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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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Monday, 02 November 20
PHILIPPINES GOVERNMENT SAYS NO TO NEW COAL PLANT PROPOSALS - IEEFA | 24 PILIPINAS
The Duterte administration will no longer accept proposals to construct new coal power plants, a dramatic shift in energy policy that counts on dec ...
Sunday, 01 November 20
GRADUAL RECOVERY FOR INDONESIAN COAL FROM 4Q20; RISKS REMAIN - FITCH RATINGS
Fitch Ratings expects the credit metrics of Indonesian coal miners and coal contractors to improve from 4Q20 with the recovery in volumes and price ...
Wednesday, 28 October 20
BIODIESEL - NEW FUELS, NEW CHALLENGES - GARD | DNV GL
KNOWLEDGE TO ELEVATE
One of numerous possible ways to comply with the IMO’s strategy on the reduction of greenhouse gas (GHG) emissions ...
Wednesday, 28 October 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.35 PCT - XINHUA
China Taiyuan coal transaction price index stood at 127.94 points Monday, up 0.35 percent week on week.
The index, released by China ...
Wednesday, 28 October 20
MARKET INSIGHT - INTERMODAL
The global strive towards eco-friendliness and environmental sustainability in the shipping industry is mounting. There are currently almost 200 co ...
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- Therma Luzon, Inc, Philippines
- Aditya Birla Group - India
- Baramulti Group, Indonesia
- PTC India Limited - India
- Gujarat Sidhee Cement - India
- International Coal Ventures Pvt Ltd - India
- McConnell Dowell - Australia
- Semirara Mining Corp, Philippines
- Georgia Ports Authority, United States
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- Ministry of Mines - Canada
- Neyveli Lignite Corporation Ltd, - India
- Tata Chemicals Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Kideco Jaya Agung - Indonesia
- Economic Council, Georgia
- Global Green Power PLC Corporation, Philippines
- Sojitz Corporation - Japan
- Interocean Group of Companies - India
- Kohat Cement Company Ltd. - Pakistan
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement PLC, Thailand
- Orica Australia Pty. Ltd.
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Central Electricity Authority - India
- Metalloyd Limited - United Kingdom
- Kobexindo Tractors - Indoneisa
- Mercuria Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Indian Energy Exchange, India
- PNOC Exploration Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- San Jose City I Power Corp, Philippines
- Formosa Plastics Group - Taiwan
- Sinarmas Energy and Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Renaissance Capital - South Africa
- Antam Resourcindo - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- The Treasury - Australian Government
- Bulk Trading Sa - Switzerland
- Gujarat Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- Essar Steel Hazira Ltd - India
- Uttam Galva Steels Limited - India
- Lanco Infratech Ltd - India
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- Malabar Cements Ltd - India
- Petron Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Xindia Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- The University of Queensland
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Energy Link Ltd, New Zealand
- IHS Mccloskey Coal Group - USA
- GVK Power & Infra Limited - India
- Attock Cement Pakistan Limited
- Eastern Energy - Thailand
- Indo Tambangraya Megah - Indonesia
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Rio Tinto Coal - Australia
- CIMB Investment Bank - Malaysia
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Bukit Makmur.PT - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bhatia International Limited - India
- Pendopo Energi Batubara - Indonesia
- Thiess Contractors Indonesia
- Electricity Authority, New Zealand
- Bharathi Cement Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sakthi Sugars Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Meenaskhi Energy Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Medco Energi Mining Internasional
- Australian Coal Association
- Global Business Power Corporation, Philippines
- Commonwealth Bank - Australia
- Wilmar Investment Holdings
- European Bulk Services B.V. - Netherlands
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Transport, Egypt
- Sindya Power Generating Company Private Ltd
- Sarangani Energy Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
- Coal and Oil Company - UAE
- Deloitte Consulting - India
- White Energy Company Limited
- The State Trading Corporation of India Ltd
- Edison Trading Spa - Italy
- Timah Investasi Mineral - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Africa Commodities Group - South Africa
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Anglo American - United Kingdom
- CNBM International Corporation - China
- Kartika Selabumi Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- PowerSource Philippines DevCo
- Dalmia Cement Bharat India
- Agrawal Coal Company - India
- Madhucon Powers Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Bhushan Steel Limited - India
- Grasim Industreis Ltd - India
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- Chamber of Mines of South Africa
- ICICI Bank Limited - India
- Indian Oil Corporation Limited
- Goldman Sachs - Singapore
- GMR Energy Limited - India
- Semirara Mining and Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parry Sugars Refinery, India
- Global Coal Blending Company Limited - Australia
- ASAPP Information Group - India
- Makarim & Taira - Indonesia
- SN Aboitiz Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Tamil Nadu electricity Board
- Indogreen Group - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- Borneo Indobara - Indonesia
- Star Paper Mills Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chettinad Cement Corporation Ltd - India
- Sree Jayajothi Cements Limited - India
- Krishnapatnam Port Company Ltd. - India
- Larsen & Toubro Limited - India
- Maheswari Brothers Coal Limited - India
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- Eastern Coal Council - USA
- PetroVietnam Power Coal Import and Supply Company
- Directorate Of Revenue Intelligence - India
- MS Steel International - UAE
- Bhoruka Overseas - Indonesia
- IEA Clean Coal Centre - UK
- Energy Development Corp, Philippines
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Altura Mining Limited, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Mintek Dendrill Indonesia
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Ministry of Finance - Indonesia
- Savvy Resources Ltd - HongKong
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Wood Mackenzie - Singapore
- London Commodity Brokers - England
- Bangladesh Power Developement Board
- Bahari Cakrawala Sebuku - Indonesia
- Jindal Steel & Power Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Planning Commission, India
- Merrill Lynch Commodities Europe
- New Zealand Coal & Carbon
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Power Finance Corporation Ltd., India
- Cement Manufacturers Association - India
- Videocon Industries ltd - India
- Vedanta Resources Plc - India
- Simpson Spence & Young - Indonesia
- SMC Global Power, Philippines
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Iligan Light & Power Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Ceylon Electricity Board - Sri Lanka
- Central Java Power - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Mjunction Services Limited - India
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Intertek Mineral Services - Indonesia
- Marubeni Corporation - India
- Riau Bara Harum - Indonesia
- Samtan Co., Ltd - South Korea
- Trasteel International SA, Italy
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