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Tycoon shelter from the downturn

Hong Kong shipping lines have fared better than most during the industry’s protracted depression. Splash catches up with key names in the territory.

Chastened by their perilous skirmishes with extinction repeatedly in the 1970s and 1980s, Hong Kong’s shipowners these days are a very conservative bunch – the territory is in fact one of the best places to ride out a shipping recession such as the current one. A wary outlook on the markets combined with an innate sense of a bargain means the city’s shipping lines often prosper these days while others fall by the wayside.

Sabrina Chao, chairman of one of Hong Kong’s most venerable names in shipping, Wah Kwong, has been well schooled in how to navigate shipping’s volatile peaks and troughs from her father, George. She is taking over the chairmanship of the Hong Kong Shipowners Association (HKSOA), one of the most vocal shipping bodies in the world and for Chao her elevation to the post – the first woman to do so – marks another rung on her rapid ascent in shipowning.

Chao, 41, is the third generation at the helm of the conservative bulker and tanker owner.

Wah Kwong has navigated the downturn well, a lesson for many others.

“We’ve stuck to what we know,” Chao says. “We have ambitions, but we grow when we see the right opportunity, not just when there is cheap money available.”

The company has maintained its approach of having period charters with significant charterers, so it has not been caught short with any unfixed newbuildings.

“It’s been about having the right assets and the right customers, but most importantly, it’s about having the right people and focusing on the detail at every level of the organization,” Chao says.

Chao officially became chairman of Wah Kwong in 2013, though she has technically been leading the company since 2010 when her father, George, was taken ill.

The Wah Kwong fleet is made up of 14 bulkers, three crude tankers and 10 LPG carriers.

Despite not having bought any secondhand tonnage since the 1960s, Wah Kwong is in the market for opportunistic buys, its CEO tells Splash. Ex-Clarkson broker Tim Huxley, who also heads up Mandarin Shipping, says prices for dry bulk are now looking attractive.

“As I said at the beginning of the downturn, ‘It will be criminal not to take advantage of this recession,’” Huxley says.

Sabrina Chao takes the HKSOA chair from Kingsley Koo, a director at another of Hong Kong’s oldest shipping lines, Valles Steamship. Koo and Valles represent all that is traditional in family run shipping, hence his irritation with all the new money washing into the business.

“There is too much speculation in shipping,” he tells SinoShip. There are too many funds with too much money investing in shipping, he says. While Valles typically orders one or two ships at a time, private equity is ordering “by the hundred”, Koo says.

Valles’s fleet sees 12 ships on the water plus three product tankers on order, which Koo stresses is replacement tonnage.

A cousin of Kingsley, Kenneth Koo, and an active former chairman of the HKSOA as well as chairman of TCC Group, has similar opinions on private equity and by extension the fortunes of the shipping market in the coming few years.

“Personally, I feel that if we can see daylight by 2020, we’re very lucky,” Koo says.

“We continue and, I feel, will continue for the foreseeable future, to be mired amidst a commoditised shipping market where continued abundance of liquidity — thanks to the multiple QEs that continue to print money like there’s no tomorrow — will mean cheap credit for a long time yet,” Koo explains. This combined with the fact that barriers to entry into the shipping market is now “akin to zero” – thanks to regulatory statutes such as ISM, which only focuses on compliance on managers and not beneficial owners – means private equity and hedge funds alike can continue, says Koo, “to speculate recklessly on ships with no operational accountability”.

“Ships are ordered on macro economic and short-term gains sentiment. We will continue to see newbuildings ordered on speculation,” warns Koo, the third generation at the helm of the Hong Kong shipping line.

With this dire market pronouncement since 2007, TCC has embarked upon a strategic roadmap to become, what Koo describes as a “top-of-mind boutique shipowner” building only based upon specific requirements from a short list of utilities such as oil majors and steel mills and major charterers who share TCC’s philosophy of long term strategic partnership and an uncompromising focus on quality and high standards of accountable shipownership. Koo has focused heavily on Japan, a nation that Hong Kong owners had a very strong link with during the 1960s.

“We have no plans to expand our fleet beyond what’s always been our optimal size of around 20 vessels,” Koo maintains.

Generational change

Hong Kong’s generational change of owners has also seen other names emerge in their own right. While the likes of TCC and Valles and others hand the baton down from father to son or daughter, some entrepreneurial spirits are striding out on their own.

For instance, the son of one of the most famous names in Hong Kong shipping appears like a chip off the old block, wheeling and dealing as he starts up his own fleet.

