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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, 04 September 20
IN A DEEPENING DEBT HOLE OF $34 BILLION, INDONESIA’S PLN MUST STOP DIGGING - IEEFA
The utility has added IDR100 trillion in debt annually for the last five years
Utilities globally started changing the way they do business ye ...
Friday, 04 September 20
KOMIPO INVITED BIDS FOR AUSTRALIAN MIN 5,700 NCV COAL FOR NOVEMBER
COALspot.com: Korea Midland Power Co. Ltd, has issued an International tender for 260,000 MT Min.5,700 kcal/kg NCV coal November, 2020 loading. Acc ...
Thursday, 03 September 20
BRINGING SERVICES OF FTCCI CLOSER TO THE EXPORTERS AT GMR AIR CARGO COMPLEX AT SHAMSHABAD
Press Release: “FTCCI Trade Facilitation Services at your doorstep now” says J.S. Chandrashekar, IRS., Principal Commissioner of Custom ...
Thursday, 03 September 20
CHINA'S BENCHMARK POWER COAL PRICE REMAINS FLAT - XINHUA
China’s benchmark power coal price remained flat during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Wednesday, 02 September 20
COAL PRODUCTION FALLS 7% IN APR-AUG; OFF TAKE DIPS 13.4% - FINANCIAL EXPRESS
In the month of August coal off take also increased 9.3% y-o-y to 44.34 MT as compared with 40.57 MT in the same period last year.
C ...
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- Siam City Cement PLC, Thailand
- India Bulls Power Limited - India
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Antam Resourcindo - Indonesia
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Price Waterhouse Coopers - Russia
- Kumho Petrochemical, South Korea
- White Energy Company Limited
- Coastal Gujarat Power Limited - India
- Kepco SPC Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Africa Commodities Group - South Africa
- Salva Resources Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Central Electricity Authority - India
- Thai Mozambique Logistica
- Petrochimia International Co. Ltd.- Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Agrawal Coal Company - India
- Parry Sugars Refinery, India
- Sakthi Sugars Limited - India
- GMR Energy Limited - India
- Indonesian Coal Mining Association
- Alfred C Toepfer International GmbH - Germany
- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- Iligan Light & Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Minerals Council of Australia
- Directorate Of Revenue Intelligence - India
- Larsen & Toubro Limited - India
- Meralco Power Generation, Philippines
- Jindal Steel & Power Ltd - India
- Ind-Barath Power Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Billiton Holdings Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mintek Dendrill Indonesia
- The University of Queensland
- Orica Mining Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Bukit Baiduri Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining Corp, Philippines
- South Luzon Thermal Energy Corporation
- Lanco Infratech Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- Merrill Lynch Commodities Europe
- Gujarat Sidhee Cement - India
- Sinarmas Energy and Mining - Indonesia
- Renaissance Capital - South Africa
- CNBM International Corporation - China
- Indian Energy Exchange, India
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Ministry of Mines - Canada
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- Australian Commodity Traders Exchange
- Singapore Mercantile Exchange
- Sindya Power Generating Company Private Ltd
- Straits Asia Resources Limited - Singapore
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Orica Australia Pty. Ltd.
- Electricity Generating Authority of Thailand
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- SN Aboitiz Power Inc, Philippines
- Eastern Energy - Thailand
- Krishnapatnam Port Company Ltd. - India
- Pendopo Energi Batubara - Indonesia
- Global Business Power Corporation, Philippines
- Trasteel International SA, Italy
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- Thiess Contractors Indonesia
- Gujarat Electricity Regulatory Commission - India
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Petron Corporation, Philippines
- Electricity Authority, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Indika Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Port Waratah Coal Services - Australia
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- GVK Power & Infra Limited - India
- Vizag Seaport Private Limited - India
- Simpson Spence & Young - Indonesia
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- London Commodity Brokers - England
- Mjunction Services Limited - India
- Coalindo Energy - Indonesia
- Star Paper Mills Limited - India
- Ceylon Electricity Board - Sri Lanka
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- Energy Development Corp, Philippines
- Altura Mining Limited, Indonesia
- Baramulti Group, Indonesia
- European Bulk Services B.V. - Netherlands
- Barasentosa Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- ICICI Bank Limited - India
- Indogreen Group - Indonesia
- Intertek Mineral Services - Indonesia
- Timah Investasi Mineral - Indoneisa
- Planning Commission, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Commonwealth Bank - Australia
- Savvy Resources Ltd - HongKong
- Bhatia International Limited - India
- Wood Mackenzie - Singapore
- Bhoruka Overseas - Indonesia
- Vedanta Resources Plc - India
- Videocon Industries ltd - India
- Sarangani Energy Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Essar Steel Hazira Ltd - India
- Global Coal Blending Company Limited - Australia
- Eastern Coal Council - USA
- Georgia Ports Authority, United States
- GN Power Mariveles Coal Plant, Philippines
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Sree Jayajothi Cements Limited - India
- Indo Tambangraya Megah - Indonesia
- Heidelberg Cement - Germany
- Tamil Nadu electricity Board
- Bayan Resources Tbk. - Indonesia
- Coal and Oil Company - UAE
- Independent Power Producers Association of India
- Bukit Asam (Persero) Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- IEA Clean Coal Centre - UK
- Power Finance Corporation Ltd., India
- Wilmar Investment Holdings
- Standard Chartered Bank - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Interocean Group of Companies - India
- Posco Energy - South Korea
- New Zealand Coal & Carbon
- The State Trading Corporation of India Ltd
- Goldman Sachs - Singapore
- Marubeni Corporation - India
- Ministry of Finance - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bangladesh Power Developement Board
- Formosa Plastics Group - Taiwan
- Sical Logistics Limited - India
- Xindia Steels Limited - India
- Oldendorff Carriers - Singapore
- TeaM Sual Corporation - Philippines
- Tata Chemicals Ltd - India
- Uttam Galva Steels Limited - India
- Rio Tinto Coal - Australia
- MS Steel International - UAE
- Indian Oil Corporation Limited
- PTC India Limited - India
- Bulk Trading Sa - Switzerland
- Kideco Jaya Agung - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Malabar Cements Ltd - India
- SMG Consultants - Indonesia
- San Jose City I Power Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Makarim & Taira - Indonesia
- Latin American Coal - Colombia
- Romanian Commodities Exchange
- Kaltim Prima Coal - Indonesia
- Medco Energi Mining Internasional
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- SMC Global Power, Philippines
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Mercator Lines Limited - India
- Karaikal Port Pvt Ltd - India
- Deloitte Consulting - India
- Dalmia Cement Bharat India
- PetroVietnam Power Coal Import and Supply Company
- Kobexindo Tractors - Indoneisa
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