency
Society
Loan
Repayment/
Management Mortgage
Company
Charterer
Source: Marine Money
Departement Teknik Sistem Perkapalan ITS
Charterer
Source: Marine Money
Departement Teknik Sistem Perkapalan ITS
• Financed over 3,700 Chinese built vessels of over 120 million dwt
In October 2010 during his visit to Athens Chinese Premier Wen Jiabao gave his
backing to Greek shipowners with the establishment of a massive USD 5 billion
shipping fund to facilitate the sale of Chinese built ships to Greek shipping
companies. This amount is reportedly said to have doubled to USD 10 billion
In the same month, China Exim signed an agreement with Confitarma (the Italian
Shipowner’s Association) to promote the availability of Chinese finance for Italian
shipowners placing orders at Chinese shipyards
Bn($) Bn($)
3.5 25%
35.0
3.0bn 75%
30.0 3.0
25.0 2.5 30%
20.0 2.0
15.0
14.0bn 1.5 Builder's Credit
10.0 1.0 70%
5.0 0.5 30%
- - 70%
2007 2008 2009 2010 2011 2012 2013(e)
1,000 400
402
500 200
4. Leasing
4. Leasing
The next big thing in Asian Ship Finance
The next big thing in Asian Ship Finance
Departement Teknik Sistem Perkapalan ITS
Q: What is Leasing?
A: Leasing is a process by which a firm can
obtain the use of a certain fixed assets for
which it must pay a series of contractual,
periodic, tax deductible payments.
Source: Wikipedia
Departement Teknik Sistem Perkapalan ITS
Typical Leasing
Structure
Equity Loan
Investment Lessor Lender
Equity Investors Loan
(Shipowner)
Repayment/
Mortgage
Lease Leasing
Income
Lessee
Source: Marine Money
Departement Teknik Sistem Perkapalan ITS
And more to come, as other Chinese banks are applying to set up leasing their own subsidiaries
•State-owned chemical group Sinochem has its own ship-leasing division, that targets small and
medium size Chinese shipowners – International Far Eastern Leasing
•Standard Chartered Bank has a ship leasing division to provide clients bareboat charters, on long term
lease tenors of 5 to 12 years
Departement Teknik Sistem Perkapalan ITS
• Among the real pioneers was ICBC Leasing which has become a powerhouse since the
landmark RMB 5.3 billion (USD 780 million) leasing facility for Chinese state owned power
generation enterprise China Huaneng for 12 supramax dry bulkers constructed by China
State Shipbuilding Corp (CSSC) and other yards
• In 2013 ICBC Leasing supported a excess USD1 billion deal sale and leaseback deal with
French offshore group Bourbon
Departement Teknik Sistem Perkapalan ITS
Finally,
• This may price the ECAs out of the market or render the ECAs
less desirable in a transaction
BLT TMT
Torm STX
Korea Lines Nanjing Tankers.
Final Point
Will Asian banks (ECA and non-ECA) continue to
play the role they have played in the past five
years in shipping?
Or will the European and US shipping banks
take the lion’s share once again?
1. Introduction
3. Case Studies
4. Q&A
Departement Teknik Sistem Perkapalan ITS
70% 80%
■ Germany
Other… ■Other…
Germany
■ Other Nations ■ Other Nations
14
15
12
7 8,5
10 6,5
5
0
Departement Teknik Sistem Perkapalan ITS
4000
3500
3000
2500
2000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Vessels total
4.796
3.640
1.651
1.410
1.223 1.260
950 960 1.004
710
551
Greece
France
Taiwan
Japan
China
Germany
Denmark
Others
Singapore
South Korea
Switzerland
1
Asset Deal
2
Share Deal
+ Quick and lean process. + Credit bid sometimes + Credit bid sometimes + As largest creditors, lender
possible (depending on possible. can effectively control
+ Only the usual costs and jurisdiction). process.
fees for the deletion and + Transfer of vessel free from
re-registration of the vessel + Transfer of vessel free from all liens and other
+ Discharge of junior ranking
and mortgage and the all liens and other encumbrances. mortgages through
legal fees are payable. encumbrances. insolvency plan.
+ Relatively quick process (1-4
+ Purchase Price and credit - Costs and fees. weeks). + Continuation of vessel‘s
claim could be set off operation.
against each other. - Temporary suspension of + Costs and fees much less
vessel’s operation (lay up). than ordinary auction due to - Costs and fees.
- Requires shareholders’ faster process.
approval; - New oil major vetting and - Time required.
nuisance fee? approval in case of tankers. - (Short) suspension of vessel’s
operation (lay up). New oil major vetting and
-
- No automatic cleaning of - In case of fleet of vessels: approval in case of tankers.
vessel from other liens and Coordinating of auctions at - New oil major vetting and
debts (e.g. trade creditors). different ports may be approval in case of tankers. No automatic cleaning of
-
difficult. Vessels should be vessel from other liens and
- Probably new oil major cargo free. - Quick enforcement debts (e.g. trade creditors).
vetting and approval in procedures only available at
case of tankers. selected ports (e.g. Malta, - Participation of junior
Gibraltar, Rotterdam) mortgagee could turn out to
be very difficult.
- In case of fleet of vessels:
Coordinating of auctions at
different ports may be difficult.
Vessels should be cargo free.
Departement Teknik Sistem Perkapalan ITS
Insolvency Plan
Share Deal Consensual Sale Enforcement
Proceedings
Ordinary
Estimated Quick
auct.:
3-6 weeks 3-8 weeks auction: > 6 months
Timeframe* 1-4 weeks
2-6
months+
USD
USD 50,000 for
100,000, Same as USD 100,000-200,000
deletion of old
Estimated + for quick for court and
mortgage,
USD 10,000 sometimes auction administrators
Costs** change of ownership,
1-2 % of + min. 0.5 + USD 50,000
registration of new
FMV million registration fees
mortgage
Estimated
USD 10,000 - 30,000 USD 10,000 - 30,000 USD 25,000 - 250,000 USD 75,000 - 100,000
Legal Fees
* Per vessel, but several vessels can be dealt with at the same time.
** Per vessel; depending on the vessel‘s purchase price/market value.
Departement Teknik Sistem Perkapalan ITS
Time
Ordinary Enforcement Quick Enforcement
required*
Depending on location
Sailing the vessel to suitable port, Sailing the vessel to suitable port,
of vessel and cargo
on board.
preferably without cargo. preferably without cargo.
Informing all known creditors of the Informing all known creditors of the
One week.
vessel and its owner. vessel and its owner.
Publication 2-3
months prior to Auctioning of the vessel.
auction.
