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