Shippers Strike Back But Their Bonds Still Adrift : Ezra 5% 09/2015

Sept. 11 (Bloomberg) — Shipping rates extended gains to the highest since 2011
as Chinese steel mills replenish iron ore stockpiles amid record output.
The Baltic Dry Index, a benchmark for costs to ship iron ore, coal and grains,
rose for an eighth session, adding 5.6 percent to 1,628, the highest since
December 2011, according to the Baltic Exchange, the London-based publisher of
freight rates. Earnings for Capesizes, the largest ships tracked by the gauge,
led the gain, climbing 9.8 percent to $29,674 a day, data show.
The rally follows six months of Capesize rates averaging below operating costs.
Earnings are still 87 percent below the 2008 record as owners ordered too many
ships before the global recession. The glut of vessels may push rates down
again after China’s import spurt subsides, said Nigel Prentis, head of
consultancy at Hartland Shipping Services Ltd., a London-based shipbroker.

Ezra’s stock price has risen some 45% for the month. The market is awash with rumours of Samsung Heavy’s interest in the company even though it was denied on 28 Aug.

“Ezra Holdings has moved quickly to quash talk of a takeover of the Singapore offshore firm by Korean shipbuilding giant Samsung Heavy Industries.
In response to an article published in a Norwegian industry newspaper and a CIMB analyst report, Ezra stated that it was “not aware of nor has it been engaged on the subject of a takeover of the Company by SHI” and it would remain focused on its strategy to grow its subsea business.”

The new Ezra 5% 2015 bond is still somewhat of an anomaly after its re-tap last month at 100 which drove prices down more than a cent. The secondary market took a turn for the worse and the bond is still trading under water between 99.60-100.

As for the rest of the smaller shippers, we are not seeing much support in the secondary markets despite the initial euphoria when they were issued.

This says to me that banks are increasingly tight fisted with their trading limits and paring down their books. Traders buy bonds for 2 main reasons, 1. if they think  the credit has potential to improve and 2. if interest rates are going lower without affecting the credit worthiness.

Banks are not buying even as the equity improves.

Takeovers can be good for the company if it is a friendly (mutually agreed) one and if the company taking over is a better credit.

Ezra’s hurry to issue last month raised many eyebrows and suggests the building of a war chest in preparation for a near term event. The 2015 paper is trading >1.5% over Ezion, a similar but slightly superior credit.

Would welcome any feedback from readers.