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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
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Subdued demand & global oversupply pushed down this month's HBA
COALspot.com: The Indonesia Coal Price Reference ...
Tuesday, 01 September 20
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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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- OPG Power Generation Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Tamil Nadu electricity Board
- Ministry of Finance - Indonesia
- Australian Coal Association
- Chettinad Cement Corporation Ltd - India
- Salva Resources Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Videocon Industries ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Sree Jayajothi Cements Limited - India
- Manunggal Multi Energi - Indonesia
- Anglo American - United Kingdom
- Renaissance Capital - South Africa
- Directorate Of Revenue Intelligence - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Lanco Infratech Ltd - India
- Rio Tinto Coal - Australia
- Heidelberg Cement - Germany
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Coal and Oil Company - UAE
- Toyota Tsusho Corporation, Japan
- Neyveli Lignite Corporation Ltd, - India
- Indika Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Price Waterhouse Coopers - Russia
- Kartika Selabumi Mining - Indonesia
- Central Electricity Authority - India
- Uttam Galva Steels Limited - India
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
- Kideco Jaya Agung - Indonesia
- Mercator Lines Limited - India
- Thai Mozambique Logistica
- Borneo Indobara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- International Coal Ventures Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- Vizag Seaport Private Limited - India
- Aboitiz Power Corporation - Philippines
- Energy Development Corp, Philippines
- Power Finance Corporation Ltd., India
- Cement Manufacturers Association - India
- Sarangani Energy Corporation, Philippines
- MS Steel International - UAE
- Krishnapatnam Port Company Ltd. - India
- Banpu Public Company Limited - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Ceylon Electricity Board - Sri Lanka
- Kobexindo Tractors - Indoneisa
- Simpson Spence & Young - Indonesia
- Thiess Contractors Indonesia
- TeaM Sual Corporation - Philippines
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- ICICI Bank Limited - India
- SMC Global Power, Philippines
- Minerals Council of Australia
- Baramulti Group, Indonesia
- Pendopo Energi Batubara - Indonesia
- Bulk Trading Sa - Switzerland
- Barasentosa Lestari - Indonesia
- Trasteel International SA, Italy
- Eastern Coal Council - USA
- South Luzon Thermal Energy Corporation
- SN Aboitiz Power Inc, Philippines
- Madhucon Powers Ltd - India
- Kumho Petrochemical, South Korea
- Global Coal Blending Company Limited - Australia
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Attock Cement Pakistan Limited
- AsiaOL BioFuels Corp., Philippines
- Medco Energi Mining Internasional
- Deloitte Consulting - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- Planning Commission, India
- GVK Power & Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- Singapore Mercantile Exchange
- Kapuas Tunggal Persada - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Edison Trading Spa - Italy
- VISA Power Limited - India
- Global Green Power PLC Corporation, Philippines
- Siam City Cement - Thailand
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- Parliament of New Zealand
- Holcim Trading Pte Ltd - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Eastern Energy - Thailand
- The Treasury - Australian Government
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Australia Pty. Ltd.
- Petron Corporation, Philippines
- Central Java Power - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- IHS Mccloskey Coal Group - USA
- Kaltim Prima Coal - Indonesia
- Standard Chartered Bank - UAE
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- McConnell Dowell - Australia
- Jindal Steel & Power Ltd - India
- Makarim & Taira - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Port Waratah Coal Services - Australia
- Essar Steel Hazira Ltd - India
- New Zealand Coal & Carbon
- Jorong Barutama Greston.PT - Indonesia
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- PNOC Exploration Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Ministry of Mines - Canada
- European Bulk Services B.V. - Netherlands
- Global Business Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Australian Commodity Traders Exchange
- The State Trading Corporation of India Ltd
- Electricity Authority, New Zealand
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- India Bulls Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Samtan Co., Ltd - South Korea
- Mercuria Energy - Indonesia
- Interocean Group of Companies - India
- Xindia Steels Limited - India
- Posco Energy - South Korea
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Antam Resourcindo - Indonesia
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- Tata Chemicals Ltd - India
- Indian Energy Exchange, India
- Mintek Dendrill Indonesia
- Larsen & Toubro Limited - India
- Indo Tambangraya Megah - Indonesia
- The University of Queensland
- Sical Logistics Limited - India
- Semirara Mining Corp, Philippines
- Ministry of Transport, Egypt
- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Bukit Makmur.PT - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Sindya Power Generating Company Private Ltd
- Asmin Koalindo Tuhup - Indonesia
- Energy Link Ltd, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- GMR Energy Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- Grasim Industreis Ltd - India
- Oldendorff Carriers - Singapore
- Meralco Power Generation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Economic Council, Georgia
- Coalindo Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Sakthi Sugars Limited - India
- Jaiprakash Power Ventures ltd
- Malabar Cements Ltd - India
- PowerSource Philippines DevCo
- Wilmar Investment Holdings
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- Chamber of Mines of South Africa
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- White Energy Company Limited
- Georgia Ports Authority, United States
- Wood Mackenzie - Singapore
- Merrill Lynch Commodities Europe
- Independent Power Producers Association of India
- Vedanta Resources Plc - India
- Bharathi Cement Corporation - India
- PTC India Limited - India
- Bayan Resources Tbk. - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- IEA Clean Coal Centre - UK
- Bhushan Steel Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Intertek Mineral Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bhatia International Limited - India
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