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Wednesday, 19 August 20
MARKET INSIGHT - GEORGE LAIOS | INTERMODAL
 Since the Covid-19 outbreak, governments and central banks around the globe have been using their ammunition and stimulus packages to keep their economies running. Trillions have been injected into global economies to fight unemployment and minimize recession. Apart from the central banks of EU, Japan, Switzerland, Sweden and Denmark, who have been offering negative rates for the past five years – a handful of central banks have now reduced their policy rates to near-zero values. Regardless of how successful or not the above mentioned five banks’ “experiment’’ has been, negative rates have undoubtedly made hedging strategies more complicated.
When it comes to the US Dollar, the Fed Chair has made it clear that negative rates are not part of its policy tools for the time being and that it is highly unlikely that rates will be pushed below zero. However, the US President has openly expressed that he views such a tool favourably. Although market experts do not expect negative Libor rates in the imminent future, no one can rule out the possibility of this happening.
These developments have had numerous effects on shipping companies who typically borrow using USD-Libor floating loans. The first and obvious outcome of lower Libor is the reduced borrowing cost. Whilst average 3-month LIBOR rates were 0.69%, 0.74% and 0.95% during the 2009, 2016 and 2020 (to date) recessions respectively, the 3-month LIBOR rate in July closed at 0.3% and has decreased approximately 6-fold since January (0.25%, as of 17/8). USD Libor loans have a zero lower bound limit which is incorporated by banks in their loan documentation (LMA) language: if Libor is less than zero “it will be deemed to be zero’’. This wording is also included in proposed documentation by the Alternative Reference Rates Committee, who is responsible for the development of Libor’s successor.
Low interest rates have also resulted in increased enquiries from bank clients who want to exploit their interest rate hedging options. Most shipping borrowers have decided not to hedge owing to the consensus that USD interest rates will not increase significantly over the next couple of years. Nevertheless, the number of shipping companies (mainly listed) that have engaged in hedging derivatives remain significant.
Under “normal” circumstances, a Cap or a SWAP for protection against an upward movement of interest rates would be the norm. However, nowadays it is essential to provision for negative interest rates. The borrower who hedges should bear in mind that USD Libor can also turn negative. Some banks even “encourage” clients to include a Floor in their SWAPS which will prevent base rates on their loans from dropping below zero. This limits the extent to which their derivatives can fall “out of the money”. Such protection comes at a premium. Indicatively, a 5 year SWAP is priced at 0.37 %, while the cost of a Floor is [10-30] bps. With rates expected to remain close to zero, the SWAP protection premium will continue to rise for as long as there are statements in favour of negative rates such as that of President Trump. However, whether the cost of protecting of a company’s future cash flows through the xyz premium is high or not is also a matter of perception and is reflective of one’s risk profile.
By George Laios
Deputy CEO, Intermodal Group
Compiled by:
Intermodal Research & Valuations
Analysts:
Ms Eva Tzima
Mr.George Panagopoulos
Disclaimer and legal disclosure: For any further queries please do not hesitate to contact our Research & Valuations Department. The information contained in this report has been obtained from various sources, as reported in the market. Intermodal Shipbrokers Co. believes such information to be factual and reliable without making guarantees regarding its accuracy or completeness. Whilst every care has been taken in the production of the above review, no liability can be accepted for any loss or damage incurred in any way whatsoever by any person who may seek to rely on the information and views contained in this material. This report is being produced for the internal use of the intended recipients only and no reproducing is allowed, without the prior written authorization of Intermodal Shipbrokers Co.
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Tuesday, 17 November 20
AUSTRALIAN COAL EXPORTS TO CHINA SLUMP, BUT PRICES ARE MIXED - REUTERS
China’s unofficial ban on coal imports from Australia is starting to take its toll on volumes, with departing cargoes down sharply so far in ...
Friday, 13 November 20
SHIPPING OUTLOOK TURNS STABLE ON EBITDA GROWTH, IMPROVING SUPPLY-DEMAND BALANCE - MOODY’S
Outlook revised to stable from negative.
The global shipping industry is on course to perform better overall than we had previously ex ...
Friday, 13 November 20
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Monday, 09 November 20
INDONESIA MAY CUT BIODIESEL USE TARGET AS SUBSIDY FUND DEPLETES - FITCH
The Indonesian government may rein in its push to increase use of biodiesel as it now comes at higher cost following a fall in crude oil prices and ...
Monday, 09 November 20
SOUTH AFRICA: COAL MARKET CONDITIONS HAVE ' DETERIORATED MATERIALLY' - IEEFA
The Asian seaborne thermal coal pool is drying out
Resource Generation Ltd’s proposed but long delayed Boikarabelo coal mine i ...
