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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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- Wood Mackenzie - Singapore
- Banpu Public Company Limited - Thailand
- Economic Council, Georgia
- IHS Mccloskey Coal Group - USA
- Billiton Holdings Pty Ltd - Australia
- Merrill Lynch Commodities Europe
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dalmia Cement Bharat India
- Pendopo Energi Batubara - Indonesia
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- SMG Consultants - Indonesia
- Altura Mining Limited, Indonesia
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Xindia Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Binh Thuan Hamico - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Kohat Cement Company Ltd. - Pakistan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- The University of Queensland
- Asmin Koalindo Tuhup - Indonesia
- IEA Clean Coal Centre - UK
- Kepco SPC Power Corporation, Philippines
- Latin American Coal - Colombia
- Indian Oil Corporation Limited
- Alfred C Toepfer International GmbH - Germany
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Rashtriya Ispat Nigam Limited - India
- Petron Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Kartika Selabumi Mining - Indonesia
- McConnell Dowell - Australia
- Cigading International Bulk Terminal - Indonesia
- Goldman Sachs - Singapore
- Ceylon Electricity Board - Sri Lanka
- GMR Energy Limited - India
- Krishnapatnam Port Company Ltd. - India
- Videocon Industries ltd - India
- Miang Besar Coal Terminal - Indonesia
- India Bulls Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- TeaM Sual Corporation - Philippines
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Coalindo Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Anglo American - United Kingdom
- Electricity Authority, New Zealand
- Jaiprakash Power Ventures ltd
- ASAPP Information Group - India
- Jindal Steel & Power Ltd - India
- New Zealand Coal & Carbon
- TNB Fuel Sdn Bhd - Malaysia
- Kumho Petrochemical, South Korea
- White Energy Company Limited
- Planning Commission, India
- Energy Development Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Chamber of Mines of South Africa
- Oldendorff Carriers - Singapore
- ICICI Bank Limited - India
- Larsen & Toubro Limited - India
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- SMC Global Power, Philippines
- Sindya Power Generating Company Private Ltd
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Orica Australia Pty. Ltd.
- Maharashtra Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Sojitz Corporation - Japan
- Price Waterhouse Coopers - Russia
- GAC Shipping (India) Pvt Ltd
- Sakthi Sugars Limited - India
- Manunggal Multi Energi - Indonesia
- Thai Mozambique Logistica
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- Samtan Co., Ltd - South Korea
- Maheswari Brothers Coal Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Coastal Gujarat Power Limited - India
- Star Paper Mills Limited - India
- Eastern Coal Council - USA
- VISA Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Holcim Trading Pte Ltd - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- PTC India Limited - India
- Deloitte Consulting - India
- Tata Chemicals Ltd - India
- Wilmar Investment Holdings
- Port Waratah Coal Services - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- MS Steel International - UAE
- Ind-Barath Power Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- Bhatia International Limited - India
- Central Electricity Authority - India
- Standard Chartered Bank - UAE
- Global Green Power PLC Corporation, Philippines
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Central Java Power - Indonesia
- Electricity Generating Authority of Thailand
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- Lanco Infratech Ltd - India
- CIMB Investment Bank - Malaysia
- Bhoruka Overseas - Indonesia
- Agrawal Coal Company - India
- Trasteel International SA, Italy
- CNBM International Corporation - China
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Cement Manufacturers Association - India
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining Corp, Philippines
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- Uttam Galva Steels Limited - India
- Makarim & Taira - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Link Ltd, New Zealand
- Riau Bara Harum - Indonesia
- SN Aboitiz Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Sical Logistics Limited - India
- Siam City Cement PLC, Thailand
- Georgia Ports Authority, United States
- Kalimantan Lumbung Energi - Indonesia
- Bangladesh Power Developement Board
- Minerals Council of Australia
- London Commodity Brokers - England
- Romanian Commodities Exchange
- Jorong Barutama Greston.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Toyota Tsusho Corporation, Japan
- Meralco Power Generation, Philippines
- Indika Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- LBH Netherlands Bv - Netherlands
- Aditya Birla Group - India
- Sree Jayajothi Cements Limited - India
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Borneo Indobara - Indonesia
- Australian Commodity Traders Exchange
- Africa Commodities Group - South Africa
- Semirara Mining and Power Corporation, Philippines
- Parry Sugars Refinery, India
- Indian Energy Exchange, India
- Global Coal Blending Company Limited - Australia
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Tamil Nadu electricity Board
- The State Trading Corporation of India Ltd
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Antam Resourcindo - Indonesia
- Formosa Plastics Group - Taiwan
- PowerSource Philippines DevCo
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Baramulti Group, Indonesia
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Mintek Dendrill Indonesia
- Heidelberg Cement - Germany
- Carbofer General Trading SA - India
- Indo Tambangraya Megah - Indonesia
- Ministry of Finance - Indonesia
- Kobexindo Tractors - Indoneisa
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Interocean Group of Companies - India
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- Bharathi Cement Corporation - India
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Grasim Industreis Ltd - India
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Gujarat Electricity Regulatory Commission - India
- Gujarat Sidhee Cement - India
- Simpson Spence & Young - Indonesia
- Indogreen Group - Indonesia
- Intertek Mineral Services - Indonesia
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