Private-Equity Funds Bet $5 Billion on Shipping Rebound
By Isaac Arnsdorf and Nicholas Brautlecht - Feb 18, 2014
Private-equity and hedge funds are accumulating shipping debt at the fastest pace since they began buying the risky loans from banks two years ago, raising prospects of the firms eventually owning the vessels.
About $5 billion in shipping loans has changed hands in the past year, estimates AMA Capital Partners LLC, a fund manager and adviser in New York. Investor demand is driving prices as high as 90 cents on the dollar, from 70 to 80 cents a year ago, according to Hartland Shipping Services Ltd., a London-based shipbroking and consulting company that split off from HSBC Holdings Plc in 2012.
The influx illustrates a broader shift as investors load up on debt being abandoned by banks amid regulations intended to prevent future taxpayer bailouts. Funds are betting ship prices that collapsed as much as 71 percent in five years will rebound from historic lows. And if a prolonged downturn drives borrowers to default, the funds are preparing to do something banks historically resisted: take over vessels themselves.
“The markets are flush with liquidity in terms of investors looking for homes,” said Randee Day, the president and chief executive officer of Day & Partners LLC, an advisory and consulting firm specializing in shipping, who ran JPMorgan Chase & Co.’s shipping division in the 1980s. “If I was still managing a portfolio at a bank, I’d be unloading like mad.”
While banks have been trying to reduce their loans to the shipping industry for years, a market for secondary debt didn’t emerge until 2012, Paul Leand, AMA’s chief executive officer, said in a telephone interview. Banks tended to hold onto their loans until regulatory pressure added urgency to divest them in late 2013, Day said. Outstanding bank loans to ship owners total $460 billion as of November, according to Petrofin Research in Athens.
Davidson Kempner Capital Management LLC late last year paid $500 million for part of Lloyds Banking Group Plc (LLOY)’s shipping portfolio, according to Marine Money, an industry newsletter. Ian Kitts, a spokesman for Lloyds, and Catherine Jones, an external spokeswoman for Davidson Kempner at ASC Advisors LLC in Greenwich, Connecticut, declined to comment.
In December, Commerzbank AG (CBK), Germany’s second-biggest bank, sold 14 chemical tankers to a fund managed by Oaktree Capital Management LP, eliminating 280 million euros ($383 million) in non-performing shipping loans. Oaktree declined to comment through Alyssa Linn, an external spokeswoman at Sard Verbinnen & Co.
DNB ASA (DNB), Norway’s largest bank, sold loans it had made to Genco Shipping & Trading Ltd. (GNK) to undisclosed buyers, spokesman Thomas Midteide said. He didn’t disclose the price. Genco has a 7.8 percent chance of defaulting in a year, the lowest rating short of distress, according to the Bloomberg Default Risk Scale.
“When the offer was on the table, we couldn’t let this opportunity pass,” he said by telephone Feb. 6.
HSH Nordbank AG, the largest shipping lender, is preparing to sell a portfolio of shipping loans after a previous package valued at about 300 million euros failed to attract investors, Wolfgang Topp, who heads its restructuring unit, said in a telephone interview on Feb. 10. The bank is only talking to buyers in the industry, not financial firms, because “they pursue a different investment strategy,” he said.
Commerzbank and HSH Nordbank are among about 130 banks deemed to pose a systemic risk and selected to undergo an assessment by the European Central Bank to measure the quality of their assets and the strength of their balance sheets in stress scenarios. The review and new guidelines by the European Banking Authority will lead to increasing bad debt provisions, Moody’s Investors Service said in a December report.
Hedge funds and private-equity firms are approaching ship management companies about hiring them to run acquired fleets, according to Jason Klopfer, Westport, Connecticut-based commercial director of Navig8 Group, which operates 248 tankers and bulkers, up from 175 a year ago.
Rather than take ships onto their balance sheets, banks prefer to sell the debt, Michael Parker, global industry head of shipping and logistics at Citigroup Inc., said Feb. 4 at a conference in New York. Private-equity firms, meanwhile, are willing to take ownership of the asset and put it to work while they wait for prices to appreciate, Klopfer said.
While funds haven’t repossessed ships yet, they first started inquiring about hiring managers about 18 months ago, said Steve Rodley, co-founder of Global Maritime Investments, a London-based manager that operates 50 to 80 vessels. GMI is in talks with debt investors about managing ships they may take over, Rodley said.
Investors are also forming joint ventures to order new vessels, such as Oaktree’s partnership with Navig8 announced in October. Seeing an opportunity in low prices for modern, fuel-efficient ships, the company ordered six chemical tankers at a South Korean shipyard for delivery in 2015, it said in a November statement. GMI ordered six ships financed by a large U.S institutional fund, Rodley said.
Similarly, funds owned by Apollo Global Management LLC teamed up with Hamburg-based ship manager Rickmers Group to invest as much as $500 million in container vessels. The venture bought six container vessels from Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft KG, or Hamburg Sued, for $176 million euros, Rickmers said today. York Capital Management formed a joint venture with Greek ship owner Costamare Inc. (CMRE) to buy five container ships for more than $190 million, Gregory Zikos, Costamare’s chief financial officer, said in a September interview.
Avenue Capital Group LLC, the distressed-debt firm with about $12.6 billion of assets under management, invested “a couple hundred million dollars” in container ships through a partnership with an undisclosed ship owner, co-founder and Chief Executive Officer Marc Lasry said Feb. 4 at a conference in New York.
Banks benefit as investors bid up prices, Jae Kwon, managing director of investment banking at DNB Markets Inc., said at the Feb. 4 conference. Debt is trading higher than it would be without demand from hedge funds, he said.
“Shipping has become a bit of a ‘story,’ and it’s regarded as being at a cyclical low,” Nigel Prentis, Hartland’s head of consultancy, said by telephone Jan. 23. “There’s quite a lot of money chasing fairly few opportunities,” pushing up prices for secondhand debt, he said.
Investors frequently underestimate how long companies can survive unprofitable rates, said Day, who worked on the bankruptcy restructuring of General Maritime Corp., a U.S. tanker owner. Ship values and freight rates have started to rebound from lows that followed owners ordering too many ships before the global recession. The ClarkSea Index, a measure of industrywide earnings, rose 41 percent in the past year to $10,767 a day. The 2012 average of $9,586 was the lowest since at least 1990.
