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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, 10 July 20
GLOBAL SHIPPING EARNINGS FORECAST CUT AS SUPPLY SET TO OUTSTRIP DEMAND - MOODY'S
EBITDA forecast worsens, keeping outlook negative. We now expect the aggregate EBITDA of rated shipping companies to fall by around 16%-18% in 2020 ...
Friday, 10 July 20
SLOW RECOVERY IN TANKER RATES TO WEIGH ON BUANA LINTAS LAUTAN - FITCH RATINGS
Fitch Ratings believes that international tanker rates are likely improve after their sharp fall since May 2020, albeit at a slow pace. The weaknes ...
Wednesday, 08 July 20
MARKET INSIGHT - INTERMODAL
During the previous month, the dry bulk market witnessed an impressive increase in the BDI index that has reached 1800 points from 500 with a clear ...
Tuesday, 07 July 20
COAL INDIA WORKERS STRIKE CUTS OUTPUT BY 56%: OFFICIAL - REUTERS
A strike at Coal India Ltd cut production by 56% in the three days ending July 4 as workers oppose opening up coal mining to the private sector, a ...
Tuesday, 07 July 20
WHAT DOES THE PATHWAY TO A NET-ZERO ECONOMY LOOK LIKE FOR MINERS? - WOOD MACKENZIE
Wind, solar, electric vehicles, stationary storage and transmission are all central to achieving the Paris Agreement decarbonisation goals.
&nb ...
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- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- PetroVietnam Power Coal Import and Supply Company
- Goldman Sachs - Singapore
- Bukit Makmur.PT - Indonesia
- New Zealand Coal & Carbon
- Bangladesh Power Developement Board
- Posco Energy - South Korea
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Aditya Birla Group - India
- McConnell Dowell - Australia
- Cigading International Bulk Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Deloitte Consulting - India
- Mercuria Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Dalmia Cement Bharat India
- Price Waterhouse Coopers - Russia
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- Rio Tinto Coal - Australia
- Bukit Baiduri Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Ministry of Transport, Egypt
- Marubeni Corporation - India
- Eastern Coal Council - USA
- AsiaOL BioFuels Corp., Philippines
- Wood Mackenzie - Singapore
- PowerSource Philippines DevCo
- Bharathi Cement Corporation - India
- Australian Commodity Traders Exchange
- Mjunction Services Limited - India
- Singapore Mercantile Exchange
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- Iligan Light & Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Jaiprakash Power Ventures ltd
- Star Paper Mills Limited - India
- ICICI Bank Limited - India
- Planning Commission, India
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- Globalindo Alam Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Manunggal Multi Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Timah Investasi Mineral - Indoneisa
- Vizag Seaport Private Limited - India
- Salva Resources Pvt Ltd - India
- Trasteel International SA, Italy
- Minerals Council of Australia
- Global Business Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Alfred C Toepfer International GmbH - Germany
- Aboitiz Power Corporation - Philippines
- The University of Queensland
- CNBM International Corporation - China
- Formosa Plastics Group - Taiwan
- London Commodity Brokers - England
- Independent Power Producers Association of India
- SN Aboitiz Power Inc, Philippines
- Altura Mining Limited, Indonesia
- San Jose City I Power Corp, Philippines
- IEA Clean Coal Centre - UK
- GAC Shipping (India) Pvt Ltd
- Standard Chartered Bank - UAE
- Kohat Cement Company Ltd. - Pakistan
- Interocean Group of Companies - India
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- Indonesian Coal Mining Association
- Latin American Coal - Colombia
- Xindia Steels Limited - India
- Edison Trading Spa - Italy
- Kartika Selabumi Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GMR Energy Limited - India
- Riau Bara Harum - Indonesia
- Grasim Industreis Ltd - India
- Karaikal Port Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Makarim & Taira - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- Borneo Indobara - Indonesia
- Sojitz Corporation - Japan
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Samtan Co., Ltd - South Korea
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- GVK Power & Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Indika Energy - Indonesia
- Oldendorff Carriers - Singapore
- Indian Energy Exchange, India
- ASAPP Information Group - India
- Parry Sugars Refinery, India
- Heidelberg Cement - Germany
- Electricity Generating Authority of Thailand
- Lanco Infratech Ltd - India
- Indogreen Group - Indonesia
- Parliament of New Zealand
- Meenaskhi Energy Private Limited - India
- Central Java Power - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sarangani Energy Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Tamil Nadu electricity Board
- White Energy Company Limited
- Leighton Contractors Pty Ltd - Australia
- Kapuas Tunggal Persada - Indonesia
- Vedanta Resources Plc - India
- Orica Mining Services - Indonesia
- Ministry of Finance - Indonesia
- Siam City Cement - Thailand
- Agrawal Coal Company - India
- Banpu Public Company Limited - Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Videocon Industries ltd - India
- Economic Council, Georgia
- Gujarat Sidhee Cement - India
- Meralco Power Generation, Philippines
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- MS Steel International - UAE
- Indo Tambangraya Megah - Indonesia
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Siam City Cement PLC, Thailand
- Attock Cement Pakistan Limited
- CIMB Investment Bank - Malaysia
- SMG Consultants - Indonesia
- Madhucon Powers Ltd - India
- Anglo American - United Kingdom
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- Chamber of Mines of South Africa
- Africa Commodities Group - South Africa
- Petron Corporation, Philippines
- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Kepco SPC Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- The Treasury - Australian Government
- Central Electricity Authority - India
- Thai Mozambique Logistica
- Binh Thuan Hamico - Vietnam
- Ministry of Mines - Canada
- Asmin Koalindo Tuhup - Indonesia
- European Bulk Services B.V. - Netherlands
- Commonwealth Bank - Australia
- Coastal Gujarat Power Limited - India
- Sical Logistics Limited - India
- Georgia Ports Authority, United States
- Merrill Lynch Commodities Europe
- Maheswari Brothers Coal Limited - India
- Kumho Petrochemical, South Korea
- Port Waratah Coal Services - Australia
- GN Power Mariveles Coal Plant, Philippines
- SMC Global Power, Philippines
- South Luzon Thermal Energy Corporation
- Electricity Authority, New Zealand
- PTC India Limited - India
- Australian Coal Association
- Uttam Galva Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Jorong Barutama Greston.PT - Indonesia
- Mintek Dendrill Indonesia
- Cement Manufacturers Association - India
- TNB Fuel Sdn Bhd - Malaysia
- Pendopo Energi Batubara - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jindal Steel & Power Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Kideco Jaya Agung - Indonesia
- Renaissance Capital - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Miang Besar Coal Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Sakthi Sugars Limited - India
- LBH Netherlands Bv - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Orica Australia Pty. Ltd.
- Toyota Tsusho Corporation, Japan
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