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As Bulkers Trade Lower, Some See Opportunity

Dogan
The powership Dogan Bey, formerly the bulker Melpomeni (file image courtesy Karadeniz)

By The Maritime Executive 2016-01-25 21:00:21

As the Baltic Dry Index remained at an all-time low of 354 points Monday, news emerged from South Korean media sources of a liquidity crisis at diversified maritime firms Hyundai Merchant Marine (HMM) and Hanjin Shipping, the latest bulker operators to face challenges in a weakening market. 

HMM said last week that it was in talks with a subsidiary of private equity firm Hahn & Company to sell its bulk shipping business, according to the Korea Economic Daily, adding the firm to a growing list of operators selling bulkers. The price was reportedly in the range of $500 million. HMM said in a regulatory filing that although it was in talks, nothing was yet finalized.

At the completion of the sale, industry sources say, HMM expects to get liquidity of about $80 million. HMM has been unable to secure bonds with its bulk shipping business as collateral given weak investor confidence in the bulk market, and the sale will give it cash for debt service.

Both firms have sold significant assets, including subsidiaries like HMM's LNG business and logistics operations, but they still have very high debt ratios, and Korean media report that financial authorities have cut the firms off from further state support.

The news follows a long trend: private commodity and transportation firm Cargill has closed its London dry bulk office; Scorpio Bulkers has sold its capesize fleet at a loss in the hundreds of millions, and CEO Emanuele Lauro told the Wall Street Journal that “we will go under if this market persists;” New York-based shipping expert Basil Karatzas told media that “it's a bloodbath, which calls into question the survival of many dry bulk shipping companies,” citing a 50 percent overcapacity in the capesize market. Struggling Mercator Lines was liquidated January18 by its parent company, following a Singapore court's appointment of a judicial manager.

But others see opportunity in the plummeting value of a capesize bulker. Karadeniz Holding's Karpowership has made a business of converting vessels into floating power stations and leasing them for electrical generation in developing nations. Karpowership owns and operates more than 1800 MW of installed capacity worldwide, and its fleet supplies 15 percent of Iraq’s power, 30 percent of Lebanon’s and 16 percent of Zambia’s. The firm also has agreements for 450 MW in Ghana and 540 MW in Indonesia. It operates nine of the vessels and has several under construction, with plans for more; Karadeniz claims a total of six conversions in progress.

Media suggest that the firm is next looking to buy Kumiai Navigation's Cape Century, a 2001-built capesize, for only $6 million.

As the value of bulkers continues to fall, the firm has been gradually paying less and less for its capesize vessels. Orhan Ali Khan (formerly the capesize Abyo Four), due on line in August, was purchased early last year for $11 million; in November Karadeniz was said to be looking to buy the cape Nisshin Trader for $9 million from Nisshin Shipping, and, separately, the SA Altius and SA Fortius from Enterprises Shipping & Trading, also at a price of $9 million per ship.

While the latest sales have not been confirmed as final, the reported $6 million price for Cape Century would be a third of what the firm paid for the capesize Pacific Triangle in 2014, now under conversion as the Karadeniz Osman Khan