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- VISA Power Limited - India
- Energy Development Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Mintek Dendrill Indonesia
- Thiess Contractors Indonesia
- New Zealand Coal & Carbon
- Port Waratah Coal Services - Australia
- Savvy Resources Ltd - HongKong
- Wood Mackenzie - Singapore
- Leighton Contractors Pty Ltd - Australia
- Karbindo Abesyapradhi - Indoneisa
- Indonesian Coal Mining Association
- Heidelberg Cement - Germany
- McConnell Dowell - Australia
- Coal and Oil Company - UAE
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- Petron Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Sakthi Sugars Limited - India
- The State Trading Corporation of India Ltd
- Samtan Co., Ltd - South Korea
- Renaissance Capital - South Africa
- Siam City Cement PLC, Thailand
- Ministry of Mines - Canada
- Goldman Sachs - Singapore
- Ministry of Transport, Egypt
- Interocean Group of Companies - India
- AsiaOL BioFuels Corp., Philippines
- Posco Energy - South Korea
- Eastern Energy - Thailand
- Bayan Resources Tbk. - Indonesia
- Vedanta Resources Plc - India
- Kapuas Tunggal Persada - Indonesia
- Agrawal Coal Company - India
- TeaM Sual Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Oldendorff Carriers - Singapore
- Malabar Cements Ltd - India
- Australian Coal Association
- Madhucon Powers Ltd - India
- Baramulti Group, Indonesia
- Meenaskhi Energy Private Limited - India
- PNOC Exploration Corporation - Philippines
- Bhoruka Overseas - Indonesia
- San Jose City I Power Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- Chamber of Mines of South Africa
- Sojitz Corporation - Japan
- Antam Resourcindo - Indonesia
- Directorate Of Revenue Intelligence - India
- Dalmia Cement Bharat India
- Asmin Koalindo Tuhup - Indonesia
- Metalloyd Limited - United Kingdom
- Anglo American - United Kingdom
- GMR Energy Limited - India
- Power Finance Corporation Ltd., India
- Vizag Seaport Private Limited - India
- The Treasury - Australian Government
- Chettinad Cement Corporation Ltd - India
- Latin American Coal - Colombia
- Kobexindo Tractors - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Wilmar Investment Holdings
- Aboitiz Power Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- PowerSource Philippines DevCo
- Bahari Cakrawala Sebuku - Indonesia
- International Coal Ventures Pvt Ltd - India
- Thai Mozambique Logistica
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tamil Nadu electricity Board
- Orica Mining Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- Edison Trading Spa - Italy
- Indika Energy - Indonesia
- Mercator Lines Limited - India
- Pendopo Energi Batubara - Indonesia
- Indian Oil Corporation Limited
- Vijayanagar Sugar Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Banpu Public Company Limited - Thailand
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Eastern Coal Council - USA
- Makarim & Taira - Indonesia
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Simpson Spence & Young - Indonesia
- GVK Power & Infra Limited - India
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- Marubeni Corporation - India
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Kideco Jaya Agung - Indonesia
- Attock Cement Pakistan Limited
- Jaiprakash Power Ventures ltd
- SMG Consultants - Indonesia
- IEA Clean Coal Centre - UK
- LBH Netherlands Bv - Netherlands
- London Commodity Brokers - England
- Bukit Baiduri Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Larsen & Toubro Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tata Chemicals Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Therma Luzon, Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- Global Green Power PLC Corporation, Philippines
- Rio Tinto Coal - Australia
- Mercuria Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Krishnapatnam Port Company Ltd. - India
- Salva Resources Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Gujarat Mineral Development Corp Ltd - India
- Coalindo Energy - Indonesia
- Meralco Power Generation, Philippines
- Deloitte Consulting - India
- Maheswari Brothers Coal Limited - India
- Iligan Light & Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- Africa Commodities Group - South Africa
- Holcim Trading Pte Ltd - Singapore
- Ministry of Finance - Indonesia
- Essar Steel Hazira Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- Manunggal Multi Energi - Indonesia
- Standard Chartered Bank - UAE
- Global Business Power Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Siam City Cement - Thailand
- Lanco Infratech Ltd - India
- Commonwealth Bank - Australia
- Romanian Commodities Exchange
- Economic Council, Georgia
- Aditya Birla Group - India
- White Energy Company Limited
- Carbofer General Trading SA - India
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ambuja Cements Ltd - India
- Indo Tambangraya Megah - Indonesia
- Intertek Mineral Services - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- The University of Queensland
- Independent Power Producers Association of India
- Grasim Industreis Ltd - India
- GAC Shipping (India) Pvt Ltd
- SN Aboitiz Power Inc, Philippines
- Planning Commission, India
- European Bulk Services B.V. - Netherlands
- Gujarat Electricity Regulatory Commission - India
- Electricity Authority, New Zealand
- Sarangani Energy Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Mjunction Services Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ASAPP Information Group - India
- Parry Sugars Refinery, India
- Global Coal Blending Company Limited - Australia
- Star Paper Mills Limited - India
- Bulk Trading Sa - Switzerland
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Bhatia International Limited - India
- Altura Mining Limited, Indonesia
- SMC Global Power, Philippines
- Xindia Steels Limited - India
- Neyveli Lignite Corporation Ltd, - India
- MS Steel International - UAE
- Binh Thuan Hamico - Vietnam
- Semirara Mining Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Parliament of New Zealand
- Cement Manufacturers Association - India
- Miang Besar Coal Terminal - Indonesia
- Sical Logistics Limited - India
- Energy Link Ltd, New Zealand
- Georgia Ports Authority, United States
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- Rashtriya Ispat Nigam Limited - India
- PTC India Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Merrill Lynch Commodities Europe
- Uttam Galva Steels Limited - India
- CNBM International Corporation - China
- Central Java Power - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Energy Exchange, India
- India Bulls Power Limited - India
- Gujarat Sidhee Cement - India
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