A five-year-old supertanker now sells for $65.2 million, compared with $54.2 million a year ago and less than half the $162 million high in 2008, according to the Baltic Exchange in London. The price of a Capesize, the largest type of dry-bulk carrier, rose 50 percent in the past year to $44.5 million, 29 percent of the 2008 peak of $153.8 million.
The dynamics of shipping markets are difficult to understand and predict, said Basil Karatzas, a shipbroker and adviser in New York.
“Quite a few of the funds that are buying these loans are not familiar with shipping, they are newcomers and some may doubt how fast they can manage to climb the learning curve,” Karatzas said by phone Feb. 6. “When there are 20 funds bidding on the same portfolio, and the consensus is, ‘The markets have turned around and we better get on the wagon or we’ll miss this opportunity,’ that’s when people get too optimistic.”
Just as the industry emerges from the worst glut in decades, fleet growth is poised to accelerate again as orders increase. Contracts for new ships almost tripled last year to 150 million deadweight tons, the highest since 2010, according to Clarkson Plc, the world’s largest shipbroker.
Shipyards are booked to build 290.2 million deadweight tons as of the start of 2014, the first increase since 2009, data show. With a shortage of ships unlikely, values may never return to pre-recession highs, said Leand of AMA.
“The prices that these banks are getting for these shipping loans are for the most part at a pretty significant premium to where they think the loans are valued themselves,” Leand said by phone Jan. 23.
Buyout firms are adding to their credit holdings even as gains on corporate debt retreat. Returns on speculative-grade loans last year fell to 5 percent from 10.5 percent in 2012, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index. High-yield, high-risk bond returns dropped to 7.4 percent from 15.6 percent in 2012, according to the Bank of America Merrill Lynch U.S. High Yield Index. The S&P 500 Index of U.S. stocks rose 29.6 percent last year.
There are attractive investments in everything from credit card debt to shipping loans, said James Zelter, head of New York-based Apollo’s credit unit, which has swelled to about $100 billion in assets from about $4 billion in seven years.
“The debt is where everyone wants to be,” said Jeff McGee, the founder of Makai Marine Advisors LLC in Dallas. “The risk that values will go down and you’ll be left holding debt you can’t pay for is not there. It’s a chance to pick up attractively priced debt at the bottom of the credit cycle.”
ARRIS climbs in wake of Comcast, Time Warner Cable merger
Shares of ARRIS (ARRS) - which supplies broadband network products to cable companies - are rising after Comcast (CMCSA) agreed to merge with Time Warner Cable (TWC). Research firm Jefferies wrote that ARRIS would likely benefit from the deal. WHAT'S NEW: Comcast, an ARRIS customer, agreed to merge with Time Warner Cable in a $45.2 billion deal. The deal could be "very positive" for ARRIS, wrote Jefferies analyst James Kisner in a note to investors earlier today. ARRIS - which has a "tight relationship" with Comcast and is a "critically important vendor" for the cable company - is likely to increase its sales to Time Warner Cable following the merger, Kisner contended. Time Warner Cable has been underinvesting in technology compared with its peers, and Comcast could reverse this trend following the merger, the analyst wrote. Such a development would be "great" for ARRIS, the analyst contended. He kept a $30 price target and Buy rating on ARRIS. WHAT'S NOTABLE: In a separate note to investors today, Kisner wrote that he remained upbeat on ARRIS despite reports that Apple (AAPL) could be working with Time Warner Cable and other partners on a new set-top box. It's not clear that Apple's set-top box would replace set-top boxes provided by cable companies, and Comcast is "very unlikely" to adopt the product, since it has already invested a great deal of money in its X1 architecture, the analyst contended. PRICE ACTION: In early trading, ARRIS jumped $1.70, or 6.6%, to $27.60.
Insider ALLEN H C JR
Date Shares Stock Transaction
5-Feb-14 500 DMLP Purchase at $24.25 per share.
(Cost of $12,125)
3-Feb-14 1,500 DMLP Purchase at $24.25 - $24.5 per share.
(Cost of about $37,000)
Teekay Tankers and Teekay Corporation Announce the Creation of a New Tanker Company
HAMILTON, BERMUDA -- (Marketwired) -- 01/21/14 -- Teekay Tankers Ltd. (Teekay Tankers) (NYSE:TNK) and Teekay Corporation (Teekay) (NYSE:TK) today jointly announced the creation of Tanker Investments Ltd. (TIL), which will seek to opportunistically acquire, operate and sell modern secondhand tankers to benefit from an expected recovery in the current cyclical low of the tanker market. TIL has completed a $250 million private equity offering in which Teekay Tankers and Teekay have co-invested $25 million each for a combined 20 percent ownership interest in the new company. The balance of the privately placed TIL shares, which will trade on the Norwegian over-the-counter market, have been purchased by a group of institutional investors primarily based in the United States, Norway and United Kingdom.
A portion of the net proceeds from the private equity offering will be used to acquire four 2009 and 2010-built Aframax crude oil tankers for an aggregate purchase price of approximately $116 million.
TIL will also acquire four 2009-built Suezmax crude oil tankers from Teekay for an aggregate purchase price of approximately $163 million, which TIL will pay for by assuming an equal amount of indebtedness already secured by those vessels.
TIL intends to use the remaining net proceeds from the private equity offering to acquire additional tankers in the near future and for general corporate purposes.
In addition to the private equity offering and related transactions, the Teekay and Teekay Tankers' Boards of Directors have agreed in principle to the sale to Teekay Tankers of Teekay's conventional tanker commercial and technical management operations (Teekay Operations), including direct ownership in three commercially managed tanker pools, which currently generates fees from commercially managing a fleet of 82 vessels and technically managing a fleet of 49 vessels.
The TIL fleet will be managed by Teekay Operations. Upon completion of the sale of Teekay Operations, the corresponding fees associated with the management of TIL's vessels will be earned by Teekay Tankers.
Teekay and Teekay Tankers together will receive warrants to acquire up to an additional 1.5 million shares of TIL's common stock, linked to TIL's future share price performance.
The TIL private equity offering is expected to close on Friday, January 24, 2014 and TIL's acquisition of the initial eight tankers is expected to be completed in the first half of 2014. TIL intends to undertake a public listing of its common stock on the Oslo Stock Exchange in the first quarter of 2014.