* Estimates.
Departement Teknik Sistem Perkapalan ITS
Hamburg Office The primary business of EHLERMANN RINDFLEISCH GADOW is the provision of legal
Ballindamm 26 advice and assistance on all kinds of maritime related transactions.
20095 Hamburg
From its offices in Hamburg and London, EHLERMANN RINDFLEISCH GADOW provides
Germany
T +49 40 3748 1451 legal advice to clients in all matters related to the financing of vessels and other maritime
assets and the restructuring thereof, the structuring and implementation of shipbuilding
projects, the sale and purchase of ships, containers and other maritime assets as well as
London Office
2 White Lion Court, Cornhill domestic and international corporate and insolvency law and M&A deals in the maritime
EC3V 3NP London industry.
United Kingdom Our clients are ship financing banks, PE and hedge funds, family offices and other financiers,
T +44 20 7118 1111
shipowners, ship managers and ship builders as well as the initiators of closed end funds.
With 25 lawyers being exclusively specialized in the above fields, the legal team of
EHLERMANN RINDFLEISCH GADOW is the largest in Germany in the field of maritime
finance and one of the largest in this fieldworldwide.
The international team of lawyers of EHLERMANN RINDFLEISCH GADOW is able to advise
on English, German, Liberian, Marshallese and South African law. EHLERMANN
RINDFLEISCH GADOW’s lawyers are admitted to these bars and to the bars of other
jurisdictions.
Legal 500:
"…‘absolute experts in ship financing’ with several clients stating that they ‘won’t
work without them’. Its financing experience spans three decades."
Departement Teknik Sistem Perkapalan ITS
FACILITIES
Domestic International
Insurance
Credits Loans
Departement Teknik Sistem Perkapalan ITS
DOMESTIC CREDITS
Credit Programs
Short Term Medium –Long for Foreign
Credits Term Credits Currency Earning
Services
761
761
Departement Teknik Sistem Perkapalan ITS
INSURANCE
PROGRAMS
in 238 Country
Commercial and political risk cover
INTERNATIONAL
LOANS
International International
Project Loans Trade Finance
Departement Teknik Sistem Perkapalan ITS
INTERNATIONAL LOANS
Borrower
Limit allocation to
the reputable foreign
Financing for the consumer and State Guarantee
capital goods as well as projects
banks
• 12 countries
• 20 banks
• Total $ 550.7 million
limit
Short-Medium-Long Term Public Institutions under the
State Guarantee
Departement Teknik Sistem Perkapalan ITS
INTERNATIONAL LOANS
COUNTRY LIMITS
Country Limit
(million US 2016 750 600 450 400 350 350
Dollar)
Group Limit
(million US
2016 1,500 1,500 1,000 1,250 1,250 1,250
Dollar)
Departement Teknik Sistem Perkapalan ITS
INTERNATIONAL
LOANS
BANK LIMITS
EUROPE
AFRICA
Nigeria(1) Afreximbank
North
Cyprus (1)
ASIA
INTERNATIONAL TRADE
FINANCE
PROGRAMS
Loans Under
Foreign Bank
the State
Buyers’ Credit
Guarantee
Export
Domestic
Receivables
Banks’ Buyer
Discounting
Credit
Programs
Departement Teknik Sistem Perkapalan ITS
Financing up to 12 years
2 SALES CONTRACT
IMPORTER EXPORTER
8
1
3
7
Departement Teknik Sistem Perkapalan ITS
2 SALES CONTRACT
IMPORTER EXPORTER
5 DELIVERY OF THE VESSEL
8
1 6 10
4
BOE ACCEPTED
3
DOCUMENTS
DELIVERY OF
DOCUMENTS
BOE
11
13
12
14
7 DOCUMENTS
9 BOE
IMPORTER’S BANK EXPORTER’S BANK
Departement Teknik Sistem Perkapalan ITS
Sample Pricing :
For 5 years repayment period with 10 equal installments;
Sample Pricing :
For 10 years maturity with 20 equal installments;
• Discounting Interest Rate= CIRR= 0.93%
• Insurance Premium= 3% (indicative)
CIRR SampleTransaction
Germany
PPS / PA Pipe Extruder Lines
Amount: 406 thousand €
Tenor: 2 years
CIRR : 0,32% / Interest Rate: 2,25%
Departement Teknik Sistem Perkapalan ITS
-MARINE SECTOR-SampleTransaction
Sample Uzbekistan
France Transactions
Buses Export Biscuit Production Line
Amount: 6,9 million € Kenya Amount: 660 thousand $
Machine Export Maturity: 3 years
Maturity: 1,5 years-3 years
Amount: 1.6 million €
Maturity: 5 years
Departement Teknik Sistem Perkapalan ITS
Borrower:
Intermediary Banks located in Turkey
Utilization:
Throughout the foreign branches and
subsidiaries of Domestic Banks in
Turkey
Refinancing
Departement Teknik Sistem Perkapalan ITS
SUBSIDARIES BRANCHES
SUBSIDIARIES BRANCHES NETHERLAND BAHRAIN
GERMANY U.S. T.R.NORTH
AZERBAIJAN BULGARIA CYPRUS
BOSNIA H. GEORGIA
KAZAKHSTAN IRAQ
SUBSIDARIES BRANCHES
UZBEKISTAN UNITED KINGDOM
RUSSIA T.R.NORH CYPRUS GERMANY KOSOVO
BULGARIA IRAQ
TURKMENISTAN SAUDI ARABIA
GREECE FRANCE U.KINGDOM
NETHERLAND GEORGIA
SWITZERLAND BAHRAIN
T.R.NORTH LIBYA
RUSSIA CYPRUS Kuveyt Investment Co.
Departement Teknik Sistem Perkapalan ITS
Sample
Iraq Transactions Kosovo
Construction Material Export Machine Export
Amount: 5 million € Amount: 600 thousand €
Maturity: 10 years Russia Maturity: 5 years
Concrete Production Machine
Amount: 1.1 million $
Maturity: 5 years
Departement Teknik Sistem Perkapalan ITS
Nigeria Ukrania
10 different countries, 13 banks, 170.4 million $ Loan Sterling Bank West Finance
Agreement…
Departement Teknik Sistem Perkapalan ITS
Belarus
Machine (Mangle)
Amount: 315 thousand €
Maturity: 23 months
Departement Teknik Sistem Perkapalan ITS
Sample
Transaction
Buyer: State Institutions
Djibouti
Limit Allocation under the
Geothermal Drilling Machine Park
Sovereign Guarantee
Amount: 10 million $
Maturity: 6 years
Loan Agreement
Export Financing
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
The ship-owning market is affected by the business cycles; the volatility creates high profit
opportunities but can also lead to large losses for investors. This is why the interest of doing
investments in shipping companies distinguishes from investing in other asset-based
businesses. According to Norwegian Ship-owners Association, Norwegian shipping companies
points out that it is hard to get access to capital to make new investments
(NorgesRederiforbund 2013). Limited access to capital is a factor that can slow down further
growth and innovation in the industry.
