Where has all the funding gone?Simon Deefholts Director, Global Shipping, HSBC Bank plc
DATE: May 2010
2
0
20
40
60
80
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
USDbn
0
100
200
300
400
No.
Deal value No. of loans
Global shipping loan volumes
Source: Dealogic
2005-2008 = USD71bn
2000-2008 = USD39bn
Average per annum
3
First quarter global shipping loan volume
0
5,000
10,000
15,000
20,000
25,000
1Q 2005 1Q 2006 1Q 2007 1Q 2008 1Q 2009 1Q 2010
USDm
0
20
40
60
80
100
No. of deals
Volume No. of dealsSource: Dealogic
4
Cumulative bank debt in shipping
Selective 2005, 2008 & 2009 shipping portfolio sizes
29
.5
20
.6
14 1
7.5
12
.6
4.5
8.9
7.9
6.2
58
.0
44
.8
36
.0
30
.0
19
.5
12
.0 14
.6
11
.3
11
.3
49
.3
33
.3
28
.0
23
.0
18
.4
18
.0
13
.1
11
.3
9.5
0
10
20
30
40
50
60
70
HSHNordbank
DeutscheSchiffsbank
DnB NOR RBS Nordea BNPParibas
DVB Danish ShipFinance
DeutscheBank
2005 2008 2009Source: Marine Money, HSBC estimates
USDbn
5
The orderbook during 2009
Post cancellations ?Global Shipping orderbook
Source: HSBC estimates
US$500bn US$350bn ?
Over 3.5 years Over 5 years
Annual capital needed US$100bn US$70bn
Annual debt requirements (assuming LTV 60%)
US$60bn US$40bn
6
Show me the money!
Bank debt 2010Global Shipping Bank debt today
$500bn$500bn $475bn$475bn
+ commitments$75bn
- amortisation ($70bn pa)$100bn
Source: HSBC estimates
7
Closing the funding gap
Cancellation and deferral of orders
Private equity / distressed funds
Vendor financing / ECA backed transactions
Equity Capital Markets
Debt Capital Markets
8
Equity Capital Markets for shipping
Initial public offerings
Rights issues
Private placement of shares
Hybrid instruments (convertible bonds)
9
Shipping, Offshore and Cruise issues 2010: Public offerings
Company Date Status Listing Size
Seadrill (Dual listing) Apr-10 Completed NYSE -
Alma Maritime Mar-10 Pulled NYSE -
Baltic Trading Mar-10 Completed NYSE USD228m
Golden Ocean (Dual listing) Mar-10 Completed Singapore -
Knutsen Offshore Tankers Mar-10 Pulled / Delayed Oslo -
OSX Brasil Mar-10 Completed Sao Paulo USD1.6bn (BRL2.8bn)
Scorpio Tankers Mar-10 Completed NYSE USD163m
Crude Carriers Corp Mar-10 Completed NYSE USD257m
Source: Marine Money, Bloomberg
10
Company Target date Status Listing Target size
Greatship 2010 In progress Bombay -
NOR Offshore Jun-10 In progress Singapore -
Norskan Jul-10 In progress Sao Paulo -
Primelead / Ocean Rig 2010 In progress NYSE -
Seacube Container Leasing (Seacastle) 2010 In progress NYSE USD165m
Sovcomflot 2010/11 In progress LSE -
Wilhelmsen Jun-10 In progress Oslo USD400m
Shipping, Offshore and Cruise issues 2010: Public offerings (cont’d)
Source: Marine Money, Bloomberg
11
Shipping, Offshore and Cruise issues 2010: Private placements
Company Date Status Listing Size
Gaia Maritime Jun-10 On hold Oslo USD100m
Ridgebury Tankers May-10 Completed NYSE USD225m
Diana Apr-10 Completed - USD33m
Saga Tankers Apr-10 Completed Oslo USD120m