"Our investment in TIL provides a new avenue for Teekay Tankers' shareholders to benefit from a tanker market recovery," commented Bruce Chan, Teekay Tankers' Chief Executive Officer. "This transaction complements our existing strategy of owning and in-chartering conventional tankers. In addition, our planned acquisition of Teekay Operations represents the final step in Teekay Tankers' evolution into a full-service conventional tanker platform, which we believe will allow us to better serve our customers and generate greater value for Teekay Tankers."
Peter Evensen, Teekay Corporation's President and Chief Executive Officer commented, "With the sale of our last four owned conventional tankers to TIL, Teekay Corporation is one step closer to achieving its strategy of becoming an asset-light company primarily focused on increasing the value of its daughter entities."
DNB Markets acted as exclusive financial advisor to Teekay Tankers and Teekay on the formation of TIL. DNB Markets and Pareto Securities acted as joint bookrunners on the private equity offering for TIL.
Teekay Tankers and Teekay Corp (TK) announce the creation of a New Tanker co; portion of the net proceeds from the private equity offering will be used to acquire four 2009 and 2010-built Aframax crude oil tankers for an aggregate purchase price of ~ $116 mln (TNK) :
TIL has completed a $250 mln private equity offering in which Teekay Tankers and Teekay have co-invested $25 mln each for a combined 20 percent ownership interest in the new company. The balance of the privately placed TIL shares, which will trade on the Norwegian over-the-counter market, have been purchased by a group of institutional investors primarily based in the United States, Norway and United Kingdom.
A portion of the net proceeds from the private equity offering will be used to acquire four 2009 and 2010-built Aframax crude oil tankers for an aggregate purchase price of ~$116 mln.
TIL will also acquire four 2009-built Suezmax crude oil tankers from Teekay for an aggregate purchase price of approximately $163 mln, which TIL will pay for by assuming an equal amount of indebtedness already secured by those vessels.
TIL intends to use the remaining net proceeds from the private equity offering to acquire additional tankers in the near future and for general corporate purposes.
The balance of the privately placed TIL shares, which will trade on the Norwegian over-the-counter market, have been purchased by a group of institutional investors primarily based in the United States, Norway and United Kingdom.
New Teekay arm uses Oslo cash to splash on tankers
Owner forms new company through over-the-counter raise that is grabbing tonnage and seemingly usurping Teekay Tankers
Peter Evensen, chief executive of Teekay.
Peter Evensen, chief executive of Teekay.
Teekay Corp has formed a second tanker-owning subsidiary that is already buying up aframax and suezmax tonnage after raising funds on Oslo’s over-the-counter (OTC) exchange, sources tell TradeWinds this week.
The new entity has been linked to a $120m buy of four modern aframaxes from Montanari of Italy, and is believed to be purchasing suezmaxes from the Teekay parent company.
The move is seen as an opportunistic play on bargain valuations for secondhand crude tankers.
But it is likely to raise questions about the status of existing company Teekay Tankers, the subsidiary that has focused on crude and products tonnage.
While sources familiar with the process say the OTC company will appeal to a different base of investors, its formation is likely to highlight the limitations facing New York-listed Teekay Tankers.
It comes only days after Teekay Tankers announced the departure of chief executive Bruce Chan, who is quitting on 20 June after more than 18 years in the organisation (see story, page 23).
Teekay Tankers not only acquired assets at valuations higher than today’s levels but has been sidetracked by other issues.
Its hopes to grow through long-range-two (LR2) products-tanker newbuildings at South Korea’s STX Offshore & Shipbuilding have been dashed by the yard’s financial woes and a lack of refund guarantees.
At the same time, Teekay Tankers has had to operate two VLCCs owned by Nobu Su’s bankrupt Today Makes Tomorrow (TMT) after that company defaulted on ship mortgages extended by Teekay.
Sources suggest the new company may now be a buyer of four Bohai-built suezmax sisters — the 159,000-dwt Shelling Spirit, Tianlong Spirit, Jiaolong Spirit and Dilong Spirit (all built 2009) — that previously might have been assumed headed for Teekay Tankers.
The Montanari tankers are the 109,000-dwt Hudong-built sisterships Vallesina, Valfoglia, Valbrenta (all built 2009) and Valdarno (built 2010).
Funds raised through the OTC campaign may also allow the new company to target further tonnage, some suggest, and prospects may not be limited to tankers.
But, at least for the moment, the focus is on secondhand aframaxes and suezmaxes — interestingly precisely the sort of tonnage Chan had described as prospective growth areas for Teekay Tankers when questioned by equity analysts in November following its earnings release.
“I think that is the key question on the crude side,” said Chan in response to a question from Evercore Partners analyst Jonathan Chappell.
He added: “We have got to look at the newbuilding prices and the eco fuel-efficient designs relative to what may be even more depressed secondhand modern ships on the water, which we know through our technical abilities can eco-refit a lot of those ships to narrow the gap between a newbuilding eco and a secondhand ship on the water.
“And so the maths may very well favour on-water assets going forward in our return to growth and renewing the fleet.
“Our preference is to stick to our core traditional segments of aframax and suezmax.”
Teekay did not respond to a request for comment by TradeWinds’ deadline.
Oil-Tanker Recovery Trails Market With U.S. Export Ban: Freight
By Isaac Arnsdorf - Jan 8, 2014
The recovery propelling shipping markets is poised to leave crude-oil tankers behind, unless the U.S. changes its 39-year-old ban on most unrefined exports.
Sea shipments of refined fuels are set to expand the fastest since 2010 and demand to transport dry-bulk commodities such as iron ore and coal will rise more than capacity for the first time in seven years, according to Clarkson Plc, the world’s largest shipbroker. Demand for crude carriers will advance the least since 2009, as the U.S. produces the most domestic supply in a quarter century and cuts imports for the fourth straight year, Clarkson estimates.
Profits will increase for companies including product-tanker owner Scorpio Tankers Inc. (STNG) and Star Bulk Carriers Corp., whose ships carry dry-bulk commodities, analyst estimates compiled by Bloomberg show. Allowing more U.S. crude exports would be a “positive surprise” for tankers, according to RS Platou Markets AS. Senator Lisa Murkowski of Alaska backed lifting the export ban in a Jan. 7 speech, joining calls from producers such as Exxon (XOM) Mobil Corp.
“The demand is not there” for crude tankers, said Fotis Giannakoulis, an analyst at Morgan Stanley. “The only wild card that can really help the market would be U.S. crude exports.”
