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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, 28 September 20
NEW LNG PROJECTS - ALL DRESSED UP AND NO PLACE TO GO - WOOD MACKENZIE
It was meant to be another boom year. After a record 70 mmtpa of new LNG capacity was sanctioned in 2019, at least as much capacity was lined up fo ...
Thursday, 24 September 20
SUPRAMAX: INDO TO INDIA FIXING AROUND US$13,000 - FEARNLEYS
Cape
Over the last week the iron ore segment from Brazil to China has picked up, and we see freight rates up USD 2 (12%) week on week Fearnleys ...
Thursday, 24 September 20
KOREA MIDLAND POWER TO BUY 1.92 MILLION TONS OF 4,300-4,700 NCV COAL FOR THREE YEARS
COALspot.com: Korea Midland Power Co. Ltd, has issued an International tender for 640,000 MT 4,300-4,700 kcal/kg NCV coal per year.
...
Wednesday, 23 September 20
VIETNAM'S NEW POWER DEVELOPMENT PLAN MUST OPTIMIZE RENEWABLES AND AVOID FOSSIL FUEL LOCK-IN: IEEFA
EVN’s financial constraints leaves the utility with little room for error
Implementing Vietnam’s soon-to-be-launched next Power De ...
Wednesday, 23 September 20
MARKET INSIGHT - INTERMODAL
Undoubtedly, this year (ongoing) will never be forgotten because in a matter of months it has managed to severely affect and shape our day to day p ...
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- Manunggal Multi Energi - Indonesia
- India Bulls Power Limited - India
- Eastern Energy - Thailand
- Straits Asia Resources Limited - Singapore
- Sical Logistics Limited - India
- Agrawal Coal Company - India
- Sindya Power Generating Company Private Ltd
- Bhatia International Limited - India
- Essar Steel Hazira Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Samtan Co., Ltd - South Korea
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Medco Energi Mining Internasional
- Meralco Power Generation, Philippines
- PowerSource Philippines DevCo
- Bangladesh Power Developement Board
- Bulk Trading Sa - Switzerland
- Goldman Sachs - Singapore
- Pendopo Energi Batubara - Indonesia
- Siam City Cement - Thailand
- Standard Chartered Bank - UAE
- Xindia Steels Limited - India
- Alfred C Toepfer International GmbH - Germany
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- Baramulti Group, Indonesia
- Coal and Oil Company - UAE
- Ceylon Electricity Board - Sri Lanka
- OPG Power Generation Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Kartika Selabumi Mining - Indonesia
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Port Waratah Coal Services - Australia
- Central Java Power - Indonesia
- Maheswari Brothers Coal Limited - India
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Grasim Industreis Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Australian Commodity Traders Exchange
- Sakthi Sugars Limited - India
- Orica Mining Services - Indonesia
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- Indogreen Group - Indonesia
- Bhoruka Overseas - Indonesia
- IHS Mccloskey Coal Group - USA
- Attock Cement Pakistan Limited
- Merrill Lynch Commodities Europe
- Kumho Petrochemical, South Korea
- Orica Australia Pty. Ltd.
- Rashtriya Ispat Nigam Limited - India
- Australian Coal Association
- Coastal Gujarat Power Limited - India
- Heidelberg Cement - Germany
- Posco Energy - South Korea
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- Lanco Infratech Ltd - India
- Gujarat Sidhee Cement - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GMR Energy Limited - India
- Cement Manufacturers Association - India
- Bhushan Steel Limited - India
- Economic Council, Georgia
- Semirara Mining and Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Renaissance Capital - South Africa
- Aditya Birla Group - India
- Indo Tambangraya Megah - Indonesia
- Uttam Galva Steels Limited - India
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Ambuja Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Intertek Mineral Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Borneo Indobara - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- International Coal Ventures Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Jorong Barutama Greston.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Star Paper Mills Limited - India
- Madhucon Powers Ltd - India
- Global Green Power PLC Corporation, Philippines
- PTC India Limited - India
- Oldendorff Carriers - Singapore
- Indian Oil Corporation Limited
- Vijayanagar Sugar Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- GAC Shipping (India) Pvt Ltd
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Edison Trading Spa - Italy
- Krishnapatnam Port Company Ltd. - India
- Directorate Of Revenue Intelligence - India
- The State Trading Corporation of India Ltd
- Interocean Group of Companies - India
- Kideco Jaya Agung - Indonesia
- GVK Power & Infra Limited - India
- Global Coal Blending Company Limited - Australia
- Kaltim Prima Coal - Indonesia
- MS Steel International - UAE
- Barasentosa Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Videocon Industries ltd - India
- Mercator Lines Limited - India
- Trasteel International SA, Italy
- Anglo American - United Kingdom
- Marubeni Corporation - India
- Petron Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Independent Power Producers Association of India
- The University of Queensland
- Bank of Tokyo Mitsubishi UFJ Ltd
- Commonwealth Bank - Australia
- Mercuria Energy - Indonesia
- Tamil Nadu electricity Board
- Global Business Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- Bharathi Cement Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Chamber of Mines of South Africa
- CNBM International Corporation - China
- ASAPP Information Group - India
- Ministry of Finance - Indonesia
- Siam City Cement PLC, Thailand
- Maharashtra Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Indika Energy - Indonesia
- Salva Resources Pvt Ltd - India
- New Zealand Coal & Carbon
- Electricity Generating Authority of Thailand
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- CIMB Investment Bank - Malaysia
- Aboitiz Power Corporation - Philippines
- Sojitz Corporation - Japan
- White Energy Company Limited
- Holcim Trading Pte Ltd - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- SMC Global Power, Philippines
- Miang Besar Coal Terminal - Indonesia
- Ministry of Mines - Canada
- Meenaskhi Energy Private Limited - India
- Latin American Coal - Colombia
- Larsen & Toubro Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Simpson Spence & Young - Indonesia
- Minerals Council of Australia
- Ind-Barath Power Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Thiess Contractors Indonesia
- Malabar Cements Ltd - India
- Jindal Steel & Power Ltd - India
- SN Aboitiz Power Inc, Philippines
- Altura Mining Limited, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Mineral Development Corp Ltd - India
- London Commodity Brokers - England
- SMG Consultants - Indonesia
- Central Electricity Authority - India
- Romanian Commodities Exchange
- Mintek Dendrill Indonesia
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- The Treasury - Australian Government
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- Savvy Resources Ltd - HongKong
- Bukit Baiduri Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indonesian Coal Mining Association
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- Jaiprakash Power Ventures ltd
- VISA Power Limited - India
- Energy Link Ltd, New Zealand
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Vedanta Resources Plc - India
- McConnell Dowell - Australia
- ICICI Bank Limited - India
- Parry Sugars Refinery, India
- Wilmar Investment Holdings
- Formosa Plastics Group - Taiwan
- Sarangani Energy Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Energy Development Corp, Philippines
- Electricity Authority, New Zealand
- Vizag Seaport Private Limited - India
- Singapore Mercantile Exchange
- Wood Mackenzie - Singapore
- Semirara Mining Corp, Philippines
- Planning Commission, India
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