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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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Saturday, 01 August 20
ASIA HOPE FOR LONG-TERM OIL DEMAND - BALTIC BRIEFING
Oil demand in Asia Pacific might be expected to plunge 1.8m barrels per day (bpd) this year, but there are still strong prospects for growth over t ...
Friday, 31 July 20
SHORT-TERM IMPACT ON THE CHEMICAL SHIPPING MARKET IF THE INDIA-CHINA DISPUTE ESCALATES - DREWRY
Due to the India-China dispute, the threat of deteriorating trade relations between the two countries has become real. Meanwhile, we expect freight ...
Friday, 31 July 20
PANAMAX: THE PERIOD MARKET REMAINS QUIET WITH FEW FIXTURES REPORTED - FEARNLEYS
Capesize
After weeks of dropping rates, there are finally some resistance for the Capes. Pacific rounds improving to upper15,000s by the middle ...
Friday, 31 July 20
PANDEMIC SENDING SOUTH AFRICAN COAL INDUSTRY TO EARLIER GRAVE - IEEFA
Could South Africa’s coal export industry, one of the largest in the world, be about to take a severe hit from the coronavirus?
...
Friday, 31 July 20
BOTSWANA PLANS MORE COAL-FIRED POWER AS AFRICAN SOLAR ACCELERATES - IEEFA
An African economic leader like Botswana should embrace solar to reduce subsidies and tariff hikes
As Sub-Saharan solar ambition has ...
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- TNB Fuel Sdn Bhd - Malaysia
- Manunggal Multi Energi - Indonesia
- Madhucon Powers Ltd - India
- Kobexindo Tractors - Indoneisa
- Formosa Plastics Group - Taiwan
- Coalindo Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Electricity Authority, New Zealand
- Vedanta Resources Plc - India
- International Coal Ventures Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- Iligan Light & Power Inc, Philippines
- Miang Besar Coal Terminal - Indonesia
- Africa Commodities Group - South Africa
- European Bulk Services B.V. - Netherlands
- Orica Australia Pty. Ltd.
- Petron Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Kumho Petrochemical, South Korea
- CNBM International Corporation - China
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- GMR Energy Limited - India
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- OPG Power Generation Pvt Ltd - India
- Australian Coal Association
- Xindia Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sindya Power Generating Company Private Ltd
- The State Trading Corporation of India Ltd
- ICICI Bank Limited - India
- Parliament of New Zealand
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Makarim & Taira - Indonesia
- Attock Cement Pakistan Limited
- ASAPP Information Group - India
- Lanco Infratech Ltd - India
- GVK Power & Infra Limited - India
- Anglo American - United Kingdom
- SMG Consultants - Indonesia
- Goldman Sachs - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Tamil Nadu electricity Board
- Grasim Industreis Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coal and Oil Company - UAE
- Baramulti Group, Indonesia
- Romanian Commodities Exchange
- Economic Council, Georgia
- Energy Link Ltd, New Zealand
- Agrawal Coal Company - India
- AsiaOL BioFuels Corp., Philippines
- Georgia Ports Authority, United States
- White Energy Company Limited
- Price Waterhouse Coopers - Russia
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Thiess Contractors Indonesia
- Global Business Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- PTC India Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- Rio Tinto Coal - Australia
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Kapuas Tunggal Persada - Indonesia
- The University of Queensland
- Energy Development Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Antam Resourcindo - Indonesia
- Maheswari Brothers Coal Limited - India
- SMC Global Power, Philippines
- Marubeni Corporation - India
- Indian Energy Exchange, India
- Trasteel International SA, Italy
- Neyveli Lignite Corporation Ltd, - India
- Power Finance Corporation Ltd., India
- Jindal Steel & Power Ltd - India
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Heidelberg Cement - Germany
- Dalmia Cement Bharat India
- Deloitte Consulting - India
- Bhoruka Overseas - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bahari Cakrawala Sebuku - Indonesia
- Bhatia International Limited - India
- Global Green Power PLC Corporation, Philippines
- Eastern Coal Council - USA
- Kartika Selabumi Mining - Indonesia
- Semirara Mining Corp, Philippines
- South Luzon Thermal Energy Corporation
- Vizag Seaport Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Sree Jayajothi Cements Limited - India
- Mjunction Services Limited - India
- India Bulls Power Limited - India
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Tata Chemicals Ltd - India
- Planning Commission, India
- The Treasury - Australian Government
- Sinarmas Energy and Mining - Indonesia
- Videocon Industries ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Binh Thuan Hamico - Vietnam
- Independent Power Producers Association of India
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- Toyota Tsusho Corporation, Japan
- Renaissance Capital - South Africa
- London Commodity Brokers - England
- Meralco Power Generation, Philippines
- Central Electricity Authority - India
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Billiton Holdings Pty Ltd - Australia
- Australian Commodity Traders Exchange
- GN Power Mariveles Coal Plant, Philippines
- Bharathi Cement Corporation - India
- VISA Power Limited - India
- Ministry of Finance - Indonesia
- IHS Mccloskey Coal Group - USA
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Directorate Of Revenue Intelligence - India
- San Jose City I Power Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Eastern Energy - Thailand
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- Port Waratah Coal Services - Australia
- Star Paper Mills Limited - India
- Borneo Indobara - Indonesia
- Wilmar Investment Holdings
- CIMB Investment Bank - Malaysia
- Essar Steel Hazira Ltd - India
- Straits Asia Resources Limited - Singapore
- PNOC Exploration Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Posco Energy - South Korea
- Kalimantan Lumbung Energi - Indonesia
- Siam City Cement - Thailand
- Salva Resources Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Indogreen Group - Indonesia
- Bukit Makmur.PT - Indonesia
- Parry Sugars Refinery, India
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Interocean Group of Companies - India
- Indian Oil Corporation Limited
- Riau Bara Harum - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bhushan Steel Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- New Zealand Coal & Carbon
- Sical Logistics Limited - India
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- TeaM Sual Corporation - Philippines
- Indika Energy - Indonesia
- MS Steel International - UAE
- Uttam Galva Steels Limited - India
- Ind-Barath Power Infra Limited - India
- Cement Manufacturers Association - India
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- Altura Mining Limited, Indonesia
- Ministry of Mines - Canada
- Siam City Cement PLC, Thailand
- Oldendorff Carriers - Singapore
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- Malabar Cements Ltd - India
- SN Aboitiz Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Carbofer General Trading SA - India
- IEA Clean Coal Centre - UK
- Standard Chartered Bank - UAE
- Medco Energi Mining Internasional
- Kideco Jaya Agung - Indonesia
- Central Java Power - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Pendopo Energi Batubara - Indonesia
- Simpson Spence & Young - Indonesia
- Mercator Lines Limited - India
- Ministry of Transport, Egypt
- Gujarat Sidhee Cement - India
- LBH Netherlands Bv - Netherlands
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- Merrill Lynch Commodities Europe
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