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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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Wednesday, 09 September 20
MARKET INSIGHT - INTERMODAL
The uneventful summer lull which is coming to an end soon has left its stigma on the newbuilding market, which has already been devastated by the g ...
Saturday, 05 September 20
INDIA WON'T KICK ITS COAL HABIT SO EASILY - HINDU BUSINESS LINE
India has traditionally considered itself lucky to have been endowed with abundant coal reserves, which it has sought to use to meet its energy nee ...
Saturday, 05 September 20
FINANCING COMPLETE FOR 900MW FIFTH PHASE OF MASSIVE DUBAI SOLAR PARK: ARABIAN BUSINESS
Saudi-based ACWA Power on Thursday announced it has completed the signing of all financing agreements for the fifth phase of the Mohammed bin Rashi ...
Saturday, 05 September 20
POLISH COAL DEMAND EXPECTED TO FALL BY 7 MLN TONNES NEXT YEAR: MINISTER - REUTERS
Poland’s demand for coal is expected to fall by around 7 million tonnes next year, or more than 10% of annual hard coal production, after a d ...
Saturday, 05 September 20
PAKISTAN'S NEW 27-YEAR POWER PLAN RISKS LOCKING IN LONG-TERM OVERCAPACITY, LEAVING IMPORTED COAL AND LNG PLANTS STRANDED - IEEFA
Wind and solar, the country’s cheapest source of new generation, also overlooked
Pakistan risks locking itself into building m ...
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- Thiess Contractors Indonesia
- Chamber of Mines of South Africa
- Tamil Nadu electricity Board
- Electricity Authority, New Zealand
- Globalindo Alam Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- Lanco Infratech Ltd - India
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- Kartika Selabumi Mining - Indonesia
- Savvy Resources Ltd - HongKong
- Aditya Birla Group - India
- Indian Oil Corporation Limited
- Ministry of Transport, Egypt
- Wood Mackenzie - Singapore
- Sinarmas Energy and Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- Indo Tambangraya Megah - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Finance - Indonesia
- The State Trading Corporation of India Ltd
- Cement Manufacturers Association - India
- Toyota Tsusho Corporation, Japan
- Bhushan Steel Limited - India
- Heidelberg Cement - Germany
- Kobexindo Tractors - Indoneisa
- Marubeni Corporation - India
- Antam Resourcindo - Indonesia
- Medco Energi Mining Internasional
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- Leighton Contractors Pty Ltd - Australia
- Energy Development Corp, Philippines
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Coal and Oil Company - UAE
- TeaM Sual Corporation - Philippines
- Renaissance Capital - South Africa
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Power Finance Corporation Ltd., India
- Billiton Holdings Pty Ltd - Australia
- Ministry of Mines - Canada
- Riau Bara Harum - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- Sical Logistics Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Intertek Mineral Services - Indonesia
- Orica Mining Services - Indonesia
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Iligan Light & Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Trasteel International SA, Italy
- Planning Commission, India
- London Commodity Brokers - England
- Petrochimia International Co. Ltd.- Taiwan
- Ceylon Electricity Board - Sri Lanka
- AsiaOL BioFuels Corp., Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Minerals Council of Australia
- Holcim Trading Pte Ltd - Singapore
- Pendopo Energi Batubara - Indonesia
- Ambuja Cements Ltd - India
- Merrill Lynch Commodities Europe
- Goldman Sachs - Singapore
- OPG Power Generation Pvt Ltd - India
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Standard Chartered Bank - UAE
- Eastern Coal Council - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karbindo Abesyapradhi - Indoneisa
- Madhucon Powers Ltd - India
- CNBM International Corporation - China
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- Directorate Of Revenue Intelligence - India
- Rio Tinto Coal - Australia
- Bangladesh Power Developement Board
- Indian Energy Exchange, India
- Meenaskhi Energy Private Limited - India
- Attock Cement Pakistan Limited
- Sree Jayajothi Cements Limited - India
- Videocon Industries ltd - India
- Semirara Mining Corp, Philippines
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
- Bukit Makmur.PT - Indonesia
- Salva Resources Pvt Ltd - India
- Meralco Power Generation, Philippines
- Edison Trading Spa - Italy
- Kohat Cement Company Ltd. - Pakistan
- SMG Consultants - Indonesia
- ICICI Bank Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- Indika Energy - Indonesia
- Romanian Commodities Exchange
- Deloitte Consulting - India
- TNB Fuel Sdn Bhd - Malaysia
- Bhoruka Overseas - Indonesia
- Agrawal Coal Company - India
- ASAPP Information Group - India
- Australian Coal Association
- Georgia Ports Authority, United States
- Barasentosa Lestari - Indonesia
- Bulk Trading Sa - Switzerland
- Central Java Power - Indonesia
- Aboitiz Power Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Business Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Tata Chemicals Ltd - India
- Malabar Cements Ltd - India
- Mercuria Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Jindal Steel & Power Ltd - India
- Chettinad Cement Corporation Ltd - India
- Siam City Cement PLC, Thailand
- India Bulls Power Limited - India
- Uttam Galva Steels Limited - India
- IHS Mccloskey Coal Group - USA
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Sakthi Sugars Limited - India
- Bayan Resources Tbk. - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- Kaltim Prima Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- VISA Power Limited - India
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- Wilmar Investment Holdings
- Parliament of New Zealand
- Kepco SPC Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- IEA Clean Coal Centre - UK
- PNOC Exploration Corporation - Philippines
- Interocean Group of Companies - India
- Siam City Cement - Thailand
- CIMB Investment Bank - Malaysia
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Mintek Dendrill Indonesia
- Sarangani Energy Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Orica Australia Pty. Ltd.
- Singapore Mercantile Exchange
- Kapuas Tunggal Persada - Indonesia
- Anglo American - United Kingdom
- GMR Energy Limited - India
- White Energy Company Limited
- Indonesian Coal Mining Association
- Simpson Spence & Young - Indonesia
- Thai Mozambique Logistica
- Grasim Industreis Ltd - India
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Commonwealth Bank - Australia
- Rashtriya Ispat Nigam Limited - India
- Altura Mining Limited, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Vedanta Resources Plc - India
- Independent Power Producers Association of India
- Petron Corporation, Philippines
- Latin American Coal - Colombia
- The Treasury - Australian Government
- Miang Besar Coal Terminal - Indonesia
- Economic Council, Georgia
- Ind-Barath Power Infra Limited - India
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Star Paper Mills Limited - India
- Eastern Energy - Thailand
- Kideco Jaya Agung - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- SMC Global Power, Philippines
- PowerSource Philippines DevCo
- European Bulk Services B.V. - Netherlands
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Global Coal Blending Company Limited - Australia
- Parry Sugars Refinery, India
- Sindya Power Generating Company Private Ltd
- Kumho Petrochemical, South Korea
- Sojitz Corporation - Japan
- Coalindo Energy - Indonesia
- Coastal Gujarat Power Limited - India
- New Zealand Coal & Carbon
- PTC India Limited - India
- Energy Link Ltd, New Zealand
- Larsen & Toubro Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Dalmia Cement Bharat India
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