[3]
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[3]
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[3]
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Departement Teknik Sistem Perkapalan ITS
Summarized
the supply-demand balance forms the cycles.
There will always be losers and winners, but ship-
owners and shippers will not be winners at the
same time. The winner at a given point is a result
of the supply-demand balance in either the
market or the world. Easier access to capital
seems to be whenever the ship-owner is the
winner. The ship-owning industry is asset based
and in times with strong asset value, the bankers
are willing to lend more money. Additionally,
investors show interest in the companies,
especially in the stage of recovery when the
stock price is still low. The need for capital is
often at its highest when times are bad and
[3]
increasing share capital is expensive.
YUDHA PRASETIYO
SECTION
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Banks are often more interested in recessions than booms, in the ship-owning
industry. Stopford (2008), explains this with their interest in getting repaid,
because bankers just get paid interest. For bankers, the value of the firm is
only a concern whenever the debt exceeds the value. Investors on the other
hand, look at the investments potential and often consider those with high
profitability, thus high risk. The lenders and shareholders payoff is
comparable to selling and buying options exemplified in figure 1.
[3]
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SECTION
Departement Teknik Sistem Perkapalan ITS
The lenders payoff is comparable to selling a call option since the bank loses
money first when the firm’s debt is greater than the value. Hence, lenders
are concerned about recessions and not so interested in booms. Recessions
can lead to losses but a lender will never take advantage of a boom because
they are solely paid by interest.
[3]
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SECTION
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[3]
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[3]
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[3]
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[3]
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[3]
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Departement Teknik Sistem Perkapalan ITS
[3]
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SECTION
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[3]
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SECTION
Departement Teknik Sistem Perkapalan ITS
[3]
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Departement Teknik Sistem Perkapalan ITS
The theory of the pecking order provides two rules. Rule number one; use internal financing,
meaning that if the company has capital it will use this first to finance new investments. Rule
number two; issue the safest securities first.
Issue straight debt before issuing convertibles. In this context, safe means that the decision is
not affected by revelation of a managers’ inside information. This means that a company will
always use retained earnings before they issue debt and they will always issue debt before they
issue stocks.
[3]
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SECTION
Departement Teknik Sistem Perkapalan ITS
[3]
YUDHA PRASETIYO
SECTION
Departement Teknik Sistem Perkapalan ITS
According to Lun, Y.H.V et al. (2010) five components should be included in a welldeveloped
shipping strategy, shown in Table 5 below. There are different levels of strategy and all have
different aspects of what they should do and contribute with if seen as a hierarchy; (A)
Corporate strategy; (B) Business strategy; (C) Functional strategy.
[4]
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[4]
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Classical:
Classical strategy is formal and has a clear focus on
deliberateness in its implementation, as well as on profit
maximization and analysis of the environment. Whittington
(2001) states that this could be due to the fact that
Americans are very individualisticThe Classical approach has
its origins in two companies from the US in the 1920s - Du-
Pont and GM (Whittington, 2001), and is based on Mature
Industries, Capital Intensive, Monopoly Power. The classical
approach advocates the need to forecast, makes accurate
plans and heavily relies on the use of finance and planning
techniques. It is fair to wonder whether strategy should
develop from such, on paper very clear, but in reality rather The Economic view of strategy is
ambiguous plans. about maximizing profit, striving for
total optimization and using the
known assumptions about humans as
its basic rationale.
[4]
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Processual:
Pettigrew and Mintzberg believe that strategy can be
seen as craftsmanship and its creation is a constant
process in itself. They call this view of strategy
Emergent as it is about the process of learning while
executing the strategy. This contrasts to Porter's
harsher Military view on how to execute a strategy and
is greatly influenced by the field of psychology. From
this perspective strategy seems to somehow be a
confusing process as developments emerge as the A firm's daily routine, which is the result of
strategic decisions and processes unfolds. This way of what occurs in the market within which the
thinking also questions the concept of the rational company operates, determines the strategy for
economic human being, which in turn leads to the organization - an organisation cannot
question the cognitive rational thinking of humans as choose the strategy as this unfolds over time.
such. According to Pettigrew and Mintzberg humans The context for the processual perspective is
do not work rationally nor are clear in their cognitive Protected, Bureaucratic, Knowledge based
processes.
[4] firms.
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SECTION
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Processual:
Systemic: Systemic strategy approach focuses on the
external environment. In more specific terms it is
about the society in which a company is positioned. A
central aspect is the rationale underlying the
implemented strategy in the specific sociological
context. For example, IKEA and SAAB Missiles have
different strategies depending on the sociological
environment in which they are positioned, to reach the
same goal (financial profit). The behaviour of these
companies is therefore different since the business
networks surrounding their company are vastly
different. The context for the systemic perspective is:
(1) Non-Anglo Saxon (2) Family and state firms. The
systemic view uses finance and planning techniques as
credibility check and not as a guide to what to do.
[4]
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Evolutionary:
This approach questions the top management ability
to act and plan in a rational way in order to fulfill
basic financial goals. Instead it is the market that
drives the company towards profit. How to execute
strategy in this market will differ from leader to leader
and ultimately only those who adapt to prevailing
conditions will survive, hence it is precisely the market
conditions that determine winners and losers. Here the
‘Law of the Jungle’ applies, which means that those
managers who fail to find capital or clients ultimately
disappear from the market. Theorists that advocate for
this theory do not believe in an organization’s ability to
differentiate and adapt in a sustainable way. The
context for the Evolutionary theory is: (1) Small Firms,
(2) Emerging Industries, (3) Anglo-Saxon, (4)
Conglomerates.
[4]
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Departement Teknik Sistem Perkapalan ITS
Evolutionary:
This approach questions the top management ability
to act and plan in a rational way in order to fulfill
basic financial goals. Instead it is the market that
drives the company towards profit. How to execute
strategy in this market will differ from leader to leader
and ultimately only those who adapt to prevailing
conditions will survive, hence it is precisely the market
conditions that determine winners and losers. Here the
‘Law of the Jungle’ applies, which means that those
managers who fail to find capital or clients ultimately
disappear from the market. Theorists that advocate for
this theory do not believe in an organization’s ability to
differentiate and adapt in a sustainable way. The
context for the Evolutionary theory is: (1) Small Firms,
(2) Emerging Industries, (3) Anglo-Saxon, (4)
Conglomerates.
