CSSC is selling $1bn offshore newbuilds to an equity fund

SHANGHAI Waigaoqiao Shipbuilding is planning to dispose of seven undeliverable jack-up rigs and four offshore support vessels, worth more than $1bn, via an equity fund backed by major players in China's insurance and banking sector.

The deal comes as SWS, a main unit of state conglomerate China State Shipbuilding Corp, is struggling with the non-performing orders, which have been plaguing the shipyard's operational and financial conditions, according to stock exchange filings and people familiar with the matter.

The move also comes as the central government in Beijing is pushing for deleveraging its state-owned enterprises.

CSSC Holdings, CSSC's Shanghai-listed arm and SWS's parent, said the jack-ups and OSVs would be sold to an affiliated asset management company for approximately Yuan7.5bn ($1.1bn).

The buyer - temporarily named Tainjin CSSC CCB Offshore Investment Management Co, as it is still in the registration process - will take delivery of the vessels and later operate them via its single-ship arms.

Major shareholders of CSSC CCB Offshore are CSSC Investment and Development Co, a wholly owned subsidiary of CSSC, and managers of a private fund provisionally named CSSC Cost Reduction and Efficiency Increase Private Investment Fund.

No further details regarding the fund were published in the filings. But an internal scheme seen by Lloyd's List shows that other major shareholders of the fund consist of China Life Insurance, China Construction Bank and China Taiping Insurance.

According to the scheme, CSSC Investment and China Life will contribute Yuan1.3bn and Yuan3.1bn respectively to the Yuan7.5bn fund. The remaining Yuan3.1bn will be forked out by CCB and China Taiping.

CSSC will guarantee a certain amount of the return for the external shareholders, regardless of the actual income of the offshore projects, and will buy back their stake in the fund upon maturity. CCB (Beijing) Investment Fund Management Co and China Life Investment Holding Co are assigned as the fund managers.

It is uncertain whether the scheme is the final version. The two fund managers and CSSC Holdings cannot be reached for comment.

The relief of Yuan7.5bn, about 80% of the offshore vessels' market price, will help shore up the shipyard's liquidity and reduce its financial costs, CICC analysts Wang Yufei and Wu Huimin wrote in a note. They added that the deal, if materialised, would reduce CSSC Holdings' inventory by 48% and boost its cash reserve by 48%.

CSSC Holdings recorded a recurring net loss of Yuan712.9m for the first three quarters of 2017, deepened from Yuan552.9m during the year-ago period.

The company had already booked a roughly $330m impairment loss on its offshore inventory in 2016, followed by a yard-owner partnership that virtually delayed the payment of $570m for another three jack-ups ordered at SWS.

Some market observers expressed concerns over the latest arrangement.
That was because information about the charter hires of the above-mentioned rigs and OSVs, which is difficult to obtain at today's distressed offshore market, was missing in the company's announcements.

If CSSC does provide a guarantee of return and buyback to the other fund shareholders, the challenge will be to secure charters that can generate stable and proper cash flows, said a Beijing-based analyst, who declined to be named.

The delivery problem of offshore newbuildings has taken a toll on many Chinese shipyards, which rushed to the sector in 2013.

Another state conglomerate, China Shipbuilding Industry Corp, is close to completing its $3.3bn debt-to-equity swap for two of its major offshore subsidiary yards.

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Top stories:

Robert Yildirim will retain his 24% CMA CGM shareholding

ROBERT Yildirim plans to retain his 24% stake in French shipping group CMA CGM next year rather than end his seven-year involvement.

At one stage, he had been expected to exit at the end of 2017 when his current two-year financial commitment expires.

Instead, Mr Yildirim told Lloyd's List he was ready to keep his money in CMA CGM, which he helped to rescue by buying convertible five-year bonds at the beginning of 2011 when the French group was in urgent need of a cash infusion. France's sovereign wealth fund also helped out.

The notes matured at the end of 2015 just as CMA CGM was buying Neptune Orient Lines and so was unable to make the $600m repayment.

So Mr Yildirim, president and chief executive of the privately-owned Yildirim Group of Companies, whose activities range from mining and chemicals, to shipping, shipbuilding and port operations, agreed to be a preferred shareholder for two years, and continued to receive 12% interest on his investment.

In a telephone interview with Lloyd's List, Mr Yildirim did not rule out eventually selling his CMA CGM stake, which would have risen sharply in value over the past seven years as the container shipping industry recovered from a severe recession.

However, he said that assuming there was agreement with the SaadÇ family, who have a majority 70% shareholding, he wanted to stay in CMA CGM now that the market was looking so much better.

