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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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Friday, 18 September 20
INDIA'S COAL-FIRED POWER OUTPUT PICKS UP AS INDUSTRIAL USE RISES - REUTERS
India’s coal-fired electricity generation rose 9.4% in the first half of September, provisional government data showed, as demand from indust ...
Friday, 18 September 20
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Thursday, 17 September 20
LAST HOPES FOR DEMAND GROWTH SET TO DISAPPOINT THERMAL COAL EXPORTERS - IEEFA
Asian thermal coal exporters are fighting an uphill battle even in new markets
The world’s largest thermal coal exporter is eyeing new m ...
Wednesday, 16 September 20
MARKET INSIGHT - INTERMODAL
Another active week in terms of SnP has concluded in the dry bulk market with a diversified array of transactions recorded. Despite the correction ...
Friday, 11 September 20
IMO 2020: A REVIEW OF THE TRANSITION TO VLSFOS - GARD
KNOWLEDGE TO ELEVATE
Many predictions were made in the run up to the imposition of the MARPOL 2020 sulphur cap, none of which was that the tra ...
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- Global Green Power PLC Corporation, Philippines
- Independent Power Producers Association of India
- Savvy Resources Ltd - HongKong
- Kartika Selabumi Mining - Indonesia
- Grasim Industreis Ltd - India
- Parry Sugars Refinery, India
- Orica Mining Services - Indonesia
- Aditya Birla Group - India
- VISA Power Limited - India
- Marubeni Corporation - India
- Timah Investasi Mineral - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- Straits Asia Resources Limited - Singapore
- The University of Queensland
- MS Steel International - UAE
- Billiton Holdings Pty Ltd - Australia
- ASAPP Information Group - India
- Indogreen Group - Indonesia
- Xindia Steels Limited - India
- Jindal Steel & Power Ltd - India
- Ministry of Finance - Indonesia
- Salva Resources Pvt Ltd - India
- London Commodity Brokers - England
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- Minerals Council of Australia
- Indian Energy Exchange, India
- Semirara Mining and Power Corporation, Philippines
- ICICI Bank Limited - India
- Toyota Tsusho Corporation, Japan
- GN Power Mariveles Coal Plant, Philippines
- Thai Mozambique Logistica
- Central Java Power - Indonesia
- Larsen & Toubro Limited - India
- Barasentosa Lestari - Indonesia
- Antam Resourcindo - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meralco Power Generation, Philippines
- Siam City Cement PLC, Thailand
- Bayan Resources Tbk. - Indonesia
- Bulk Trading Sa - Switzerland
- Madhucon Powers Ltd - India
- The Treasury - Australian Government
- Economic Council, Georgia
- Ceylon Electricity Board - Sri Lanka
- Bhoruka Overseas - Indonesia
- Australian Coal Association
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- Eastern Coal Council - USA
- Binh Thuan Hamico - Vietnam
- Kobexindo Tractors - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- Port Waratah Coal Services - Australia
- PowerSource Philippines DevCo
- Kapuas Tunggal Persada - Indonesia
- Kaltim Prima Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Merrill Lynch Commodities Europe
- PNOC Exploration Corporation - Philippines
- Coalindo Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Interocean Group of Companies - India
- Pipit Mutiara Jaya. PT, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Indonesian Coal Mining Association
- Bhushan Steel Limited - India
- Therma Luzon, Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Baramulti Group, Indonesia
- Borneo Indobara - Indonesia
- Petron Corporation, Philippines
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Latin American Coal - Colombia
- Tamil Nadu electricity Board
- Tata Chemicals Ltd - India
- Chettinad Cement Corporation Ltd - India
- South Luzon Thermal Energy Corporation
- Essar Steel Hazira Ltd - India
- GVK Power & Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- Eastern Energy - Thailand
- Goldman Sachs - Singapore
- Kumho Petrochemical, South Korea
- Directorate General of MIneral and Coal - Indonesia
- Deloitte Consulting - India
- Attock Cement Pakistan Limited
- Edison Trading Spa - Italy
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- OPG Power Generation Pvt Ltd - India
- Planning Commission, India
- Jaiprakash Power Ventures ltd
- Sinarmas Energy and Mining - Indonesia
- Videocon Industries ltd - India
- TeaM Sual Corporation - Philippines
- Dalmia Cement Bharat India
- Samtan Co., Ltd - South Korea
- Wilmar Investment Holdings
- Malabar Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- GMR Energy Limited - India
- Gujarat Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- Energy Link Ltd, New Zealand
- Indian Oil Corporation Limited
- Sakthi Sugars Limited - India
- GAC Shipping (India) Pvt Ltd
- Africa Commodities Group - South Africa
- Electricity Authority, New Zealand
- SMG Consultants - Indonesia
- Heidelberg Cement - Germany
- Agrawal Coal Company - India
- Mercator Lines Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- CIMB Investment Bank - Malaysia
- Renaissance Capital - South Africa
- Kepco SPC Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Karaikal Port Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bharathi Cement Corporation - India
- Maharashtra Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Mercuria Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Bhatia International Limited - India
- Metalloyd Limited - United Kingdom
- Mintek Dendrill Indonesia
- CNBM International Corporation - China
- Orica Australia Pty. Ltd.
- Cement Manufacturers Association - India
- Australian Commodity Traders Exchange
- PetroVietnam Power Coal Import and Supply Company
- Intertek Mineral Services - Indonesia
- PTC India Limited - India
- The State Trading Corporation of India Ltd
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Riau Bara Harum - Indonesia
- Trasteel International SA, Italy
- Posco Energy - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Medco Energi Mining Internasional
- Georgia Ports Authority, United States
- Bukit Asam (Persero) Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Aboitiz Power Corporation - Philippines
- Rio Tinto Coal - Australia
- SMC Global Power, Philippines
- Miang Besar Coal Terminal - Indonesia
- Singapore Mercantile Exchange
- Bahari Cakrawala Sebuku - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Indo Tambangraya Megah - Indonesia
- Romanian Commodities Exchange
- Electricity Generating Authority of Thailand
- Neyveli Lignite Corporation Ltd, - India
- Indika Energy - Indonesia
- Ministry of Mines - Canada
- Anglo American - United Kingdom
- Vizag Seaport Private Limited - India
- New Zealand Coal & Carbon
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- Maheswari Brothers Coal Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Leighton Contractors Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Formosa Plastics Group - Taiwan
- Bangladesh Power Developement Board
- Commonwealth Bank - Australia
- IEA Clean Coal Centre - UK
- Ind-Barath Power Infra Limited - India
- Central Electricity Authority - India
- Manunggal Multi Energi - Indonesia
- Mjunction Services Limited - India
- Sree Jayajothi Cements Limited - India
- McConnell Dowell - Australia
- Bukit Baiduri Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Coal and Oil Company - UAE
- Banpu Public Company Limited - Thailand
- Sarangani Energy Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Oldendorff Carriers - Singapore
- Iligan Light & Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sojitz Corporation - Japan
- Coastal Gujarat Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining Corp, Philippines
- Standard Chartered Bank - UAE
- Parliament of New Zealand
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- Star Paper Mills Limited - India
- India Bulls Power Limited - India
- Gujarat Sidhee Cement - India
- Makarim & Taira - Indonesia
- White Energy Company Limited
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