The ClarkSea Index, a measure of industrywide earnings, jumped 79 percent last year to $17,141 a day, the highest since June 2010. The gauge’s 2012 average of $9,586 was the lowest in data beginning in 1990 because owners ordered too many ships before the global recession.
While increasing trade is finally shrinking the excess capacity for most types of vessels, the glut of crude tankers persists. Demand will rise 0.2 percent, less than the 0.6 percent last year and will be the smallest advance since a contraction in 2009, Clarkson estimates. Fleet growth of 1.8 percent will outpace demand, the shipbroker says.
Supertanker rates retreated 19 percent from a more than three-year high of $50,801 a day reached Nov. 22, Clarkson data show. Earnings for very large crude carriers will average about $21,000 this year, according to the median of 11 analyst estimates compiled by Bloomberg. While that would be up from $16,350 in 2013, it’s still 6.3 percent less than Frontline (FRO) Ltd., the operator led by billionaire John Fredriksen, says its vessels need to break even.
Frontline’s net loss will narrow to $89.9 million this year from $168.4 million in 2013, according to the averages of 23 analyst estimates compiled by Bloomberg. Shares that rallied 28 percent last year will drop 68 percent to 9.02 kroner in 12 months, the average of 15 estimates shows. The Hamilton, Bermuda-based company expects a sustained market recovery “may take some time” depending on global growth and demolition of existing tankers to curb the glut, it said in a Nov. 27 report.
The U.S. is importing less crude as domestic fields produce the most since 1988 and the country meets the highest share of its own energy needs since 1986, Energy Department data show. Incoming shipments will fall another 7 percent to 4.9 million barrels a day in 2014, compared with the 2005 peak of 8.5 million, Clarkson estimates.
China, set to overtake the U.S. as the largest seaborne crude importer this year, isn’t adding as much as the U.S. is cutting, with shipments rising 4 percent to 5.4 million barrels a day this year, according to Clarkson.
Because a 1975 law bans most crude-oil exports, the surging output isn’t leaving U.S. shores, and American refineries are benefiting from the cheaper feed-stocks.
That’s helped the U.S. become a net exporter of petroleum products since June 2011, shipping a record 3.58 million barrels a day in the last two weeks of 2013, Energy Department data show. Exports of products such as diesel and gasoline to South America from the U.S. Gulf Coast jumped 31 percent in 2013 and will rise another 17 percent this year, Clarkson estimates. Daily earnings for medium-range tankers will increase 12 percent to $16,625, the highest since 2008, the median of eight analyst estimates shows.
Scorpio runs the largest fleet of product tankers, with 48 on the water and 58 more on order, according to the Monaco-based company’s website. Its shares rose 66 percent to $11.79 last year and will reach $13.61 in 12 months, according to the average of 11 analyst estimates.
The outlook may shift if the U.S. changes its export policy. Crude tankers would benefit as smaller Suezmaxes and Aframaxes carry U.S. cargoes to Europe or to a pipeline across Panama, where VLCCs at the other end would take the crude to Asia, Court Smith, an analyst at Poten & Partners Inc., a New York-based shipbroker and consultant, said by phone Dec. 18.
The effect on product tankers depends on U.S. prices and refinery margins, according to Poten. Demand for the ships would be unaffected because importing countries in Africa and South America don’t have enough refineries and would still buy U.S. cargoes, Robert Bugbee, Scorpio’s president, said by phone Dec. 30.
Crude export restrictions may be outdated and Congress should review them, Energy Secretary Ernest Moniz said at a conference in New York last month. Exxon, the world’s biggest energy company by market value, favors lifting the export limits as U.S. production will soon overwhelm the capacity of domestic refineries, the Irving, Texas-based company said Dec. 12.
“We need to act before the crude oil export ban causes problems in the U.S. oil production, which will raise prices and therefore hurt American jobs,” Murkowski, the top Republican on the Senate Energy and Natural Resources Committee, said Jan. 7 in remarks at the Brookings Institution in Washington.
The oil industry’s push for crude exports will face resistance from some members of Congress concerned that gasoline prices would rise. Senator Robert Menendez, a Democrat from New Jersey, said in a Dec. 16 letter to President Barack Obama that domestic crude should be used to lower prices at home. Senator Ron Wyden, an Oregon Democrat who chairs the Energy and Natural Resources Committee, is open to the discussion and wants to make sure consumers wouldn’t be adversely affected, spokesman Keith Chu said in a Jan. 7 phone interview.
Rules probably won’t change until at least 2015, according to Chris Neumiller, senior energy and shipping adviser at McQuilling Services LLC, a marine consulting company in Garden City, New York. If exports are allowed, they will probably be limited and would have a small effect on tanker demand, he said.
The Commerce Department can issue licenses to export crude. Shipments rose 45 percent to 105,000 barrels a day in the first 10 months of 2013 compared with a year earlier, and all but one cargo went to Canada, according to the Energy Department.
The crude tanker market may improve without the help of U.S. exports. The vessels have the best recovery prospects in the shipping industry, Omar Nokta, an analyst at Global Hunter Securities LLC in New York, said in a Jan. 6 report. Platou, an Oslo-based investment bank, expects to raise its earnings estimates as fleet growth slows. Euronav NV (EURN), the Antwerp, Belgium-based owner of 35 crude tankers, said Jan. 5 it will buy 15 VLCCs from Maersk Tankers Singapore Pte. for $980 million citing an improved outlook and rising demand.
Expanding crude exports would take cargoes away from tankers shuttling between domestic ports, which have to be U.S.- built, owned and crewed under a 1920 federal law called the Jones Act. A qualifying tanker available to trade crude commands a record $110,000 a day for a six- to 12-month charter or $75,000 a day for a four- to five-year lease, and crude will account for about a third of the market this year, according to broker MJLF & Associates.
“It’s bad for the Jones Act if we’re allowing crude exports -- the fact that the U.S. crude market is isolated is immensely benefiting,” said Donald Bogden, an analyst at MJLF in Stamford, Connecticut. The effect probably wouldn’t be “cataclysmic” because crude exports would be limited and wouldn’t happen until a glut of domestic crude may cause prices to collapse in 2016 or 2017. “We’ll export barrels to countries on a one-off basis rather than a complete lifting of the ban,” Bogden said.
