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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, 02 September 20
MARKET INSIGHT - INTERMODAL
The imminent global shift towards eco-friendliness has caused divide among the shipping community because there is no outlined, clear-cut way via w ...
Wednesday, 02 September 20
INDONESIA COAL PRICE REFERENCE DIVES FURTHER IN SEPTEMBER DUE TO SUBDUED DEMAND & GLOBAL OVERSUPPLY
Subdued demand & global oversupply pushed down this month's HBA
COALspot.com: The Indonesia Coal Price Reference ...
Tuesday, 01 September 20
WHY INDIA CAN'T MATCH THE GULF REGION'S RECORD-LOW SOLAR TARIFFS - IEEFA
5-10% annual decline in tariffs estimated for the next decade
A number of countries in the Gulf region have set record-low prices for solar in ...
Tuesday, 01 September 20
COVID-19 PUSHES US LNG INTO A TIGHT SPOT - DREWRY
The pandemic-led weak projections for economic growth will derail US LNG exports in full-year 2020 with the country also losing ground in the long ...
Monday, 31 August 20
DEFECTIVE PASSAGE PLANNING: UNSEAWORTHINESS OR A NAVIGATIONAL DECISION? THE CMA CGM LIBRA QUESTION SAILS ON TO THE UK SUPREME COURT - GARD
KNOWLEDGE TO ELEVATE
The UK Supreme Court has granted leave to appeal the recent decision in Alize 1954 v Allianz Elementar Versicherungs AG ( ...
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- Larsen & Toubro Limited - India
- Siam City Cement PLC, Thailand
- TeaM Sual Corporation - Philippines
- Marubeni Corporation - India
- Manunggal Multi Energi - Indonesia
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Singapore Mercantile Exchange
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- Renaissance Capital - South Africa
- Mintek Dendrill Indonesia
- MS Steel International - UAE
- Petron Corporation, Philippines
- Economic Council, Georgia
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Bukit Makmur.PT - Indonesia
- Aditya Birla Group - India
- Parliament of New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Essar Steel Hazira Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bhushan Steel Limited - India
- Carbofer General Trading SA - India
- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- Banpu Public Company Limited - Thailand
- London Commodity Brokers - England
- Global Business Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- IEA Clean Coal Centre - UK
- Karaikal Port Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Simpson Spence & Young - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Australian Coal Association
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Eastern Energy - Thailand
- Kapuas Tunggal Persada - Indonesia
- Latin American Coal - Colombia
- Tamil Nadu electricity Board
- Sindya Power Generating Company Private Ltd
- SMG Consultants - Indonesia
- GVK Power & Infra Limited - India
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Mjunction Services Limited - India
- Kartika Selabumi Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Tata Chemicals Ltd - India
- Indian Energy Exchange, India
- Kaltim Prima Coal - Indonesia
- Standard Chartered Bank - UAE
- Bharathi Cement Corporation - India
- Sarangani Energy Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- South Luzon Thermal Energy Corporation
- Gujarat Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coalindo Energy - Indonesia
- Madhucon Powers Ltd - India
- Pendopo Energi Batubara - Indonesia
- Formosa Plastics Group - Taiwan
- Coal and Oil Company - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- Orica Australia Pty. Ltd.
- Africa Commodities Group - South Africa
- Indonesian Coal Mining Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Agrawal Coal Company - India
- PTC India Limited - India
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- Malabar Cements Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Eastern Coal Council - USA
- Georgia Ports Authority, United States
- Directorate General of MIneral and Coal - Indonesia
- Baramulti Group, Indonesia
- Attock Cement Pakistan Limited
- The Treasury - Australian Government
- GMR Energy Limited - India
- Deloitte Consulting - India
- ASAPP Information Group - India
- Thai Mozambique Logistica
- Gujarat Mineral Development Corp Ltd - India
- Iligan Light & Power Inc, Philippines
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- Posco Energy - South Korea
- Anglo American - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Kideco Jaya Agung - Indonesia
- Oldendorff Carriers - Singapore
- Wood Mackenzie - Singapore
- Energy Development Corp, Philippines
- Vedanta Resources Plc - India
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Central Electricity Authority - India
- Parry Sugars Refinery, India
- Power Finance Corporation Ltd., India
- Star Paper Mills Limited - India
- Sakthi Sugars Limited - India
- Dalmia Cement Bharat India
- International Coal Ventures Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Sojitz Corporation - Japan
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- ICICI Bank Limited - India
- CNBM International Corporation - China
- Coastal Gujarat Power Limited - India
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- White Energy Company Limited
- Mercator Lines Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Wilmar Investment Holdings
- PNOC Exploration Corporation - Philippines
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- Central Java Power - Indonesia
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Indo Tambangraya Megah - Indonesia
- Planning Commission, India
- Cement Manufacturers Association - India
- Bukit Asam (Persero) Tbk - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Ind-Barath Power Infra Limited - India
- Chamber of Mines of South Africa
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Lanco Infratech Ltd - India
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining Corp, Philippines
- Gujarat Sidhee Cement - India
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- The University of Queensland
- Vizag Seaport Private Limited - India
- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- Mercuria Energy - Indonesia
- Xindia Steels Limited - India
- Barasentosa Lestari - Indonesia
- Kumho Petrochemical, South Korea
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- Meralco Power Generation, Philippines
- Makarim & Taira - Indonesia
- Kepco SPC Power Corporation, Philippines
- Medco Energi Mining Internasional
- Heidelberg Cement - Germany
- GAC Shipping (India) Pvt Ltd
- Bhatia International Limited - India
- Riau Bara Harum - Indonesia
- Indika Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- The State Trading Corporation of India Ltd
- Bukit Baiduri Energy - Indonesia
- Ministry of Mines - Canada
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Electricity Authority, New Zealand
- Maheswari Brothers Coal Limited - India
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Siam City Cement - Thailand
- Romanian Commodities Exchange
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
- PetroVietnam Power Coal Import and Supply Company
- Rio Tinto Coal - Australia
- India Bulls Power Limited - India
- LBH Netherlands Bv - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Finance - Indonesia
- Trasteel International SA, Italy
- Metalloyd Limited - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- Salva Resources Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Samtan Co., Ltd - South Korea
- Savvy Resources Ltd - HongKong
- Interocean Group of Companies - India
- Straits Asia Resources Limited - Singapore
- Intertek Mineral Services - Indonesia
- Ministry of Transport, Egypt
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