[4]
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[5]
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Departement Teknik Sistem Perkapalan ITS
Worldwide patterns
by type of cargo
in this section we analyse the
dominant geographical trade
relationships, with specific
attention to the position of the
EU within these relationships.
In the maps we focus on the
three dominant maritime flows
of liquid bulk (in tonnes for
petroleum products), ). For each of the three product groups the three
containers (expressed in maps illustrate the ten largest trade relationships
manufactured products), and between the nine world regions in terms of
all other bulk products (among combined import and export flows. The nine
other things, agriculture, coal, regions are similar to the regions in Figure 2.3. In
ore, building material, Annex I we analyse time series developments for
chemicals) the relationship between economic growth and
trade in more detail for the period 1999-2013.
[5]
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Departement Teknik Sistem Perkapalan ITS
Worldwide patterns
by type of cargo
Figure 2.5 demonstrates that
for all other products, including
products such as coal, ore,
chemical or agricultural bulk
products, different dominant
geographical relationships are
present than for the other
cargo types. The dominant For the large European bulker fleet it is important to operate
trade flows here are between competitively in these worldwide flows, this fleet is mainly
China, mainly as an importer of employed in third (non-European) country markets. The sizes of
minerals and building these flows are related to the stage of development of the
materials, and Latin America countries, and especially to the rapidly industrialising countries
and Australia as suppliers of which have a high demand for bulk products like coal and ores. In
natural resources. The main the future, South Asia is likely to become an increasingly
import flows of bulk products prominent destination for bulk flows. The WEO for instance,
to Europe come from South expects India to become the largest importer of coal by the early
America and Africa. 2020s12.
[5]
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This section presents the historical fleet developments by vessel type, ownership, and
flagging over the last three decades for the EU and the other main maritime countries.
Furthermore, the section focuses on the developments in flagging and differences in
ship registry conditions between the main registry countries in more detail. Finally, the
section focusses on differences within Europe. The preliminary findings in this section
will be supplemented and verified with the outcomes of the survey as executed under
phase three of this study.
[5]
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Figure 2.7 2.8 present developments for the most dominant countries in the period of 1980-2014 in both
flagging and ownership, expressed in terms of vessel capacity (GT). The two figures show that both
worldwide flagging and ownership of vessels are concentrated activities but often not in the same
locations.
[5]
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[5]
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Regarding environmental, safety and labour standards a study by Elizabeth de Sombre19 on flagging
standards concludes that in practice the economic advantage of lowered standards is offset by
collective action by international organisations and states. Du Sombre notes that overall, open
registries are pressured to raise their standards while traditional maritime states lower their
standards somewhat. In this overview the main open registries, such as the Marshall Islands,
Panama, Liberia, and Singapore, all have a positive score for their performance on port state control
indicators, as well as on the ratification of conventions. The port state control indicators in the flag
state performance table18include scores for the three main Port State Control authorities, namely
the Paris MOU, the Tokyo MOU, and the United States Coast Guard.
[5]
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For labour standards the registries differ in their requirements regarding nationalities of officers and
crew, and for certification requirements21. For the registries of Panama, Liberia, the Marshall Islands,
Malta and the UK there are no requirements with regard to the nationality at all. Several EU Member
States have requirements regarding the nationality of the master of the ship or a minimum
percentage requirement for the nationalities of the crew. The limitations in choice of crew
nationality have an impact on the manning costs of a vessel following wage differences between
European and non-EU Member States. Besides the nationality requirements, labour regulations and
inspections of the flag state also seem important and representatives from the industry indicate that
inspections of European flag states are considered to be more cumbersome than from open
registries.
[5]
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Another competitive factor is the ownership requirements which differ per registry24). In general,
the main open registries make it rather easy to establish a legal entity in these countries without any
further ownership requirements. Most EU Member States, like Denmark, the UK, the Netherlands or
Greece, have more specific ownership requirements, like minimum ownership shares for their own
citizens, or for EU and EFTA natural and legal persons. Within Europe, Malta is an exception with no
nationality requirements for shareholders or directors. This condition in combination with other
favourable conditions, like tax regime and labour regulations, supports the growth of the registry of
Malta towards a number one position in Europe.
[5]
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Flagging trends by EU
Member States
In the sections above, flagging was mainly discussed at the level of the EU. This following
section demonstrates that there is a wide variety in flagging between EU countries. The
important EU flagging countries in terms of GT are Malta, Greece and Cyprus, followed by Italy,
Germany, Denmark, and the UK. Over the last fifteen years large differences have become
apparent between EU countries showing both increases and decreases in the flagging of vessels
(expressed in GT). The top three countries showing increases were Belgium with an index of 7.1,
Spain with 7.8, and Portugal with 8.5. In absolute volumes the growth was highest in Malta and
Greece. The top three decreasing countries were Poland, Romania, and Bulgaria (which all
approach zero).
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The port and maritime industry is typically a highly competitive sector due to the many
different players, large volumes transported, long distances covered due to the considerable
spatial separation of production and consumption. The nature of this competition has changed
in recent years however. Nowadays, ports and the maritime industry compete as part of the
supply chains to which they belong. In fact, to strengthen their position in their logistics chains,
shipping companies sometimes take over terminal operating companies, as well as shipping
agents all over the world; examples of these are displayed in tables 2.2 and 2.3. Terminal
operating companies are the main suppliers of throughput services, and agents coordinate all
the actors and transactions in a port of call, and when shipping companies integrate with
operating companies or agents, it tends to be to control the quality of services and to use the
knowledge of the local transactions so that core maritime services are run cost-efficiently.
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The forms of control of the maritime industry and ports however, are likely to become
increasingly flexible as in addition to mergers, recent developments include as well alliances,
joint ventures and dedicated handling activities. Cooperation may involve carriers, terminal
operating companies, port authorities, hinterland operators, and hinterland terminal
operators. Some examples for container transport are displayed in Table 2.2 where shaded
cells refer to the occurrence of integration, sometimes under a specific name: in that case, the
latter is indicated. As can be seen, 14 out of the top 20 container shipping companies have
integrated vertically with port terminal operations, sometimes under an "own brand" name.
This integration spans the wide, global scope of terminals at which these shipping companies
call . This shows the increasing power that shipping companies try to gain and do effectively
gain over large international logistics chains, building increasing power vis-à-vis large shippers
which saw their power increase before.
