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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, 27 October 20
PLN STILL REFUSING TO ADAPT, A MOVE WHICH WILL HURT INVESTORS, CONSUMERS, AND THE GOVERNMENT PURSE - IEEFA
Utility’s latest planning report locks PLN into the past
PLN would be better served restructuring its business to address the current en ...
Monday, 26 October 20
'LONG ASCENT' TO RECOVERY OF GLOBAL GROWTH - BALTIC EXCHANGE
The global economy has so far avoided a “financial catastrophe” but growth projections from the International Monetary Fund’s lat ...
Friday, 23 October 20
SHIPPING LOANS AND COLLATERAL DAMAGE - VICTOR ONYEGBADO, AKABOGU & ASSOCIATES
KNOWLEDGE TO ELEVATE
Shipping finance transactions are characterised by peculiar risk factors principally on account of the shipping asset&rsq ...
Friday, 23 October 20
WHAT WILL THE 2020 ELECTIONS MEAN FOR US ENERGY? - WOOD MACKENZIE
The 2020 elections present American voters with a choice between two radically different visions for the future of energy. President Donald Trump r ...
Wednesday, 21 October 20
BRAZIL EXPORTED 238.7 MLN TONNES OF IRON ORE IN THE FIRST 9 MONTHS OF 2020 - BANCHERO COSTA
Brazil’s iron ore exports have been gradually but steadily recovering following a disastrous winter period of 2019/2020. In the first 9 month ...
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- Electricity Generating Authority of Thailand
- Australian Coal Association
- Savvy Resources Ltd - HongKong
- Karbindo Abesyapradhi - Indoneisa
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
- Electricity Authority, New Zealand
- OPG Power Generation Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wood Mackenzie - Singapore
- Indian Energy Exchange, India
- New Zealand Coal & Carbon
- Minerals Council of Australia
- Straits Asia Resources Limited - Singapore
- Salva Resources Pvt Ltd - India
- Commonwealth Bank - Australia
- San Jose City I Power Corp, Philippines
- Altura Mining Limited, Indonesia
- Eastern Energy - Thailand
- Global Business Power Corporation, Philippines
- Anglo American - United Kingdom
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- TNB Fuel Sdn Bhd - Malaysia
- Chettinad Cement Corporation Ltd - India
- Vedanta Resources Plc - India
- Ambuja Cements Ltd - India
- The State Trading Corporation of India Ltd
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- South Luzon Thermal Energy Corporation
- International Coal Ventures Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
- Semirara Mining Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Planning Commission, India
- Orica Australia Pty. Ltd.
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Energy Link Ltd, New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Renaissance Capital - South Africa
- Wilmar Investment Holdings
- Deloitte Consulting - India
- Sakthi Sugars Limited - India
- Makarim & Taira - Indonesia
- Bukit Makmur.PT - Indonesia
- PTC India Limited - India
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Timah Investasi Mineral - Indoneisa
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- The Treasury - Australian Government
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Samtan Co., Ltd - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Barasentosa Lestari - Indonesia
- Indika Energy - Indonesia
- Central Java Power - Indonesia
- Coastal Gujarat Power Limited - India
- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
- Oldendorff Carriers - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- GVK Power & Infra Limited - India
- Sindya Power Generating Company Private Ltd
- Rashtriya Ispat Nigam Limited - India
- Billiton Holdings Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Romanian Commodities Exchange
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Metalloyd Limited - United Kingdom
- Sical Logistics Limited - India
- Toyota Tsusho Corporation, Japan
- Vijayanagar Sugar Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Parry Sugars Refinery, India
- Siam City Cement PLC, Thailand
- Vizag Seaport Private Limited - India
- Alfred C Toepfer International GmbH - Germany
- Miang Besar Coal Terminal - Indonesia
- Central Electricity Authority - India
- Directorate General of MIneral and Coal - Indonesia
- GMR Energy Limited - India
- Ceylon Electricity Board - Sri Lanka
- Globalindo Alam Lestari - Indonesia
- Indo Tambangraya Megah - Indonesia
- Pendopo Energi Batubara - Indonesia
- Kobexindo Tractors - Indoneisa
- Sarangani Energy Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- Bukit Asam (Persero) Tbk - Indonesia
- Larsen & Toubro Limited - India
- Chamber of Mines of South Africa
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- MS Steel International - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Agrawal Coal Company - India
- Iligan Light & Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Krishnapatnam Port Company Ltd. - India
- Marubeni Corporation - India
- Baramulti Group, Indonesia
- Indogreen Group - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Tamil Nadu electricity Board
- Jindal Steel & Power Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Merrill Lynch Commodities Europe
- Videocon Industries ltd - India
- Aboitiz Power Corporation - Philippines
- Malabar Cements Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mintek Dendrill Indonesia
- Latin American Coal - Colombia
- Petron Corporation, Philippines
- PowerSource Philippines DevCo
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Coal Blending Company Limited - Australia
- ASAPP Information Group - India
- Gujarat Sidhee Cement - India
- Leighton Contractors Pty Ltd - Australia
- VISA Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- LBH Netherlands Bv - Netherlands
- Posco Energy - South Korea
- TeaM Sual Corporation - Philippines
- Thai Mozambique Logistica
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- Energy Development Corp, Philippines
- Lanco Infratech Ltd - India
- White Energy Company Limited
- CNBM International Corporation - China
- Binh Thuan Hamico - Vietnam
- Bulk Trading Sa - Switzerland
- Bhatia International Limited - India
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- ICICI Bank Limited - India
- Essar Steel Hazira Ltd - India
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Standard Chartered Bank - UAE
- Ministry of Transport, Egypt
- Ministry of Mines - Canada
- Kepco SPC Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Siam City Cement - Thailand
- Simpson Spence & Young - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Independent Power Producers Association of India
- Eastern Coal Council - USA
- Mercuria Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Australian Commodity Traders Exchange
- Star Paper Mills Limited - India
- Medco Energi Mining Internasional
- Formosa Plastics Group - Taiwan
- Africa Commodities Group - South Africa
- Goldman Sachs - Singapore
- Kapuas Tunggal Persada - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Xindia Steels Limited - India
- IEA Clean Coal Centre - UK
- Mjunction Services Limited - India
- Carbofer General Trading SA - India
- Mercator Lines Limited - India
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
- Coal and Oil Company - UAE
- Ind-Barath Power Infra Limited - India
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- Edison Trading Spa - Italy
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Aditya Birla Group - India
- Directorate Of Revenue Intelligence - India
- Sojitz Corporation - Japan
- India Bulls Power Limited - India
- Madhucon Powers Ltd - India
- Sree Jayajothi Cements Limited - India
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- The University of Queensland
- Uttam Galva Steels Limited - India
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