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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, 01 July 20
MARKET INSIGHT - INTERMODAL
It was beginning of 2020 – close to 6 months from now – when we first experienced the huge impact of the COVID 19 outbreak on Ship Repa ...
Monday, 29 June 20
INDONESIAN COAL AT THE MERCY OF THE DRAGON AND TIGER - GHEE PEH | IEEFA
Coal sector analysts have been busy in recent months mapping the negative impact of low coal prices from the COVID-19 pandemic on Indonesian coal c ...
Monday, 29 June 20
FALLING DEMAND IN CHINA AND INDIA SIGNAL TOUGH TIMES AHEAD FOR INDONESIAN EXPORTS - GHEE PEH | EEFA
Assessing the Impact on Indonesian Coal Companies
The bad news for Indonesia’s coal companies is that they are likely to have ...
Monday, 29 June 20
INDIA COAL IMPORT OUTLOOK: WEAK DEMAND, IMPORT SUBSTITUTION, EXPECT 20% YOY DECLINE - GHEE PEH | IEEFA
For India, the coal demand indicators have clearly turned negative.
According to Argus Media, since the government declared a ...
Monday, 29 June 20
CHINA COAL IMPORT OUTLOOK: MANY MOVING PARTS, FORECAST TO FALL 10% YOY - GHEE PEH | IEEFA
China’s coal demand declined in the first quarter of 2020. According to the China National Coal Association, the country consumed 870mt in th ...
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- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Australian Coal Association
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMC Global Power, Philippines
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- CIMB Investment Bank - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Marubeni Corporation - India
- The University of Queensland
- Eastern Coal Council - USA
- Barasentosa Lestari - Indonesia
- Eastern Energy - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Orica Mining Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kartika Selabumi Mining - Indonesia
- Dalmia Cement Bharat India
- VISA Power Limited - India
- Bukit Makmur.PT - Indonesia
- Sarangani Energy Corporation, Philippines
- Star Paper Mills Limited - India
- Rashtriya Ispat Nigam Limited - India
- Rio Tinto Coal - Australia
- Aditya Birla Group - India
- Billiton Holdings Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Baramulti Group, Indonesia
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Thai Mozambique Logistica
- Sical Logistics Limited - India
- Edison Trading Spa - Italy
- Vedanta Resources Plc - India
- Coastal Gujarat Power Limited - India
- Price Waterhouse Coopers - Russia
- Goldman Sachs - Singapore
- Anglo American - United Kingdom
- Leighton Contractors Pty Ltd - Australia
- Jaiprakash Power Ventures ltd
- Intertek Mineral Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Grasim Industreis Ltd - India
- Straits Asia Resources Limited - Singapore
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Madhucon Powers Ltd - India
- Ambuja Cements Ltd - India
- Central Electricity Authority - India
- Sree Jayajothi Cements Limited - India
- Romanian Commodities Exchange
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Independent Power Producers Association of India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coal and Oil Company - UAE
- Bhatia International Limited - India
- Semirara Mining Corp, Philippines
- Bharathi Cement Corporation - India
- Bulk Trading Sa - Switzerland
- Electricity Authority, New Zealand
- Directorate Of Revenue Intelligence - India
- Coalindo Energy - Indonesia
- CNBM International Corporation - China
- Kapuas Tunggal Persada - Indonesia
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- GVK Power & Infra Limited - India
- PNOC Exploration Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Interocean Group of Companies - India
- Australian Commodity Traders Exchange
- Manunggal Multi Energi - Indonesia
- Ministry of Transport, Egypt
- IEA Clean Coal Centre - UK
- Maheswari Brothers Coal Limited - India
- Parliament of New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- PetroVietnam Power Coal Import and Supply Company
- GN Power Mariveles Coal Plant, Philippines
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- San Jose City I Power Corp, Philippines
- MS Steel International - UAE
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- Therma Luzon, Inc, Philippines
- Electricity Generating Authority of Thailand
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- McConnell Dowell - Australia
- Globalindo Alam Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ind-Barath Power Infra Limited - India
- SMG Consultants - Indonesia
- Commonwealth Bank - Australia
- Kideco Jaya Agung - Indonesia
- Carbofer General Trading SA - India
- Sindya Power Generating Company Private Ltd
- Parry Sugars Refinery, India
- LBH Netherlands Bv - Netherlands
- Mjunction Services Limited - India
- The Treasury - Australian Government
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- Xindia Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indika Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Makarim & Taira - Indonesia
- Samtan Co., Ltd - South Korea
- New Zealand Coal & Carbon
- Krishnapatnam Port Company Ltd. - India
- Mercuria Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Africa Commodities Group - South Africa
- Pipit Mutiara Jaya. PT, Indonesia
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- Global Green Power PLC Corporation, Philippines
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Malabar Cements Ltd - India
- Tata Chemicals Ltd - India
- London Commodity Brokers - England
- European Bulk Services B.V. - Netherlands
- Thiess Contractors Indonesia
- GAC Shipping (India) Pvt Ltd
- Bukit Baiduri Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bayan Resources Tbk. - Indonesia
- The State Trading Corporation of India Ltd
- Indogreen Group - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Wood Mackenzie - Singapore
- Semirara Mining and Power Corporation, Philippines
- Chamber of Mines of South Africa
- Mintek Dendrill Indonesia
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Heidelberg Cement - Germany
- Alfred C Toepfer International GmbH - Germany
- Renaissance Capital - South Africa
- Posco Energy - South Korea
- Siam City Cement - Thailand
- GMR Energy Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Formosa Plastics Group - Taiwan
- Mercator Lines Limited - India
- Kumho Petrochemical, South Korea
- Vizag Seaport Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Bhushan Steel Limited - India
- Petron Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Global Business Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- PowerSource Philippines DevCo
- Antam Resourcindo - Indonesia
- Wilmar Investment Holdings
- Indian Energy Exchange, India
- Simpson Spence & Young - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Siam City Cement PLC, Thailand
- Salva Resources Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Georgia Ports Authority, United States
- Sakthi Sugars Limited - India
- Trasteel International SA, Italy
- Oldendorff Carriers - Singapore
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Indonesian Coal Mining Association
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- Sojitz Corporation - Japan
- Sinarmas Energy and Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ICICI Bank Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Holcim Trading Pte Ltd - Singapore
- Metalloyd Limited - United Kingdom
- SN Aboitiz Power Inc, Philippines
- Energy Development Corp, Philippines
- Central Java Power - Indonesia
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- Videocon Industries ltd - India
- PTC India Limited - India
- India Bulls Power Limited - India
- Economic Council, Georgia
- Attock Cement Pakistan Limited
- Meenaskhi Energy Private Limited - India
- Gujarat Sidhee Cement - India
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Minerals Council of Australia
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