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The only market where much less vertical integration has taken place is the tanker market. This is
most likely due to the nature of the operations involved: not in all cases, transfer superstructure is
needed other than pipeline connections with refineries and the like, so that production and handling
are mostly in the same hands.
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The extensive data collection and research activity resulted in the analysis of more than 500
companies. However, only approximately 200 companies provided financial data (i.e. sales,
operative incomes) with the required detail and completeness. Information on the number of
employees and on the cost of personnel is provided only by a smaller share (approximately 110
companies). Over half of these are European companies42 (52%), one-third Asian (34%), with
the most of the remaining companies coming from North America (10%). Companies from
South America, Australia and Africa are significantly less well represented in the database (4%),
due to limitations in data availability. Most companies researched are government-owned, not
publicly listed, or provide consolidated data from holdings for which shipping is a minor
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Cost of personnel per FTE (Full Time Equivalent employee) indicates how much the average employee
is remunerated by the company, in gross value (includes wages, taxes on labour, social security, other
benefits, etc.). Since financial statements do not generally provide for separate numbers for on board
personnel and for shore based personnel, the aggregated number of workers in terms of FTE is
considered.
Figure 2.14 summarises the average labour cost per employee broken down per transport segment
and region. No matter which transport segment is concerned, the average cost per employee is
higher for European shipping companies than for Asian ones. The widest gaps are found in the
Container and Miscellaneous sectors with European shipping companies facing average costs per
employee of two times higher than their Asian counterparts.
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The gap in labour cost between European and Asian companies does not come as
a surprise. Several studies have reported on the different labour regimes and the
economic convenience coming from cheaper East Asian labour force in particular.
According to our findings, not only the wages, but also labour taxes and social
security costs tend to be higher for the employees of European companies.
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Cost of personnel on
Sales
The incidence of labour costs on
sales is higher for European
companies than for Asian
companies (see chart below).
Indeed, the high level of
productivity of personnel
employed by European companies
does not counterbalance the
lower labour cost of personnel
employed by Asian companies. Miscellaneous and Container sectors, meaning that
Hence, European companies are European companies are suffering more from
less competitive than Asian competition in these sectors than in others. It is
companies in this regard. also relevant to note that only a small part of the
It is interesting to note that the overall costs faced by shipping companies are
widest gaps are found in the related to labour. Indeed, other operative and
financial costs might have a greater influence in this
respect.
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Cost of personnel on
Sales
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An increase in average
sizes of container ships can
be observed over the last
years, and even more
during the past ten years
(see Figure 2.18).
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Some of the
technologies that
may respond to
such drivers can
be introduced
either through
retrofitting or
through new
buildings, such
as those shown
in Table 2.6.
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The above technological initiatives for innovation require different amounts of investments, but also have
different operational cost impacts. Depending on the level of pressure to automate or increase
productivity, the desire to invest in new technologies will be higher or lower. One of the recent
considerations for the maritime industry is fuel-related. The use of Heavy Fuel Oil (HFO)requires less
capital investments compared to Liquefied Natural Gas (LNG). However, the operating costs of HFO +
scrubber compared to LNG are higher (see Table 2.7). Additionally, although HFO + scrubbers and LNG are
comparable regarding their RoI over 15 years, LNG also entails supply chain efficiencies and flexibility, as
for smaller ports LNG can be supplied by trucks, rail and feeders.
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In order to play a role on the global level they rely on their own auxiliary ships or in case of
emergencies the merchant ships flying EU flags. The number of auxiliary ships has dropped down
sharply in EU navies (together with the number of warships). For example, in 1980 the Royal Navy of
the United Kingdom alone had fifteen tankers; today it has just five Tankers. Carrying on from this,
as of 2014 the German Navy has five Tankers, the French Navy has four Tankers, and the Italian Navy
has three Tankers. These are the navies of four principle European members of the NATO alliance,
and yet today their combined auxiliary strength, the thing which is most crucial to maintaining
effective fighting forces at distance from their nation’s shore, is on a par with what one of these
states had just thirty-four years ago.
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Most of the above listed threats can have a direct or indirect impact on maritime shipping. The
strategy however does not spell all these threats in detail. One of these could be named here. With
the introduction of the Exclusive Economic Zone (EEZ, article 55) the United Nations Convention on
the Law of the Sea (UNCLOS) generated a new potential for military conflicts at sea. The maximum
200 Nautical Miles wide zone gives coastal states sovereign rights for the purpose of exploring and
exploiting, conserving and managing the natural resources, whether living or non-living (Art.56
UNCLOS). This resulted in the need for additional boundary demarcation at sea. A specific role in
this process is given to islands, which according to article 121 UNCLOS islands generate their own
territorial sea and EEZ.
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The maritime transport sector is part of a global market which has developed a global governance
system based on the historic background of Mare Liberum (International Labour Organisation – ILO;
International Maritime Organisation - IMO). This system is well developed with instruments such as
the ILO’s Maritime Labour Convention (MLC), transposed into EU legislation by Directive 2009/13/EC,
and the IMO’s Convention on Standards of Training, Certification and Watchkeeping for Seafarers
(STWC), implemented by Directive 2012/35/EU.
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the role which labour costs play in the shipowners’ decision for ship registration, as labour
costs, together with maintenance and repairs, are one of the very few factors that shipowners
can directly act to reduce. This has resulted in a strategy undertaken by large ship-owning
countries and ship-owners to look for cheaper labour from outside Europe and reduce their
employment of European seafarers. European ratings are particularly affected by this
development, as illustrated in Table 2.10.
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Training needs in
the maritime sector
Training needs in
the maritime sector
Training needs in
the maritime sector
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Training needs in
the maritime sector
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Source: Figure adapted from Marketing Strategy, Second Edition, by O. C. Ferrell, Michael Hartline, and George Lucas, Jr.
Copyright © 2002. Reproduced with permission of South-Western, a division of Thomson Learning.