Seadrill Ltd Apr-10 Completed Oslo USD322m
Source: Marine Money
12
Shipping, offshore and cruise issues 2009: Rights issues
Issuer: Neptune Orient Lines
Type of offering: Renounceable rights issue
Size: S$1.437bn / USD972m
Pricing Date: 02 June 2009
Rights ratio: 3 rights share for every 4 existing shares
Offer price: S$1.30
Reference price: S$1.53
TERP: S$1.43
Offer price discount: 15% of the closing price
Lead manager & Underwriters: HSBC, J.P. Morgan, Morgan Stanley
Neptune Orient Lines successfully raised a S$1.437bn rights issue despite the challenging market conditions in mid 2009
Guts of the deal
13
Debt Capital Markets for shipping:Horses for courses
Euro bond market
US bond market
Convertible bond market
NOK bond market
Islamic bond market
14
Corporate yields and spreads have tightened
Source: Navigator, Bloomberg
Non Financial BBB Spread and Yield
0
1
2
3
4
5
6
7
8
9
10
Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10
%
0
50
100
150
200
250
300
350
400
450
EUR Non-Financials BBB Yield (LHS) 5yr Euro Swap rate (LHS) EUR Non-Financials BBB Spread (RHS)
bps
15
Shipping, offshore and cruise issues: US high yield
Issuer Issued CurrencyAmount
(m)Type
Coupon (%)
Maturity
OSG Mar-10 USD 300 Snr Unsec 8.125 Mar-18
American Petroleum Tankers
Mar-10 USD 275 Snr Sec 10.25 Mar-15
United Maritime Dec-09 USD 300 Snr Sec 11.875 Apr-15
NCL Nov-09 USD 450 Snr Sec 11.75 Nov-16
Navios Nov-09 USD 400 Snr Sec 8.875 Nov-17
General Maritime Nov-09 USD 300 Snr Unsec 12 Nov-17
Trico Shipping AS Oct-09 USD 400 Snr Sec 11.875 Nov-14
Hercules Offshore Oct-09 USD 300 Snr Sec 10.5 Oct-17
Seacor Holdings Sep-09 USD 250 Snr Unsec 7.375 Oct-19
Hornbeck Offshore Aug-09 USD 250 Snr 8.00 Aug-17
Commercial Barge Line Jul-09 USD 200 Snr Sec 12.50 Jul-17
Royal Caribbean Jun-09 USD 300 High Yield 11.875 Jul-15Source: Marine Money
16
Shipping, offshore and cruise issues: US high yield
Issuer: Overseas Shipholding Group
Issue rating: Ba3/BB-
Size: USD300m
Pricing Date: 30 March 2010
Maturity: 30 March 2018
Spread: MS+205bps (B+236.8bps)
Coupon: 8.125%
Listing: New York
Bookrunners: HSBC, Citi and Morgan Stanley
Overseas Shipholding Group successfully raised USD300m senior unsecured high yield notes in March 2010
Guts of the deal
17
Shipping, offshore and cruise issues: Global debt capital markets
Issuer Issued Currency Amount (m) Type Coupon (%) MaturityDryShips Apr-10 USD 240 Convertible 5.00 Nov-14
Frontline Mar-10 USD 225 Convertible 4.50 Mar-15
Stena Mar-10 EUR 200 Euro high yield 7.88 Mar-20
Pacific Basin Mar-10 USD 230 Convertible 1.75 Mar-16
DryShips Inc Nov-09 USD 400 Convertible 5 Nov-14
Ezra Oct-09 USD 100 Convertible 4 Nov-14
APMoller-Maersk Oct-09 EUR 750 Eurobond 4.875 Oct-14
Euronav Sep-09 USD 150 Convertible 6.5 Jan-15
Seadrill Sep-09 USD 500 Convertible 4.875 Sep-14
Subsea 7 Sep-09 USD 275 Convertible 3.5 Oct-14
MISC Sep-09 MYR 1,000 Islamic MTN 2.57-3.48 1/2/3 yr