Hong Kong-based Taylor Maritime has bought five handy bulk carriers in the past couple of years in a low profile, but savvy fleet build up. Taylor Maritime’s ceo is Edward Buttery, the son of Chris Buttery, the legendary founder of Pacific Basin and current backer of Epic Gas. Taylor Maritime was founded in January last year. Prior to founding the company, Buttery was at Nordea Bank for two years.

“Since the family exited the handysize segment with Pacific Basin, we’ve not had the market to reenter until now,” Buttery says. “However with Taylor Maritime we are starting small to lay the foundations for a company we hope will be known for being a reliable long-term partner with high standards and well-run ships.”

Another of Hong Kong’s new generation taking a greater place in the limelight is Angad Banga, the younger of Harry Banga’s two sons. This November marks the second anniversary of the Caravel Group, the trading and maritime conglomerate set up by former Noble vice chairman Harry Banga and his two sons. Now boasting 750 employees in 12 countries, the start up of this company has been remarkably fast.

Angad Banga serves as executive director, taking up the roles of COO and CFO at the group. The group has a shipmanager in the form of Fleet Management, a shipping division and a trading division.

Caravel Shipping has grown exceptionally fast, now operating 80 to 90 vessels at any given time, a mix of supramaxes, panamaxes and capesizes. Banga says the aim is to get to 125 ships in the coming couple of years. In the first eight months the firm has executed 20m tons of cargo.

“We have built the business from the cargo side,” says Banga, adding: “Having access to cargo is paramount in this environment.”

On shipowning, Caravel has invested in eight boxships as one of a number of blue chip investors in the Tim Huxley-lead Mandarin Shipping. Plans are afoot to buy Caravel’s first bulkers.

“We have been looking,” Banga admits, “but we have not pulled the trigger. Investment will depend on asset prices. The ship will likely be for grain cargoes so will be either panamax or kamsarmax.”

The biggest names

At Hong Kong’s largest shipping line – by fleet size – the current market malaise both frustrates and presents opportunities in equal measure. Mats Berglund took over as ceo at Pacific Basin three years ago. His immediate priority was to strip away non-core businesses and return the line to its core area of expertise – handy bulkers. Out went roros and its towage business, while Pacific Basin embarked on a fleet build up, ordering a slew of bulkers two years ago that are still delivering. The focus is paying off; the latest quarterly results from the Hong Kong-listed firm show its handysizes and handymaxes are outperforming spot market rates by 39% and 15% respectively.

“My philosophy especially for a listed company is that investors want to know what they are buying into – it is best to be specialised,” Berglund says. It is also cheaper to focus on one or two sectors rather than many disparate shipping strands, he adds. Admitting Pacific Basin did not have a strong market position in roros and towage, he says it is easier to be focused and much harder for anyone to fool the company when it comes to handies.

“We put our money where we do have an edge,” Berglund says, “We have good market penetration, the only problem is the market.”

The plan going forward for Berglund’s company is to redeliver expiring and long-term chartered-in ships and rely more on owned ships, complemented by shorter-term and index-linked chartered ships.

“Short-term charters are the only thing you can make money on in this market,” Berglund tells Splash, adding: “With long term charters you are burning cash.” This quick manoeuvring in the markets requires “good footwork”, says the ex-Stena man.

Berglund says Pacific Basin has been positioned for upturn by buying much during the downturn, but it still has to be careful and maintain a strong balance sheet. It will seek out opportunities in the weak market to grow the fleet, but only very selectively.

“Secondhand prices are much more attractive than newbuild prices at the moment,” Berglund comments.

The territory’s biggest line by revenue, Orient Overseas Container Line (OOCL), meanwhile, has not been hanging around either.

In April OOCL went to its regular Korean yard, Samsung Heavy Industries, for the construction of six 20,000 teu containerships at a total price of $951.6m for delivery in 2017.

Container shipping’s rush to order ever-larger ships was likened by OOCL’s chairman, CC Tung, to an arms race at the annual Singapore Maritime Lecture in late April.

“You cannot get out of this arm race – it’s a nature of our business,” he said, adding: “Chief executives in shipping, especially in container shipping, all have huge egos,” Tung said.

Tung reckoned overcapacity in the container sector is now a “permanent problem”, as liners pursue ship size upgrades and fight for market share.

“Perpetual excess capacity,” Tung said, was brought about by the industry over ordering newbuilds both in good and bad times. Ordering at the right time – that’s what Hong Kong owners profess to do.


This article first appeared in the recently published Hong Kong Market Report 2015, published by Splash. Readers can access the full magazine for free by clicking here.

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