Departement Teknik Sistem Perkapalan ITS
• Marketing Strategy
– A plan of action for identifying and
analyzing a target market and
developing a marketing mix to meet the
needs of that market
Source:hocbongduhocmy.com.vn
Departement Teknik Sistem Perkapalan ITS
• Core Competencies
– Things a firm does extremely well (strengths),
which sometimes give it an advantage over its
competition
• Financial and human resources
• Reputation, goodwill, and brand names
Source:Aledo ISD
Departement Teknik Sistem Perkapalan ITS
• Market Opportunity
– A combination of circumstances and timing that
permits an organization to reach a target market
• Core competencies are matched to opportunities
• Strategic windows—
temporary periods of optimal
fit between the key requirements
of a market and the particular
capabilities of a firm
Source:tollebild.com
Departement Teknik Sistem Perkapalan ITS
• Competitive Advantage
– The result of a company’s matching
a core competency (superior skill
or resources) to opportunities
in the marketplace
• Manufacturing skills Source:The Balance Careers
• Technical skills
• Marketing skills
Departement Teknik Sistem Perkapalan ITS
SWOT Analysis
Source:Dictio Community
Departement Teknik Sistem Perkapalan ITS
• Mission Statement
– A long-term view, or vision, of what the
organization wants to become
– Mission statement answers two questions:
• Who are our customers?
• What is our core
competency?
• Marketing Objective
– A statement of what is to be accomplished
through marketing activities to match strengths
to opportunities, or to provide for the conversion
of weaknesses to strengths
• Should be stated in clear, simple terms
• Should be accurately measurable
• Should specify a time frame for accomplishment
• Should be consistent with business-unit and
corporate strategy
Departement Teknik Sistem Perkapalan ITS
Corporate Strategy
• A strategy that determines the means for
utilizing resources in the various functional
areas to reach the organization’s goals
– Determines the scope of the business
– Guides its resource deployment
– Identifies its competitive advantages
– Provides overall coordination of functional areas
Corporate Strategy
• Issues Influencing Corporate Strategy
Development
– Corporate culture
– Competition
– Differentiation
– Diversification
– Interrelationships among business units
– Environment concerns and social issues
Business-Unit Strategy
• Strategic Business Unit (SBU)
– A division, product line, or other profit center within a
parent company
Business-Unit Strategy
• Market
– A group of individuals and/or organizations that have
needs for products in a product
class and have the ability,
willingness, and authority to
purchase those products
Business-Unit Strategy
• Market Share
– The percentage of a market that
actually buys a specific product
from a particular company
Source: PetersGroup
Departement Teknik Sistem Perkapalan ITS
Business-Unit Strategy
• Market-Growth/Market-Share Matrix
– A strategic planning tool based on the
philosophy that a product’s market growth rate
and market share are important in determining
marketing strategy
Source: Wikipedia
Departement Teknik Sistem Perkapalan ITS
Business-Unit Strategy
Source: Statista
Departement Teknik Sistem Perkapalan ITS
Source: “The BCG Portfolio Matrix” from the Product Portfolio Matrix, © 1970, The Boston Consulting
Group. Reproduced by permission.
Departement Teknik Sistem Perkapalan ITS
• Marketing Strategy
• Marketing Strategy
• Creating the
Marketing Mix
• Analyze customer
needs, preferences,
and behavior
• Have the skills and
resources required for
product design, pricing,
distribution, and
promotion
• Maintain strategic
consistency and
Source: CoSchedule
flexibility in marketing
mix decisions
Departement Teknik Sistem Perkapalan ITS
• Net Sights
• Corporate executives and marketing managers must stay
informed to develop successful strategies. CEO Express
provides access to newspapers, business journals, special-
interest publications, and syndicated news services as well
as a variety of other resources.
Source: Stitcher
Departement Teknik Sistem Perkapalan ITS
Source: Stitcher
Departement Teknik Sistem Perkapalan ITS
• Internal Marketing
– Coordinating internal exchanges between the
firm and its employees to achieve successful
external exchanges between the firm and its
customers
– Helping employees understand and accept their
roles in the marketing strategy
Source: SlideShare
Departement Teknik Sistem Perkapalan ITS
• Empowerment
– Giving customer-contact employees authority and
responsibility to make marketing decisions on their own
Source: Steemit
Departement Teknik Sistem Perkapalan ITS
• Centralized Organization
– A structure in which top management
delegates little authority to levels below it
• Decentralized Organization
– A structure in which decision-making
authority is delegated as far down the
chain of command as possible
Departement Teknik Sistem Perkapalan ITS
Source: Nuphoriq
Departement Teknik Sistem Perkapalan ITS
3.2 Merging the Marine Money and Clarkson database PT. MUARA JAYA
1. Sample Data
sample includes all the merger and acquisition deals in the shipping industry available on the
Securities Data Corporation (SDC) database accessed through Thomson-Reuters. We do not
impose any restrictions other than requiring the acquirer to be a public listed company and
have announcement dates for the deal, while target firms can be either public or private. These
criteria result in 4,122 announced deals with a total value of over US$200 billion (see Fig. 1).
We collect share prices and relevant market and accounting data from Datastream
International. Data unavailability reduces our initial sample to 2,036 deals.
Departement Teknik Sistem Perkapalan ITS
3.2 Merging the Marine Money and Clarkson database PT. MUARA JAYA
2. Descriptive statistics
In Table 1 we present the annual distribution of the number of deals
and the mean and median of the market value of acquirers, the deal
value and the relative size of acquirer and target.17 The number of
deals increases between 1984 and the late 1990s. Around the 1992
financial crisis, M&A activity in the shipping industry slowed but
was followed by an upward trend towards the end of the 1990s,
which reached a peak of 66 deals in 1997. There was a decline in
2001/2002, seemingly triggered by the economic fallout from the
dot.com bubble, followed by an increasing trend until 2007 and
prior to the recent crisis, when it had reached an all-time high of 92
annual deals.
Departement Teknik Sistem Perkapalan ITS
3.2 Merging the Marine Money and Clarkson database PT. MUARA JAYA
2. Descriptive statistics
Departement Teknik Sistem Perkapalan ITS
3.2 Merging the Marine Money and Clarkson database PT. MUARA JAYA
Descriptive statistics of accounting and market variables for acquirers and targets are
presented in Table 2. The market and accounting monetary values are reported in US$
billions. The data are from Datastream and data unavailability restricts the sample size per
variable.
Departement Teknik Sistem Perkapalan ITS
3.2 Merging the Marine Money and Clarkson database PT. MUARA JAYA
3.2 Merging the Marine Money and Clarkson database PT. MUARA JAYA
3. Result
The results of the event study are reported in Table 3, which in Panel A lists daily average
abnormal returns from 5 days prior to the announcement date of the M&A deal to 5 days
after.25 No evidence of a significant pre-announcement drift in the share price of either
acquirer or target firms are observed, which implies the M&A announcement was a surprise to
the market
Departement Teknik Sistem Perkapalan ITS
Database
• Information is not useful if not organized
• In database, data are organized in a way that
people find meaningful and useful.
• Database Management System (DBMS) is used to
input, sort, organize and store data.