MISC Jul-09 MYR 1,000 Islamic MTN 2.80-3.63 1/2/3 yrSource: Marine Money
18
Shipping, offshore and cruise issues: Norwegian bond markets
Issuer Issued Currency Amount (m) Coupon (%) Maturity
J Lauritzen Apr-10 NOK 700 10.50% Apr-15
Aker Drilling Apr-10 NOK 500 NIBOR+4.0% Apr-13
REM Offshore Jan-10 NOK 300 N/A Nov-15
Bonheur ASA Dec-09 NOK 1,000 NIBOR+4.50% Dec-14
APMoller-Maersk Nov-09 NOK 2,000 NIBOR+1.85% Nov-14
APMoller-Maersk Nov-09 NOK 2,000 6.25% Nov-16
Odfjell Nov-09 NOK 500 NIBOR+4.75% Dec-13
Solstad Offshore Nov-09 NOK 700 NIBOR+5.0% Dec-14
Wilhelmsen Oct-09 NOK 600 9.0% Nov-16
Seadrill Oct-09 NOK 800 NIBOR+2.75% Nov-11
Source: Marine Money
19
Shipping, offshore and cruise issues: Eurobond markets
Issuer: A.P.Moller-Maersk A/S
Issue rating: Not rated
Size: EUR750m
Pricing Date: 23 October 2009
Maturity: 30 October 2014
Spread: MS+205bps (B+236.8bps)
Coupon: 4.875%
Listing: Copenhagen & Luxembourg
Bookrunners: HSBC, JP Morgan, Nordea, ING, Danske Bank
AP Moller-Maersk chose the Eurobond market for their EUR750m inaugural issue
Guts of the deal
20
Shipping, offshore and cruise issues: Convertible bonds
Issuer Issued Currency Amount (m) Coupon (%) Maturity
DryShips Inc Apr-10 USD 240 5.00 Nov-14
Pacific Basin Shipping Mar-10 USD 230 1.75 Mar-16
Frontline Mar-10 USD 225 4.50 Mar-15
DryShips Inc Nov-09 USD 400 5.00 Nov-14
Ezra Oct-09 USD 100 4.00 Nov-14
Euronav Sep-09 USD 150 6.50 Jan-15
Seadrill Sep-09 USD 500 4.875 Sep-14
Subsea 7 Sep-09 USD 275 3.50 Oct-14
Source: Marine Money
21
Shipping, offshore and cruise issues: Convertible bonds
Euronav successfully closed a USD150m 6.50% 2015 convertible bond issue in September 2009
Size: USD150m
Status: Senior, unsecured
Maturity: 31-Jan-15 (5.4 years)
Issue/redemption price: 100%
Coupon / YTM: 6.50% semi annual
Conversion premium: 25%
Conversion price: EUR16.28
Call option: After 31-Jan-2013 subject to 130% hurdle
Dividend: Via conversion ratio adjustment for any dividend above dividend threshold
Sole bookrunner: HSBC
Co-manager: ING
Guts of the deal
22
Shipping, offshore and cruise issues: Convertible bonds
Pacific Basin Shipping successfully closed a USD230m 1.75% 2015 convertible bond issue during 1Q 2010
Size: USD230m
Pricing date: 4 March 2010
Maturity: 4 March 2016
Issue/redemption price: 100%
Coupon / YTM: 1.75% semi annual
Conversion premium: 27%
Conversion price: HK$7.98
Call option: After 4 years subject to 130% trigger
Put option: On 4th anniversary at 100%
Bookrunners: HSBC
Guts of the deal
23
Shipping, offshore and cruise issues: Islamic bonds
Issuer Issued Currency Amount (m) Type Coupon (%) Maturity
MISC Sep-09 MYR 1,000 Islamic MTN 2.57-3.48 1/2/3 yr
MISC Jul-09 MYR 1,000 Islamic MTN 2.80-3.63 1/2/3 yr
BLT May-09 IDR 400,000 IDR Bond 14.25-16.25 1/3/5 yr
BLT May-09 IDR 100,000 IDR Islamic Bond 15.50-16.25 3/5 yr
Source: Marine Money
24
Why bother with accessing bond markets?
