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Downturn specialists

Hong Kong owners know when to snap up a bargain.

Hong Kong shipowners know better than most how to take advantage of a recession. Splash well recalls former Hong Kong Shipowners Association (HKSOA) chairman Peter Cremers saying, “During this downturn I can’t think of anywhere better in the world to be than Hong Kong.” He said that eight years ago, almost to the day, and arguably those words are truer than ever.

At the end of October this year, Pacific Basin, Hong Kong’s largest owner by fleet size, revealed clever plans to hand out new shares to ten owners in return for getting lower charter rates on ships it has taken in.

“The directors consider that the issue enhances the company’s cash balances and its ability to maintain its balance sheet strength in the protracted weak dry bulk market,” Pacific Basin said.

Pacific Basin is one of the world’s largest owners and operators of handysize and supramax bulkers and currently operates more than 200 dry bulk ships of which 89 are owned and about 130 are chartered.

Earlier in the year Pacific Basin said it was building a war chest to buy secondhand handy and supramax ships which are “at historically depressed prices”. These new acquisitions, Pacific Basin maintained, “would be able to generate an earnings premium compared to market indices”.

Speaking with Splash, Mats Berglund, ceo of Pacific Basin, said: “We will assess carefully attractive opportunities that likely will materialise in the weak market but the priority is making sure we manage through this weak market.”

Pacific Basin’s founder’s son Ed Buttery has also sought to nail down bargains in the downturn. Buttery runs handy specialist Taylor Maritime and has told Splash of plans for the rapid expansion of his fleet.

Founded in 2014, Taylor Maritime has grown its fleet of Japanese-built handsize bulkers to nine ships in under two years.

“By the end of next year, we plan to have a fleet of 15-20 vessels,” Buttery said, effectively doubling the company’s fleet size.

“We also intend to have enough funds on hand to be able to add an additional 10 vessels,” Buttery added.

In terms of finding ships, Buttery conceded that he will have to consider Chinese built ships, “as long as they meet certain quality criteria for our customers.”

Farewell to a shipping legend

Following a long illness George Chao, a shipping legend in Hong Kong and president of Wah Kwong, died, aged 76, in hospital on July 20.

Chao was one of four sons of T.Y. Chao, the founder of Wah Kwong, and father of Sabrina Chao, the current chairman of the company. Sabrina took over the running of the company in January 2013, and she is now also the chairman of the HKSOA.

The Chao family represents one of the most prominent of Hong Kong’s shipping dynasties.

George Chao and his brother Frank Chao joined Wah Kwong in the mid-1960s. After Frank Chao retired in 1999, George continued at the helm of the company, maintaining the company’s prominence in the Hong Kong shipping community as well as fulfilling a number of roles in important shipping bodies such as Bureau Veritas and the Asian Shipowners’ Forum insurance committee.

Always elegantly attired, Chao was considered to be lightening fast when he could sense a deal was on the table with one shipping correspondent describing him as having “the swagger of a riverboat gambler”.

Wah Kwong is a founding member of the HKSOA. As with most other founding members, the company’s heritage can be traced back to the mainland.

“He was a forceful character, one that could demolish walls if he saw the sense of a project or initiative,” said the HKSOA’s managing director, Arthur Bowring. “He was always incredibly supportive of the maritime industry in Hong Kong, and not at all afraid of promoting the importance and needs of our industry to our government. George’s passion for the industry and for Hong Kong will be sorely missed.”

Wah Kwong is currently on the hunt for a new ceo after Tim Huxley quit his post in May.

Huxley has told Splash “a disagreement among senior management” was the reason for his surprise departure as ceo of Wah Kwong Maritime Transport Holdings.

Huxley, who had been with Wah Kwong for nearly nine years, is now looking at other positions in the local shipping scene, as well as pushing his own vehicle, Mandarin Shipping, which he launched 10 years ago, having left brokers Clarkson.

Mandarin Shipping ploughs ahead with news it has just fixed its latest newbuilding, the 1, 700 teu Mount Gough, to X-Press Feeders for a period of two to five months at $8,150.