Nevertheless, Mr Yildirim said he would of course consider offers if the price was attractive enough, and would expect to make a hefty profit on his original investment, given the valuations of lines such as Hamburg SÅd, which is being sold for $4bn, and OOCL, which is being bought by Cosco Shipping for $6.3bn.

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Reefer rates are set to maintain an upward curve in 2018

A LOOMING reefer container equipment shortage and ongoing consolidation in the ownership structure in the upper echelons of the container shipping sector are expected to continue to drive up reefer container freight rates over the next year.

In a webinar on Tuesday morning, analysts Drewry said that production figures for new reefer units in 2017 would not be much greater than last year, when a historically low level of manufacturing prompted a temporary shortage in empty reefer box containers and with it a surge in reefer rates, as shippers scrambled to fulfil cargo consignments globally.

According to Drewry's container census and leasing report, the global production of new reefer box equipment was as low as around 80,000 teu last year, representing the lowest newbuilding volumes since 2009.

As demand increases amid the traditional high season for the perishables market in the coming months and an equipment shortage seemingly unresolved, this only points to further rate increases, according to Drewry.

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Shipowners hit back at emissions reporting requirements

THE International Chamber of Shipping has criticised the European Commission's data collection system for ships' carbon dioxide emissions amid concerns that lack of alignment between European Union and International Maritime Organization systems will result in a period of double reporting for shipowners.

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Analysis:

Why Japan's security ambitions will help combat Southeast Asia piracy

JAPAN is to dig into its overseas aid budget to fund four coastguard radar stations to protect shipping traffic in the Sulu and Celebes seas between Indonesia and the Philippines.

The area has experienced several piracy incidents over the past year, which has forced ship operators to make expensive detours. But the security investment has both maritime and geopolitical motivation. Japan is known to be seeking a more substantial defence and security role in Southeast Asia, especially under prime minister Shinzo Abe's version of a pivot to the region.

Politics aside, though, the investment would be welcomed across the shipping industry because it would enable maritime patrols from both littoral states to be more effective. This would reopen the shortest route between north Asian states - including Japan - and Southeast Asia.

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Markets

Indian coal imports will continue to fuel bulker demand

INDIA's appetite for coal will continue to feed demand for bulk carriers, at least in the near future, due to the time and expense needed to build alternative means of power generation and switch coal out of the country's energy mix.

The nation's aim of boosting its steel-making capacity is already intensifying demand for coking coal, with Braemar ACM forecasting average yearly coal consumption growth of 3.4% between 2018 and 2021.

But a swathe of coal-fired power plants, which account for approximately 195 gigawatts of India's total 330-gigawatt installed power capacity, will continue to drive demand for thermal coal as the energy mix is unlikely to change substantially in the coming years.

This increase in import demand would primarily benefit the panamax and supramax segments, whose share of the Indian market has grown in recent years, while the capesize market was declining, Braemar noted in a report.

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Boxship oversupply is weighing down transpacific and Asia-Europe rates

THE fate of transpacific and Asia-Europe freight rates will depend on whether more containership tonnage can be removed from the market, says Asian transportation consultancy Crucial Perspective.

It said that spot market rates had decreased 4% over the past week and 5% year on year mainly due to excess vessel supply as opposed to weak trade demand.

Headhaul demand on the Asia to North America and Asia to Europe trades has risen 10% and 7% respectively, while global container shipping demand has increased 4.9% in the year to date, which matches the consultancy's estimate for 2017.

"Therefore, unless more capacity is being taken out, the liners' planned rate hikes in mid-November and early December may meet with limited and short-lived success," said the consultancy.

"Rising bunker fuel prices will also put more pressure on profit margins if higher fuel surcharges are being offset by discounted underlying freight rates."

Read the full weekly report here

In brief

DFDS acquires Dutch logistics company Alphatrans

SHIPPING and logistics group DFDS is expanding its European logistics capabilities by acquiring all the shares in Rotterdam-headquartered logistics company Alphatrans Group in an agreement signed on Tuesday with Alphatrans owner Martin Bos.
DFDS said the deal was subject to approval by competition authorities in Germany, expected by the end of this year, and would add new countries to the DFDS network and expertise in specialist transport, and would create synergies within the group.

Alphatrans is a Netherlands-based company specialising in the transport of long, wide, high and heavy loads, with annual revenues of ?45m ($52.9m).

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Odfjell inks four long-term bareboat charters with Sinochem Shipping

ODFJELL has signed a pact to take four newbuilding chemical tankers on long-term bareboat charters from Sinochem Shipping as it seeks more modern tonnage to replace its ageing chartered-in fleet.