Tankers hauling liquefied petroleum gases such as propane and butane are poised to profit in 2014 whether or not the U.S. exports crude. Supply of the fuels, used for cooking and heating, is surging as a byproduct of oil and gas drilling, and average daily rates for the largest carriers will rise 22 percent to $45,000 this year as U.S. exports expand enough to absorb all the new ships under construction, Oslo-based analysts at DNB Markets said in a December report.
Dorian LPG Ltd., a Stamford-based owner, bought 11 contracts for new gas carriers from Scorpio in exchange for a 30 percent stake, with an initial public offering planned for 2014, the company said in October. BW LPG Ltd., the largest owner of very large gas carriers, raised about 3.1 billion kroner ($500 million) from selling shares in Oslo in November.
Navigator Holdings (NVGS) Ltd., an owner of smaller LPG carriers whose largest shareholder is a fund led by billionaire Wilbur Ross, raised $228 million by selling shares in November.
Ross, the founder of WL Ross & Co., has also raised $100 million to buy ships hauling coal, iron ore and grains, betting that accelerating growth in emerging markets will boost trade. Demand for dry-bulk commodities will surpass fleet growth for the first time since 2008, Morgan Stanley said last month, upgrading its view on the industry to “in-line” from “cautious” and recommending shares of Safe Bulkers Inc., Diana Shipping Inc., Knightsbridge Tankers Ltd. and Star Bulk Carriers.
After record rates in 2011 and 2012, tankers hauling liquefied natural gas will extend losses in 2014 as new ships join the fleet before export facilities finish construction. Earnings will fall 25 percent to $74,000 a day as the fleet expands 6.9 percent while demand grows 3.6 percent, according to Platou.
The tankers will benefit as U.S. LNG export capacity reaches 71 million metric tons by 2020, according to Morgan Stanley. Cheniere Energy (LNG) Inc.’s LNG export terminal at Sabine Pass, Louisiana, will be the first in the continental U.S. when it opens in 2015. The Energy Department approved three other projects so far.
“The U.S. shale oil and gas story will continue to change the landscape for shipping in 2014,” said Erik Nikolai Stavseth, an Oslo-based analyst at Arctic Securities ASA whose recommendations on the shares of shipping companies returned 29 percent in the past year. “If the U.S. starts exporting crude it would leave the entire market in disarray and likely turn investors’ bets upside-down.”
Arris Leads Video Client Segment
by Zacks Equity Research Published on December 30, 2013
GOOG ARRS CSCO CMCSA
A recent report of Synergy Research Group Inc. stated that Arris Enterprises Inc. (ARRS - Analyst Report) was the leading operator in the video client segment in the third quarter of 2013.
However, Cisco Systems Inc. (CSCO - Analyst Report) remains the undisputed leader in the overall video infrastructure gear manufacturing industry. Nevertheless, Arris is far ahead of Cisco and Pace plc., particularly in the video client delivery segment.
The video client delivery segment consists of several hardwares and softwares related to set-top boxes and home media gateways. Additionally, Arris has remarkably improved its position in the video content management segment also. Arris currently has a Zacks Rank #1 (Strong Buy).
The acquisition of the home businesses of Motorola Mobility, a division of Google Inc. (GOOG - Analyst Report), has helped Arris to attain a strong foothold in the high-speed video offerings and Internet delivery markets. The merged entity has a global presence with more than 500 customers in 70 countries. Further, this deal will strengthen Arris’ patent portfolio and provide a license to access several patents of Motorola Mobility.
With Motorola Mobility’s Cable Home business in its kitty, Arris is likely to become a formidable player in the video infrastructure and customer premises equipment for the cable TV industry.
Comcast Corp. (CMCSA - Analyst Report), the largest cable TV operator in the U.S., has launched Arris’ XG1 gateway for its next-generation X1 TV service. The XG1 gateway offers several utilities to X1 customers, including intuitive search, voice control, multi-screen facility and improved DVR experience.
Comcast is also deploying the E6000 Converged Edged Router of Arris, which will act as a powerful C4 cable modem termination system and can be converted into a Converged Cable Access Platform.
Why PACCAR Inc. Shares Popped 34% in 2013, and Why You Can Expect Bigger Gains Next Year
Big Idea 2014: The Age of Gas
December 23, 2013
1,393 36 Likers7 Comments
This post is part of a series in which LinkedIn Influencers pick one big idea that will shape 2014. See all the ideas here.
Natural gas has been important to human progress since the beginning of the industrial age, but it could never hope to overtake oil and coal given the competitive advantages those fuels possessed. Until now.
It is the dawn of the age of gas and 2014 will be a defining year.
There are only a few certainties in this world, one of them is we will always need more energy tomorrow than we have today. We have to find it from a greater array of sources than we have in the past. And right now gas is positioned to be the most viable solution to the world’s ever-rising energy demand.
Technological innovations have made possible the production of unconventional gas and the expansion of diverse networks connecting supply and demand on an unprecedented scale. If we have the will to make it happen, this cleanest of hydrocarbon fuels can compete in the global energy market as successfully as oil or coal and be an important driver of productivity and economic growth. Also its flexibility allows gas to complement renewables, balancing intermittent renewable energy supplies for when the wind is not blowing.
In 2012, global gas consumption was equivalent to 63 million barrels of oil per day, or approximately 70% of oil demand. In GE’s Age of Gas forecast, we project natural gas will supply 26% of the world’s primary energy needs by 2025, with much of that growth driven by the greatly increased use of gas to generate electricity. That’s a 36% increase in demand.
We have to make the right decisions today that will give gas its competitive advantage. Those decisions must include greater cooperation between public and private sectors to increase investment in and improve the regulatory environment for innovation, transportation and power generation, and greater international cooperation to expand and trade across gas networks.
We see four catalysts to realizing the full potential of the age of gas.
First, unleash the innovators. We have to make the necessary investments in innovation and create a network of innovators that will develop new technologies to drive down costs, increase productivity and increase speed to market.
Second, keep it clean. Natural gas will reach its full potential only if it is extracted, transported and used following best practices to ensure sustainability. We have to adapt to the lessons of the past and invest in the technology of the future to keep gas part of the solution to our environmental problems, not one of their causes.
Third, build the service ecosystems, the support services and infrastructure necessary to deliver gas to where it’s most needed and integrate transportation networks to speed gas to market reliably, quickly, efficiently, and cleanly.