Source: McKinsey
Departement Teknik Sistem Perkapalan ITS
DBMS Components
Software: the program that allows users to access, maintain update the data
Data: Data are stored on the computer. In database data are separate entity from the
Users: could be either (1) end users: people who has access to the database or (2)
Database architecture
• Internal Level: Interact
directly with the hardware
• Conceptual Level: (1) Define
the logical view of the data.
(2) Define the data model. (3)
Contain the main functions of
the DBMS (4) Intermediary
level that free users from
dealing with internal level
• External Level: (1) Interact
directly with users (2) Display
data in familiar format
Source: W3schools
Departement Teknik Sistem Perkapalan ITS
Database Model
Hierarchical model
Source: Wikipedia
Departement Teknik Sistem Perkapalan ITS
Network model
Source: Wikipedia
• Entities are organized in a graph
• Entities can be accessed through several paths
• Old and not used
Departement Teknik Sistem Perkapalan ITS
Relational model
Source: Neo4j
• Data are organized in two dimensional tables (relations)
• Tables re related to each other
• Relational Database Management System (RDBMS) are more common model used today
Departement Teknik Sistem Perkapalan ITS
Relational model
Source: Neo4j
• Data are organized in two dimensional tables (relations)
• Tables re related to each other
• Relational Database Management System (RDBMS) are more common model used today
Departement Teknik Sistem Perkapalan ITS
Source: SlidePlayer
Departement Teknik Sistem Perkapalan ITS
Source: GENESIS
Departement Teknik Sistem Perkapalan ITS
Source: Investopedia
Departement Teknik Sistem Perkapalan ITS
Source: wikiHow
Departement Teknik Sistem Perkapalan ITS
Source: www.lawonlinereport.com
Departement Teknik Sistem Perkapalan ITS
Bond Classifications
• Registered vs. Bearer Forms
• Security
– Collateral – secured by financial securities
– Mortgage – secured by real property, normally land or buildings
– Debentures – unsecured
– Notes – unsecured debt with original maturity less than 10 years
• Seniority
Source: mysmp.com
Departement Teknik Sistem Perkapalan ITS
Source: mysmp.com
Departement Teknik Sistem Perkapalan ITS
Source: mysmp.com
Departement Teknik Sistem Perkapalan ITS
Source: mysmp.com
Departement Teknik Sistem Perkapalan ITS
Government Bonds
• Treasury Securities
– Federal government debt
– T-bills – pure discount bonds with original maturity of one year or less
– T-notes – coupon debt with original maturity between one and ten years
– T-bonds – coupon debt with original maturity greater than ten years
• Municipal Securities
– Debt of state and local governments
– Varying degrees of default risk, rated similar to corporate debt
– Interest received is tax-exempt at the federal level
Floating-Rate Bonds
• Coupon rate floats depending on some index value
• Examples – adjustable rate mortgages and inflation-linked
Treasuries
• There is less price risk with floating rate bonds
– The coupon floats, so it is less likely to differ substantially from
the yield-to-maturity
• Coupons may have a “collar” – the rate cannot go above a
specified “ceiling” or below a specified “floor”
Source: Investopedia
Departement Teknik Sistem Perkapalan ITS
Assumptions
Since the life expectancy of a ship is generally between 20-25 years, one can
argue that the second-hand prices for 10 year old ships would be most
representative for our proxy. However, the fleet modernization we have seen
in the past decade, partially driven by the increasing focus on fuel efficiency,
creates a skew towards the use of 5 year old second-hand prices. Thus, we
have decided to use the 5 year old second-hand prices for our analysis.
Departement Teknik Sistem Perkapalan ITS
Calculation
To create the proxy for total financing needs, we first calculated the financing
needs for the newbuilding and second-hand market. For the newbuilding
market, this was done by multiplying the newbuilding prices by the number of
deliveries in the respective month. Similarly, the financing needs for the
second-hand market, was calculated by multiplying the number of second-
hand ships sold by the second-hand prices. Adding these two together, we get
a total proxy of the total monthly financing demand for the Panamax class.
Departement Teknik Sistem Perkapalan ITS
• Public Issue
• Privileged Subscription
• Regulation of Security Offerings
• Private Placement
• Initial Financing
• Signaling Effects
• The Secondary Market
Departement Teknik Sistem Perkapalan ITS
Public Issue
• Securities are sold to hundreds, and often thousands,
of investors under a formal contract overseen by
federal and state regulatory authorities.
• When a company issues securities to the general
public, it is usually uses the services of an investment
banker.
Source: SlideShare
Departement Teknik Sistem Perkapalan ITS
Investment Banker
• Investment banker receives an underwriting spread when
acting as a middleman in bringing together providers and
consumers of investment capital.
• Underwriting spread -- the difference between the price the
investment bankers pay for the security and the price at which
the security is resold to the public.
Traditional Underwriting
Traditional Underwriting
Privileged Subscription
Source:onionID
Departement Teknik Sistem Perkapalan ITS
Terms of Offering
Terms specify:
the number of rights required to subscribe for an
additional share of stock the subscription price per
share the expiration date of the offering
Source: Due
Departement Teknik Sistem Perkapalan ITS
Subscription Rights
Source: Fibank
Departement Teknik Sistem Perkapalan ITS
Value of Rights
P0 - R0 = [ (R0)(N) + S ], therefore
R0 = P0 - [ (R0)(N) + S ]
Service Overview
Satellite Delivery
CUSTOMER OFFICE
Efficient large file transfer
Marinet communications protocols Use existing office equipment and
systems to exchange messages
Sustained high speed transfer
and data with vessels at sea
Full duplex communications
Store and forward delivery
Email
Fax
Telex
Cable
Least Cost Routing Telephone
Email connectivity
Data Connectivity
GlobeCrewTM Kiosk
I
N
T GlobeSecureSM
Application E Optional Virtual
Data Satellite R Private Network with
Globe Wireless
N
E
T
HF Radio
Email Crew
Maritime Data
Network
Network Operations
Cost Effective Messaging Center
Near Real-Time Delivery
The Secure Message Handling
Timely delivery confirmation
System automatically routes all
CUSTOMER VESSEL Notification of satellite traffic incoming and outgoing
waiting on shore
messages to destinations
Departement Teknik Sistem Perkapalan ITS
Connected Worldwide
Departement Teknik Sistem Perkapalan ITS
Personal computer
Marine HF radio
Globe Wireless modem
Power supply
Departement Teknik Sistem Perkapalan ITS
DREDGING
Dredging is the removal of bottom sediments from streams, rivers, lakes, coastal waters and oceans.