The ship is expected to be deployed on intra-Asia routes. The Mount Gough is the third vessel in a series of six ships ordered at China’s Zhejiang Ouhua Shipbuilding in October 2014 e. It follows the Mount Butler, delivered in February (and currently on charter to KMTC who has just extended it for three to five months at $8,250), and the Mount Cameron, delivered in June (and currently on charter to Sinokor).

Three more vessels of the same type are yet to be delivered: the Mount Hallowers and Mount Kellet (both due in January 2017) and the Mount Nicholson, due in July 2017. The order initially carried an option for two further vessels which has yet to be exercised.

The Mount Gough and its sisters belong to the CV Neptun 1700 design, which features a fuel efficient profile and Bangkok Max dimensions. Designed with intra-Asia trades in mind, the ships are gearless and fitted with 350 reefer plugs.

TCC: ‘Building to requirement’

TCC chairman Kenneth Koo told Splash that his company is focused on fleet renewal at the moment.

“First and foremost is building to requirement from our long term customers and secondly to balance our tankers and bulkers fleet which, at this point, is still skewed towards the capes,” Koo said.

TCC recently took delivery of the first of two aframax tankers from Namura Shipyard in Japan. Both vessels are committed on long term charter to BP.

On the pipeline are two more aframax tankers, one from Namura and one from Sasebo.

“This total of four aframaxes also enables us to replace our existing and sold aframaxes in addition to the long term charter aforementioned,” Koo said.

TCC also has a total of three newcastlemaxes on order. Two will be built in Imabari and are committed on long term charter to NS United and one to be built also in Namura and committed on long term charter to NYK. It also has a dunkirkmax to be built in Imabari in a joint venture with K Line.

TCC disposed of two capes recently for scrapping and will be disposing of an additional one this year most probably for scrapping as well.

“All in all, we expect a fleet of around 15-16 vessels by 2020 including our four aframaxes and one existing VLCC. The rest of the fleet will consist of two panamax bulk carriers delivered to us in 2014 and 2015 respectively and seven capes including the aforementioned newbuildings,” Koo said.

OOCL: In the consolidation mix

In container shipping’s greatest year of consolidation all of a sudden attention has shifted to Orient Overseas Container Line (OOCL). With analysts suggesting any company who wants to be part of the assured club who are global carriers needs to have a fleet capacity of more than 1m teu, OOCL’s 568,000 teu suddenly looks paltry.

Splash has repeatedly been told that OOCL is up for sale for the right price, and not for the first time. OOCL spokespeople continue to deny these rumours.

It remains debateable what OOCL could sell for – even though it is widely seen as one of the best operators in the liner sector.

CC Tung, the veteran chairman of OOCL, has warned of a very challenging demand side for box shipping for the coming five years.

Tung, 73, who has been chairman of the Hong Kong liner since 1996, was downbeat on any swift turnaround in fortunes when announcing the company’s interims this August.

“The industry continues to face a supply and demand imbalance. While the orderbook as a percentage of existing fleet is anticipated to drop to 6.7% and 5.5% respectively in 2017 and 2018, the challenge for the next half decade is on the demand side,” Tung said, adding: “The world economy seems uninspiring at best. The US may have passed its most difficult period in this cycle, and China will likely avoid a hard landing. Even if Europe finds its footing in the aftermath of Brexit, the world may very well need to adjust to a ‘new normal’ where unexciting growth and a low interest environment become the norm, at least for a half decade. In the mean time, the polarisation of domestic politics, the rise of populism, and the tendency towards ‘turning inwards’ for many nations may also translate into a slow down in the velocity of globalisation.”

The Tung’s privately held bulk arm, Island Navigation, has had a busy few months of late, especially trading product tankers. It has just moved to take the Japanese-built Classy Victoria LR product tanker from Mitsui OSK Lines (MOL) for $18m. The acquisition follows hot on the heels of Island Navigation taking another Japanese MR product tanker, the 10-year-old Challenge Prelude from Nippon Yusen Kaisha (NYK). The deal comes with a bareboat charter attached. Island Navigation sold its oldest MR tanker, Maple Express, this August for $12.8m.

This article first appeared in Splash’s Hong Kong magazine, which launched yesterday. Splash readers can access the full magazine online for free by clicking here.

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