Finally, harness the power of digital networks using big data to increase productivity and efficiency. GE is making a big investment in the industrial internet – connecting brilliant machines with people at work and data analytics to create more intelligent infrastructure and drive outcomes for our customers faster. We’re creating intelligent operations across the gas supply chain -- extraction, pipelines, power generation – that greatly improve monitoring, diagnostics and predictive maintenance.
We believe these four catalysts are indispensible to seizing the extraordinary opportunities the Age of Gas presents; opportunities to completely redefine the energy landscape; to give consumers and businesses much greater access to affordable, cleaner and more secure energy; to make the world more productive, prosperous, and healthier. We have our work set out for us in 2014.
Featured on:Big Ideas 2014
Posted by:Jeff ImmeltJeff Immelt
Kinder Morgan Energy to Buy Two Jones Act Tanker Fleets
Pipeline operator Kinder Morgan Energy Partners LP said it would buy two tanker companies from affiliates of Blackstone Group and Cerberus Capital Management for $962 million to expand its crude and refined products transportation business.
American Petroleum Tankers has a fleet of five product tankers, while State Class Tankers has ordered four. The vessels are scheduled to be delivered in 2015 and 2016.
Kinder Morgan will invest about $214 million to complete their construction, the company said.
The two companies ship crude oil, condensate and refined products in the United States and comply with the Jones Act, a U.S. law requiring all ships moving between U.S. ports to be U.S.-owned, U.S.-made and U.S.-crewed.
"This is a strategic and complementary extension of our existing crude oil and refined products transportation business," said John Schlosser, a Kinder Morgan executive.
The deal is expected to add to the cash available to Kinder Morgan unitholders in the first quarter of 2014, when it is likely to close.
Kinder Morgan units closed at $79.26 on the New York Stock Exchange on Friday.
Dec. 20 (Bloomberg) -- Gerry Wang, chief executive officer of Seaspan Corp., a Hong Kong-based, New York-listed container ship operator, talks about the company's business outlook. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)
Funds buy shipping loans from capital-conscious banks
Wed, Dec 18 2013
* Upturn in trade draws investors interest to shipping
* Some buy ships, secondary debt also offered by banks
* Pressure for capital pushes banks to sell on ship loans
By Jonathan Saul
LONDON, Dec 18 (Reuters) - After a five-year slump in shipping, investors are betting on better times by taking over shipowners' debts from European banks keen to offload troubled loans to bolster their balance sheets.
Forecasts of a pick-up in world trade in goods, after the worst slide in decades helped drive some major shipping firms to the wall, are driving interest from hedge funds and others, while pressure on European banks to satisfy new capital regulations next year has created a pool of willing sellers.
With the World Trade Organization forecasting growth of 2.5 percent for 2013 and 4.5 percent next year in merchandise exports - 90 percent of which go by sea - some investors have also been buying ships. But, for many, buying the paper debts of shipping firms offers a more flexible, liquid asset.
Several sources in shipping finance cited Britain's Royal Bank of Scotland and Lloyds Banking Group and Germany's Commerzbank and HSH among European banks seeking to sell loans to the shipping trade as part of strategies to strengthen their balance sheets.
"Shipping loans ... are easy to trade since there is no need to get operational," said ship finance adviser Basil Karatzas in New York. "More banks will be shopping the market early next year to see what they can get for parts of their portfolio and if the price is right, they will sell."
Noting a turn in sentiment over the past six months, he added: "Now it seems that most of the people agree that the market is in cyclical recovery and better get in now before you miss the boat."
Ship finance sources said that in recent weeks Lloyds has sold $500 million of shipping loans to U.S. hedge fund Davidson Kempner Capital Management. Both firms declined comment. Lloyds has also offloaded other parts of its shipping portfolio discreetly to other banks, the shipping sources said.
The sources also said that RBS has sold one $800-million shipping loan to U.S. private equity houses Oaktree Capital Management and Centerbridge Partners. Oaktree and RBS declined to comment. Centerbridge could not be reached.
Ship financing sources said recent sales of debt to private equity firms had priced shipping company loans at around a 15- to 20-percent discount to their nominal value.
Some borrowers have gone bankrupt in the slump but those whose loans are being traded are generally in fair shape. But some have had difficulties meeting payments, prompting some banks to try and cut exposure to the whole shipping sector.
"If you are looking at buying shipping portfolios, it is a fantastic time. A lot of those deals were restructured in 2010 and 2011 and last year," said one shipping financier who said buyers could expect to hold the debt to maturity without a major risk of default.
"All you have to do is run down those portfolios and get paid on that debt and generate a return that way."
With a scarcity of other investments offering good returns in a period of easy money, shipping is now a tempting bet, along with some other classes of debt banks want to offload.
"Hedge funds are shooting in this environment today for single-digit to low-double digit returns," said Jasvinder Khaira, principal with top global alternative asset manager Blackstone, which is active in shipping investments.
A surge in the main sea freight rate index at London's Baltic Exchange, has also helped sentiment. The BDI has pushed above 2,000 for the first time since 2011, well above a record low of 663 recorded in December 2008.
Commerzbank said this week it had signed a deal with an affiliate of Oaktree for the sale of a credit portfolio of 14 chemical tankers. The non-performing loans totalled 280 million euros, the bank said, giving no details.
In November, Oaktree's managing principal John Frank told analysts that financial regulators had identified shipping and real estate loan portfolios as "problem areas" for banks, creating an opportunity for those willing to take them over.
"We are hopeful this flow will continue our increase as European banks make additional provisions," he said.
With asset values expected to rise as confidence returns, buyers are also placing orders at yards for ships or picking up second-hand vessels aiming to sell them as the assets appreciate. York Capital Management and Oaktree are among funds that have formed tie-ups with ship companies to manage vessels.
In one recent case, ship finance sources said U.S. agribusiness group Cargill, which ordered several bulk carriers from China earlier this year in a joint venture, sold on three of them for $57 million each - a quarter more than they cost.
Declining to confirm details of the deal, a spokesman for Cargill said: "We indeed ordered vessels because it made good business sense. But we do not intend to become long-term ship owners."
U.S. private equity firm Tennenbaum Capital Partners said it was looking for assets, particularly in the dry bulk and chemical tanker sectors, together with bank loan portfolios.
"The shipping industry currently offers a unique opportunity to invest at historically cheap valuations and our firm is evaluating a number of compelling deals," said Tennenbaum director Timothy Gravely.