The cost differential with bank debt markets has narrowed
Potential for longer tenor
Unsecured terms for non-investment grade issuers
Fixed rate available
Fees can refresh bank lending appetite
25
Timing is everything
Issuer: BW Group Limited
Size: USD500m
Issue Ratings: Baa3 (Moody’s) / BBB- (S&P)
Pricing Date: 21st June 2007
Maturity: 28th June 2017
Coupon: 6.625%
Issue Price/Yield: 99.460% / 6.700%
Spread: USD M/S + 95bps / CT10 + 155.75bps
Listing: Singapore Stock Exchange
Bookrunner: HSBC, Morgan Stanley
BW Group’s USD500m inaugural issue in June 2007 was the last shipping bond successfully issued before the market closed down
Guts of the deal
26
Conclusions
Shipping companies have returned to the Equity Capital Markets and the Debt Capital Markets with a volume of issues not seen during the past decade
Wide range of alternatives open to shipping companies, depending on their specific characteristics
Important to team up with an adviser which has a global perspective and enter into early discussion to consider which market is most appropriate for your company
Selecting one of your core lending banks as adviser can potentially increase your bank borrowing capacity (double win)
27
HSBC’s selected shipping transactions
Undisclosed
Advisor to Qatar Navigation and Qatar Shipping on the merger of both companies
Lead Consultant
April 2010
MYR1.0bn
Islamic Medium Term Notes
Joint Lead Manager and Bookrunner
September 2009
USD500.0m
Convertible Bond5 years4.875% semi-annual coupon
Co-Manager
September 2009
€750.0m
Fixed-rate Notes5 years4.875% coupon
Joint Lead Manager
October 2009
USD1.3bn
PEF – Project Finance Debt
Joint MLA
October 2009
USD500.0m
Fixed-rate Notes10 years5.5% coupon
Bookrunner, Joint Lead Manager and Sole Duration Manager
August 2009
US$4.1bn
PEF - Project Finance Debt/ Syndicated Loan
Mandated Lead Arranger
August 2009
USD125.0m
Convertible Bond 5 years6.5% coupon
Sole Bookrunner
September 2009
USD250.0m
High-Yield Bond10 years7.375% coupon
Co-Manager
September 2009
US$450.0m
144A Fixed-rate Notes7 years11.75%
Co-Manager
November 2009
USD972.0m
Rights Issue
Joint Lead Manager and Underwriter
June 2009
USD850.0m
Project financing of an ultra deepwater drillship due for delivery in 2011
Joint MLA
January 2009
MYR1.0bn
Islamic Medium Term Notes
Joint Lead Manager and Bookrunner
July 2009
US$230.0m
Convertible Bond 6 years1.75% coupon
Joint Bookrunner and Joint Placement Agent
March 2010
US$300.0m
Fixed-rate Notes 8 years8.125% coupon
Joint Bookrunner
March 2010
28
HSBC’s DCM capabilities
Euromarket Bonds 2010 YTD All Sterling issuance 2010 YTD International Bonds 2009
Source: Bloomberg official league tables
Best Global Debt House
2010 Best Bank Team in Euro by
Voted by borrowers
2010 Best High Yield Bank Team by
Voted by borrowers
2010 Best Bank Team in Sterling by
Voted by borrowers
2010 Best MTN Dealer by
Voted by borrowers