Odfjell's chief executive Kristian Mørch said: "With this structure, we will replace a large part of our maturing chartered-in fleet with more modern and sophisticated tonnage, and in a highly capital-efficient way. We are also very pleased with the new relationship with Sinochem and with the trust they place upon us as managers of the pool."

The four vessels are part of a total newbuilding order of eight 40,900 dwt stainless steel vessels by Sinochem that will form a chemical tanker pool managed by Odfjell and trade as part of the Odfjell Tankers fleet.

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HHI reshuffles top management

HYUNDAI Heavy Industries has announced that its chairman and vice-chairman will step down to take different roles within the group, while its current president and chief executive Kang Hwan-goo will continue to lead the South Korean shipbuilder.

Choi Kil-seon, chairman of HHI, will step down from his position but remain as an adviser to the firm, while Kwon Oh-gap, vice-chairman of HHI, will serve as chairman of a newly-established holding company that will control HHI, according to a statement by the group.

The move is part of HHI's efforts to overcome industry challenges amid a lack of orders.

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BW Group forms FSRU joint venture with Mitsui

BW Group has established a joint venture with Japan's Mitsui & Co in which they will jointly own floating storage and regasification unit BW Integrity. Under the agreement, Mitsui has acquired a 49% stake in the venture, with BW owning the rest.

BW continues to handle the technical management as well as commercial aspect of the FSRU, which is currently at Pakistan's Port Qasim where it has been chartered to PGP Consortium on a 15-year charter to provide regasification services to state-owned Pakistan LNG Terminals.

Mitsui said in a statement that Pakistan started liquefied natural gas imports in 2015 to meet growing local demand and falling production.

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HHLA confirms full-year target

HAMBURG terminal operator Hamburger Hafen und Logistik (HHLA) expects to hit its full-year targets after a 10.8% increase in container throughput helped it raise revenues in the first nine months of this year to ?942.8m ($1.1bn).

Earnings before interest and tax were up 22.3% to ?155.m and net profits rose by a third to ?79.3m.

"HHLA is benefiting from the positive trend in both the global economy and world trade, but also from the targeted sales activities and in-depth discussions with our customers which took place in the spring of this year and by which we secured - and in some cases expanded - our market position," said HHLA chairwoman Angela Titzrath.

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Thoresen Shipping returns to profitablity in the third quarter on dry bulk uptrend

THORESEN Shipping Group posted a Baht74.2m ($2.2m) net profit for the third quarter of 2017, recovering from a Baht222.7m net loss in the year-ago period as the dry bulk market continued to rally.

The dry bulk operator's time charter equivalent earnings jumped 51% to $8,288 per day as both the Baltic Dry Index and Baltic Supramax Index were up 54% and 25% respectively during the period, amid continued growth in China's iron ore imports and the recovery in global thermal coal demand as well as minor bulk trades.

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DHT narrows losses on absence of impairment charges

NEW York-listed DHT Holdings has narrowed its net loss for the third quarter of the year to $5.1m compared with a $75.7m net loss in the 2016 period due to the absence of impairment charges.

In the third quarter of last year, the tanker operator saw a $76.6m impairment on the fall in value of its secondhand tankers.
Due to additions to its fleet, the company's shipping revenue rose to $84.4m compared with $64.8m in the 2016 quarter. However, further gains were limited by softer tanker rates during the period.

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RCL back in the black on higher freight rates and cost cuts

A RECOVERY in freight rates coupled with cost optimisation measures helped Thailand-based Regional Container Lines return to profit in the third quarter of the year.

The intra-Asia container specialist posted a net profit of Baht241.7m ($7.3m) for the three months ended September 2017 versus a Baht455m net loss in the year-ago period.

It noted that strong economic activity in Asia helped increase liftings in carrier-owned containers and shipper-owned containers by 6.6% and 3% respectively in the quarter versus 2016.

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Korea's KSS Line sees net profit leap 102% for third quarter

GASES and chemicals carrier KSS Line reported a year-on-year jump in third-quarter net profit of 102.5%, due to a total of four new very large gas carriers it deployed in the first half of the year.

The South Korean company posted a Won7.8bn ($7.1m) net profit for the three months ended September 30.

A total of six new ships are scheduled to be delivered this year, with the fifth rolled out in September.

The new ship will be deployed on a long-term contract of affreightment with Japan's JX Ocean to deliver liquefied petroleum gas.

With that contract, the company expects to generate about Won61.2bn of profit over the next five years.

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