George Logothetis, chief executive of private conglomerate Libra Group, cautioned that the recovery was still tentative.
"It has been a very severe crisis and it is an early stage of recovery," said Logothetis, whose shipping unit Lomar has spent $1.1 billion on buying 73 ships over the past four years.
Calling the recent activity in the market a "buying frenzy", he added: "A lot of money has come into shipping in the last three months."
The risks of premature investment are clear.
Shipping financiers point to one asset management firm, for example, which they calculate has lost out on buying tankers for $70 million apiece about two years ago that are worth just $52 million today - a 26 percent loss.
However, financiers estimate some hedge funds have already recorded gains on shipping assets they have bought this year.
For shipping firms which find themselves in debt to a new type of creditor, however, the trend in loan sales may bring concerns that hedge fund managers will prove less patient than the banks have been if payments fall behind schedule.
"The way the funds will be looking at these situations is not yet known," Michael Bodouroglou, chief executive of Paragon Shipping, said of the trend across the sector. "I am not sure they will adopt the same corporate attitude of banks." (Additional reporting by Arno Schuetze in Frankfurt; Editing by Alastair Macdonald)
U.S. Fuel Sales to Asia Poised for Record in Shale Boom: Freight
By Alaric Nightingale - Dec 10, 2013
The biggest U.S. oil boom in almost a quarter century is prompting refiners in the Gulf of Mexico to book the most tankers since at least 2011 to ship products to Asia, signaling a monthly record in cargoes.
Freight traders hired vessels to load 965,000 metric tons of refined fuels in the spot market in the four weeks ended Dec. 8, charters compiled by Bloomberg News show. That’s 56 percent more than the peak a year ago, when a surge in bookings correctly presaged unprecedented exports. Oil-product tanker rates are heading for the highest annual level since 2008.
U.S. crude production is rising as the nation taps reserves held in shale-rock formations, changing America’s role in energy trading because of laws that require it to be refined for export. Asia-bound cargoes of refined oil products were about a third higher in the first nine months, Energy Department data show. The region will expand at more than three times the pace of the global economy this year, according to economist estimates compiled by Bloomberg.
“We expect that shift in trade flows to continue longer term as U.S. products become more competitive globally,” said Jonathan Chappell, an analyst at Evercore Partners in New York, whose shipping-stock recommendations returned 16 percent in the past year. “Those flows are occurring because U.S. feedstock is increasingly cheap relative to international crudes.”
The surge in production from shale helped reverse 22 annual contractions in total U.S. crude output during the 23 years to 2008, Energy Department data show. The nation’s domestic supply rose to the highest in more than a decade during the mid-1980s, boosted by shipments from fields in Alaska that surged from 1977 and peaked in March 1988.
U.S. refineries buying West Texas Intermediate, the benchmark crude for North America, are paying $11.75 a barrel less than European plants processing Brent, the European benchmark. Brent averaged $1.35 a barrel cheaper five years ago, when U.S. crude imports were 25 percent higher than now.
Cheaper feedstock prices are helping U.S. plants to export more cargoes and driving up freight rates for owners including Scorpio Tankers Inc. (STNG), a Monaco-based company that’s placed the most orders for new ships. Product tankers earned an average of $12,645 a day since the start of January, 18 percent more than in 2012, and rates are heading for the highest since 2008, according to Clarkson Plc, the world’s largest shipbroker.
Shares of Scorpio rose 55 percent to $11.05 in New York trading this year. They will advance a further 23 percent in the next 12 months, according to the average of 10 analyst estimates compiled by Bloomberg. The company operates 20 product tankers and has ordered 50 more, Clarkson data show.
“This is a very favorable confirmation for increase in ton miles on product tankers,” Scorpio President Robert Bugbee said by phone, referring to a demand measure multiplying cargoes by voyage distances. “It sets the stage as we enter the seasonally strong winter market. U.S. Gulf exports to all destinations are continuing to rise.”
The rally in freight rates could be curbed because economic growth is slowing in Asia, the continent accounting for at least 38 percent of seaborne demand for oil products. The region’s economic expansion will drop to 6.3 percent next year from 6.4 percent in 2013, economist estimates compiled by Bloomberg show.
The second-largest source of demand is Europe, where growth remains below the global average. The economies of the 17-nation euro area will contract 0.4 percent this year, improving to a 1 percent expansion in 2014, economist forecasts compiled by Bloomberg show. The global economy will expand 2.8 percent next year, the estimates show.
Owners must also contend with a 27 percent expansion in the fleet of product tankers since 2008, a period in which sea trade in refined petroleum increased by 17 percent, according to Clarkson data compiled by Bloomberg.
The increase in rates to haul oil products is being mirrored across other parts of the shipping industry, where a surge in fleet growth over the past several years is now starting to slow. The ClarkSea Index, a measure of earnings for all vessel types, rose 31 percent to $15,189 a day since the end of August, according to Clarkson data.
The biggest tankers transporting crude oil are earning almost $50,000 a day, close to the highest in 3 1/2 years, according to the Baltic Exchange in London, a publisher of freight costs on more than 50 maritime routes.
That expansion is also being strengthened by Asian imports. Traders hired enough carriers in the spot market from owners including Frontline Ltd. (FRO) and Mitsui O.S.K. Lines Ltd. to load 35.9 million tons of crude in the four weeks ended Nov. 24 and ship it to Asia, according to data compiled by Bloomberg from broker reports.
The shipments, the largest this year, expanded 53 percent since the end of August, during which time a glut of shipping capacity in the Persian Gulf shrank by about the same amount.
Capesize ships that transport most of the world’s seaborne iron ore made $25,298 a day since the start of October, on course for the highest quarterly average in two years, Baltic Exchange data show. Supramax ships hauling everything from fertilizers to coal to grains have risen for 59 consecutive days, the longest rally in 6 1/2 years.
For product-tanker owners, the supply of U.S. cargoes is helping boost demand. The nation’s exports will represent about 13 percent of seaborne demand for the ships this year, up from 7.6 percent five years ago. Global shipments will advance 4.2 percent next year, faster than a 3 percent expansion in the fleet, Clarkson predicts.
Rates for the three main types of product tanker will advance next year, according to analyst estimates compiled by Bloomberg News. The biggest gain will be for Large Range 2 tankers, which are often used to haul cargoes between continents. They will earn an average of $18,000 a day next year, 17 percent more than in 2013, according to the average of eight forecasts.