The resulting dredged material is transported by ship, barge or pipeline to a designated disposal site on land
or in the water
Capital dredging: The term Capital dredging involves the removal of initial dredging there by increasing
the depth.
Maintenance dredging: The term maintenance dredging involves the removal of sediments that have
accumulated since the previous dredging operation.
Dredging involves project planning, design, operation and maintenance. Dredging, dredged material
disposal and other aspects of the overall navigation project should be considered as a totalproject.
Departement Teknik Sistem Perkapalan ITS
DREDGING REQUIREMENTS
Dredgers has efficient pumps, heave compensating devices, electronic equipment for automatic
controls, water jets, sophisticated navigational equipment and advanced instrumentation.
Basic dredging requirements are determined by channel design and shoaling rates.
The quantities of material to be dredged are determined from past records and planning for
dredging
project should be based on long term requirements and hydrographic surveys.
Horizontal positioning and depth measurements are conducted with electronic navigation and
positioning equipment and the data are usually reduced using computers.
Accuracy and capabilities of positioning and surveying equipment are +/- 1 m or better using
global positioning systems.
Departement Teknik Sistem Perkapalan ITS
2. Inland waterways
3. Maritime boards
4. Captive jetties
5. Shipyards
7. Coastal protection
9. Agriculture.
Departement Teknik Sistem Perkapalan ITS
Least turbidity
Preferred choice in case of enclosed
management.
TYPES OF DREDGERS
1. Mechanical dredges
2. Hydraulic dredges
3. Hopper dredges
5. Cutterhead dredge
7. Dustpan dredge
8. Small hydraulic
dredge.
Departement Teknik Sistem Perkapalan ITS
CLASSIFICAION OF DREDGERS
DREDGE
MECHANICAL HYDRAULIC
SIDE PIPE
DIPPER BUCKET LADDER HOPPER AGITATION
CASTI LINE
N G
MECHANICAL DREDGES
No self propulsion
piers)
HYDRAULIC DREDGE
Hydraulic dredges conduct both phases of the dredging operations. (digging and disposing)
Placement or disposal is accomplished by pumping the dredged material through a floating
pipeline to the placement area or by storing the dredged material in hoppers that are emptied
over a placement area.
The basic components of a hydraulic dredge are dredge pumps, digging and agitation
machinery and hoisting and hauling equipment.
Departement Teknik Sistem Perkapalan ITS
HOPPER DREDGE
Self propelled trailing suction hopper dredge revolutionized
the dredging industry by reducing the cost.
HOPPER CONTINUED…
DREDGE
The dredge moves slowly over the area to be dredged while the dredge
pumps move the sediment and water mixture through the drag arms into
hopper bins.
During a dredging operation, the floating discharge and shore pipeline are
connected to the dredge.
Additional equipment to support the operation is required such as derrick, tugs, fuel
and pipe barges, surveying boats and other site –specific special equipment.
A cutter is connected at the forward end of the ladder and connected to the shaft of
the cutter motor.
Rotation of the shaft and cutter agitates soft or loose material and cuts hard material
that is then picked up by the suction.
The ladder supports the cutter, suction pipe, lubricating lines and usually the cutter
motor and reduction gear.
Dredge pump is located forward in the hull with its centre near the loaded
waterline.
Diesel engine, diesel electric motor or steam or gas turbine can be used to
drive the pump.
Some cases, shore electric power may be used to drive the pump.
Pump rotative speed varies from about 300 to 900 revolutions per minute.
DUSTPAN DREDGE
• The dustpan dredge is a hydraulic,
plain suction vessel.
INTRODUCTION
FINANCIAL SERVICES
DISTRIBUTION
Insurance products
Gold coins
Mobile recharge
Mutual funds
Government bonds
DEMAT ACCOUNT
SAFEKEEPING SERVICES
COLLECTION OF TAXES & UTILITY BILLS
ADVISORY SERVICES
Departement Teknik Sistem Perkapalan ITS
INSURANCE
ADVANTAGES
TYPES OF INSURANCE
GOLD COIN
• Free and unrestricted import and export of gold under gold coin
standard ensures stability in foreign exchange rates.
MOBILE RECHARGE
MUTUAL FUNDS
• Pools savings from a number of
investors having a common
financial goal.
ADVANTAGES
• Diversification
• Transparency
• Tax benefits
• Professional management
• Liquidity
• Low transaction cost
• Well regulated
Departement Teknik Sistem Perkapalan ITS
STRUCTURE OF MF
• Sponsor
• Trust
• AMC
• Custodian & Depositories
• Registrar & transfer Agents
• Bankers
• Distributors
• Brokers
Departement Teknik Sistem Perkapalan ITS
TYPES OF MF
• Based on structure:
Open-ended funds
Close ended funds
• Based on type of security:
Debt fund
Equity fund
Money market MF
• Hybrid funds
Balanced funds
Growth & income funds
Asset allocation funds
• Others
Commodity funds
Real estate funds
ETFs
Fund of funds
Departement Teknik Sistem Perkapalan ITS
GOVERNMENT BONDS
• Debt instrument
• Amount invested for a certain amount of time with a
certain interest rate.
• Issued in domestic currency
• Bonds issued in foreign currency- Sovereign bonds
• RBI Relief bond is the most popular.
• Tax saving tool for individual investors
• Carry 8.5% interest rate compounded half- yearly
Departement Teknik Sistem Perkapalan ITS
DEMAT ACCOUNT
PROCESS.
Departement Teknik Sistem Perkapalan ITS
BENEFITS
• A safe and convenient way to hold securities;
• No odd lot problem, even one share can be sold;
• Nomination facility
• Reduction in transaction cost.
• Change in address recorded with DP gets registered with all
companies
• Transmission of securities is done by DP eliminating
correspondence with companies
• Automatic credit into Demat account of shares, arising out
of bonus/split/consolidation/merger etc.
Departement Teknik Sistem Perkapalan ITS
SAFE KEEPING.
CONTD….
SAFE CUSTODY.
CONTD…
Annual rent is calculated from the date you open the locker to the
same date next year.
If you decide to close your locker in midyear ,in most cases, you
forego the annual rent which you paid at the beginning of the year.
COLLECTION OF TAXES
Telephone bills
Mobile bills
Electricity bills
Departement Teknik Sistem Perkapalan ITS
CONTD..
• Standing instructions
• Convenient to
customers
• Banks earn
commission
• Maintain accounts of
utility organisations
Departement Teknik Sistem Perkapalan ITS
ONLINE PAYMENTS
• Online shopping
• Advance tax
• Insurance premium
ADVISORY SERVICES
Thank You