2010 Best Overall Corporate Bank Team by
Voted by corporate borrowers
Rank Bookrunner Amt (USDm) Iss. %Share
1 Barclays Capital 338,531 807 8.2
2 JP Morgan 270,675 754 6.5
3 Deutsche Bank 263,921 822 6.4
4 HSBC 253,594 863 6.1
5 Citi 228,115 589 5.5
6 RBS 225,665 714 5.4
7 BNP Paribas 205,549 667 5.0
8 Morgan Stanley 176,879 424 4.3
9 BoA ML 174,982 446 4.2
10 Goldman Sachs 163,461 385 3.9
Rank Bookrunner Amt (GBPm) Iss.%
Share
1 RBS 6,234.04 46 18.6
2 Barclays Capital 4,804.80 51 14.4
3 Deutsche Bank 4,271.61 23 12.8
4 HSBC 4,000.00 27 11.9
5 RBC Capital 3,144.46 17 9.4
6 JP Morgan 2,173.32 10 6.5
7 Nomura 1,701.25 6 5.1
8 UBS 1,469.53 7 4.4
9 Lloyds TSB 1,174.17 11 3.5
10 Goldman Sachs 832.50 7 2.5
Rank Bookrunner Amt (USDm) Iss. %Share
1 Deutsche Bank 64,751 266 7.9
2 HSBC 53,844 230 6.6
3 Barclays Capital 52,312 193 6.4
4 JP Morgan 47,304 214 5.8
5 BNP Paribas 46,722 202 5.7
6 Societe Generale 40,447 113 4.9
7 Credit Suisse 34,473 159 4.2
8 Credit Agricole 33,368 120 4.1
9 RBS 32,546 189 4.0
10 UniCredit Group 30,724 101 3.8
29
April 2010
€4.2 billionRights Issue -GermanyJoint Global Coordinator and Bookrunner
EMEA EquityOfferingsCredentials
December 2009
£13.5 billion
Rights Issue - UK
Joint Bookrunner
December 2009
€2.1 billion
Rights Issue -France
Joint Bookrunner
April 2009
US$952 million
IPO - Qatar
Joint Bookrunner
December 2009
US$1 billion
IPO - France
Co-Lead Manager
EMEA IPOsCredentials
March 2010
€748 million
IPO – Germany
Co-Lead Manager
April 2010
US$3 billion
IPO - Spain
Joint Lead Manager
Americas Equity Offerings Credentials
September 2009
US$1.5 bn
FO - US
Joint Bookrunner
June 2009
US$4.3 bn
IPO - Brazil
Co-Lead Manager
February 2010
US$150 million
FO - Brazil
Joint Bookrunner
HSBC is a major player in today’s equity capital marketsLeague tables: leading player in IPO and Rights issues
A leading Global player in ECM
EMEA IPOs 2008-2009
Bank US$m Issues Mkt
share1 JP Morgan 4,155 7
9.9%2 HSBC 3,674 10
8.7%3 Morgan Stanley 3,522 10
8.4%4 Samba Financial Group 3,242 3
7.7%5 Goldman Sachs & Co 3,065 9
7.3%6 Deutsche Bank AG 2,490 6
5.9%7 Credit Suisse 2,200 9
5.2%8 Citi 2,045 6
4.9%9 Banque Saudi Fransi 1,912 2
4.6%10 UBS 1,668 8
4.0%
EMEA Rights issues 2009-2010 YTD
Bank US$m IssuesMkt
share
1 JP Morgan 38,305 4822.5%
2 HSBC 20,523 1512.0%
3 Goldman Sachs & Co 14,361 118.4%
4 Credit Suisse 13,041 157.6%
5 UBS 10,381 236.1%
6 Deutsche Bank AG 10,218 226.0%
7 BoA Merrill Lynch 10,095 275.9%
8 Morgan Stanley 9,547 185.6%
9 BNP Paribas Group 7,562 214.4%
10 Citi 4,980 152.9%
Source: Bloomberg and Dealogic ranked by Global Co-ordinator or Bookrunner, includes Prudential rights issue
Asia Equity Offerings Credentials
November 2009
US$356 million
IPO - HK
Joint Bookrunner
June 2009
US$1,910 million
Sell Down
Joint Lead Manager
April 2010
US$500million
IPO - HK
Joint Bookrunner
Ongoing
US$21 billionRights Issue - UK
Joint Global Coordinator and Bookrunner