Scorpio will earn $87.9 million next year, four times its income this year, according to the average of 21 analyst estimates. Other investors include Wilbur Ross, the billionaire founder of WL Ross & Co., who was part of a group that spent $900 million on 30 product tankers in 2011. John Fredriksen, the richest ship owner, is building his biggest fleet of products tankers ever. Funds controlled by Blackstone LP, the biggest manager of alternative assets, are buying the ships.
The largest growth in cargoes to Asia this year has been naphtha to Taiwan and distillate fuels including gasoil and diesel to Singapore, Energy Department data show. Naphtha can be used as a feedstock to make petrochemicals or as a building block for gasoline.
The U.S. has a surplus of naphtha because surging output of light crude oil and natural-gas liquids leads refiners to produce lighter products, according to Hart Energy Research & Consulting, a Houston-based research company.
Naphtha supply on the Gulf Coast, the nation’s largest refining region, will expand by 500,000 barrels a day while demand falls by as much as 100,000 barrels a day in the next seven years, Hart Energy estimates.
“We see the U.S. as having surplus volumes of naphtha going forward,” said Christian Waldegrave, research manager at Teekay Corp., a company that owns oil tankers, LNG carriers and vessels serving the offshore oil industry. “The U.S. has emerged as a pretty major products exporter. Most of it stays in the Atlantic, but increasingly, we are seeing cargoes going across to Asia.”
Analysis: Some Cisco investors urge an exit from set-top box unit
By Sinead Carew
NEW YORK (Reuters) - Cisco Systems Inc Chief Executive John Chambers is facing growing pressure from investors to exit its television set-top box business, where revenue has been plummeting and profit margins trail the rest of the company.
The problem is that there are few obvious buyers for the unit - the former Scientific Atlanta that Cisco bought for $6.9 billion in 2005 - so Chambers might have no choice but to close the business, analysts said.
Cisco stunned the market on November 13 by warning that revenue would fall as much as 10 percent this quarter and keep declining for several quarters. It blamed everything from emerging economy weakness and political backlash in China to company-specific problems, such as market share losses in network equipment and declining sales in set-top boxes.
Investors are hoping Chambers gives a clear break-down of the individual impact of all these problems at Cisco's Financial Analysts Conference on Thursday.
But for many, the ailing set-top box business has emerged as a particular sore spot. Raymond James analyst Simon Leopold said it could represent as much as a third of Cisco's roughly $1 billion revenue miss for its current quarter.
The unit, which generates roughly 5 percent of total revenue, had a 20 percent decline in sales in Cisco's first fiscal quarter ended in October. And Chambers has warned that the decline in this business would continue for "a number of quarters," but did not say when it might improve.
With such a bleak outlook, it might be time for the company to move on from the "past its prime" set-top box business, said Peter Karazeris, an analyst at Thrivent Asset Management, which holds 4 million Cisco shares among its $82 billion in managed assets.
"I'd like to see more definitive action there," said Karazeris, who sees a strategy change as a potential boost for the stock at a time when Cisco investors have little to look forward to. "I think this is diluting the attention."
However, Karazeris said it is not clear how exactly Cisco should move on from the business, whether it could find a buyer or should just shut it down.
Since its November warning, Cisco shares have fallen more than 11 percent compared with a 2 percent increase in the Nasdaq composite index. The shares of smaller network equipment rival Juniper have risen almost 12 percent in the same period.
Cisco bought Scientific Atlanta to enter the business of set-top boxes, which are connected to TV sets to receive and unscramble digital signals, and can also support services such as video on demand.
But this past February, Cisco said it had started to forgo sales of less profitable set-top boxes and was instead seeking higher margin business from video service providers. At best, traditional set-top boxes offer roughly half the gross profit margins Cisco seeks to maintain company wide.
Cisco has said so far that it will keep offering set-top boxes to big customers who want a whole package of products and services, but it will focus primarily on supporting so-called cloud-based video services.
Cloud-based services, which can include mobile video access and digital video recording, rely on high-end equipment on the operator's network rather than the set-top boxes inside consumer homes. But such services are nascent, so it is unclear when they will bear fruit.
In the meantime, Cisco has let sales dwindle at the set-top box business, which has $2.6 billion in annual revenue, as it instead favors products that can help achieve its target non-GAAP gross margins of 61 percent to 62 percent.
Since set-top boxes only generate profit margins in a range of 25 percent to 30 percent, according to Needham & Co analyst Richard Valera, there might be no way for Cisco to keep selling these products if it is to maintain its goals.
"The only way for them to fix it is to effectively walk away from that business," said Valera, who sees no chance of an uptick in set-top box margins, which he says are "fundamentally incompatible with the business model they want."
NOT A CORE BUSINESS
Valera said Cisco's biggest rival Arris Group Inc would be unlikely to have the capacity to buy the business as it spent $2.35 billion buying Motorola's set-top box business from Google Inc in April.
If Cisco's unit were to command a valuation that was similar to the Motorola deal, it would fetch just $1.8 billion, well below the 2005 Scientific Atlanta purchase price.
Arris led the global market in 2012 followed closely by Cisco, then U.K.-based Pace Plc and Echostar Corp ahead of South Korea's Samsung Electronics Co Ltd, according to data from market research firm IHS.
One person familiar with Cisco said set-top boxes are not a core business for the company, and noted that Cisco has shown a willingness to step away from businesses that did not fit in with its bigger strategy in the past. The person cited its 2011 shutdown of its Flip video camera business, acquired just two years earlier for $590 million.
Some investors still hope Cisco can turn around the set-top business, but they want answers sooner rather than later.
"They've been kicking the can down the road on that one," said Scott Rodes, an analyst at investment firm Bahl & Gaynor Investment Counsel Inc.
He wants more details about Cisco's prospects in cloud services and its intentions for the existing business. His firm holds about 4.79 million Cisco shares.
Peter Tuz, President at Chase Investment Counsel Corp, which has under 10,000 shares of Cisco in its $520 million assets under management, said "traditional set top boxes will be challenged going forward" as consumers switch to online video.
Tuz added that Cisco should put the unit, "on a fairly short leash, give it another year or so, then take action if it is determined it can't grow or produce decent returns going forward."
(Additional reporting by Nicola Leske. Editing by Andre Grenon)