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SF PHOTO

The case for regulatory-driven diversification in Ship Finance

A decade ago, we all knew of at least one shipping company that felt safe receiving its debt financing from a single source (a behaviour that was, unfortunately, encouraged by some bankers), and eventually experienced immense pain when some key-lenders abruptly withdrew from ship financing.

Back at that time, sourcing finance from a handful of different – typically European – banks (as opposed to, from a single one), was considered a sound approach to funding diversification, since the key driver for a Bank’s approach to lending was its own business policies and individual circumstances.

That was then. Next, the banking crisis happened. And then the shipping one followed… Both led to (a) an increased regulatory attention to bank-lending towards the shipping industry; and (b) the regulatory framework being the dominant parameter shaping each Bank’s business activity.

One unsurprising consequence of the above was that (European) bank lending, when it came to shipping, became much less abundant. A second, and initially less anticipated, change was that the approach of lenders, regulated by the same regulator, became significantly more homogeneous. A shipowner friend recently confided to me – half-seriously, half-jokingly – that “if I remove the bank logos from the term sheets I receive, I cannot really tell which-one sent me which.” This is mostly the result of the tighter regulatory framework under which European banks are operating and, jokes aside, highlights the need for regulatory diversification.

Given the importance that debt capital has for an industry as capital-intensive as shipping is, no shipping company can afford all of its lenders to operate under the same regulatory framework. Were it to do so, the result might be that next time something important happened, its lenders would be highly likely to change their views about their shipping exposure at the same time and in the same way. It is like operating a VLCC in high-seas, with no internal bulkheads limiting cargo shifting around: you don’t want to be on it when the wind starts blowing hard…

Thankfully, the alternative financiers, who flocked-in during the last few years, are a crowd made-up by highly different animals. We can hence observe “blocks” of lenders, each defined by the main regulator they operate under, with their respective members behaving in a correlated way. European banks are such a block, with a couple of sub-blocks, defined by the risk-rating model each bank uses to rate its obligors.

Another block are the Chinese financial institutions, another are the Japanese, each having different local regulatory frameworks and/or adopting global ones (like Basel IV) at a different speed than their European counterparts. An additional regulatory diversification bonus comes from the different local central banks’ monetary policies and the impact these have on respective lenders’ balance sheets and capacity to lend.

There is, of course, the block of lenders that are completely untouched by lending regulatory frameworks, such as the various credit funds: their activity is, of course, also contingent on market realities, views, models and limitations but – and this is the key issue here – these are different from the ones traditional financiers have.

The optimal mix of funding sources is a moving target, given the constantly changing finance scene, and also it differs from company to company, depending on parameters such as fleet size, corporate structure, or employment profile (but also some more nuanced ones like specific industrial relationships). A ship-finance specialist, whether internal or external to the company, can be the key for keeping this mix as-close-as-possible to optimal at all times.

Some might argue that the above approach is an expensive one: “I have a financier who provides me with a very competitively priced product, and I feel comfortable with him” or “Why start a new relationship with a geographically/culturally distant and/or more expensive lender?” are comments sometimes made.

In a nutshell, the answer is that diversification, even at some cost, works like an insurance policy. For an industry that has grown up having insurance at its heart (who can imagine shipping without it…) the concept of paying what could appear to be a ‘premium’ to hedge against a known and accepted risk (that of lack of financing), but which could pay-off in multiples later on, should not be that strange.

The ship financing scene is trying to find again its balance, while overall volatility in the finance world is increasing. Seeking regulatory diversification of funding sources might prove to be an efficient way to avoid “déjà vu all over again” as dear old Yogi Berra would have put it…

Dimitri G. Vassilacos is a Partner at Ship Finance Solutions (SFS), a boutique financial consulting firm specializing in the shipping sector. Prior to that he had assumed a variety of positions during a 20-year-long career in the banking sector, including Head of Greek Shipping at Citibank and Manager of the Shipping Division at National Bank of Greece.

MA PHOTO

Mid-stream mergers and acquisitions for Q3 of 2018

A combined value of US$91.9 billion in mergers and acquisitions (M&A) was announced in Q3 of 2018. This was an increase of 21% from the US$75.9 billion in M&A deals announced in the previous quarter. The number of M&A deals decreased by 20% from 102 in 2Q18 to 82 in Q3 of 2018, according to GlobalData, a leading data and analytics company.

The company’s latest report: ‘Quarterly Midstream Capital Raising Review – Q3 2018’ states that, of the total M&A deals, 58 deals, with a combined value of US$83.6 billion, were domestic acquisitions and the remaining 24, with a combined value of US$8.2 billion, were cross-border transactions. A quarter-on-quarter comparison shows a 12% decrease in cross-border transaction values in 3Q18, compared to US$9.3 billion in 2Q18. However, domestic transaction values increased by 26% in 3Q18 compared to US$66.5 billion in 2Q18.

Energy Transfer Equity’s (ETE) agreement to acquire the remaining stake in Energy Transfer Partners (ETP) for a purchase consideration of approximately US$60.4 billion was the top deal registered in 3Q18. Another landmark deal that was recorded in 3Q18 was Enbridge’s agreement to acquire all of the outstanding public Class A common units of Enbridge Energy Partners, all of the public outstanding shares of Enbridge Energy Management, and all of the issued and outstanding shares of Enbridge Income Fund Holdings, for a purchase consideration of US$7.1 billion.

Americas remained the frontrunner for M&A registering 33 deals, with a total value of US$82.1 billion in 3Q18. Cross-border activity in the region decreased from 9 in 2Q18 to 6 in 3Q18, while domestic acquisitions decreased by 43% from 47 deals in 2Q18 to 27 in 3Q18.

Europe, Middle East, and Africa accounted for 37% share in 3Q18, comprising 31 acquisitions, of which 10 were cross-border and the remaining 21 were domestic acquisitions. The Asia-Pacific region accounted for 20 global deals, or 24% in 3Q18, of which 10 were cross-border acquisitions and the remaining 10 were domestic acquisitions.

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Oxford and Cambridge top the list of best universities in the world

The UK is still home to the top two universities in the world, according to the 2018 Times Higher Education World University Rankings.

Oxford University is on top for the third consecutive year, while Cambridge keeps its second best position for the second year in a row.

However, UK is no longer the second most-represented nation in the rankings. Despite the UK having 98 institutions in the full list of 1,258, it loses its spot to Japan which claims 103 positions. The UK does however retain its status as second most-represented in the top 200.

The US’s Stanford University completes the top three, maintaining it position from last year. The US still leads the way as most-represented with 172 institutions in the list.

This year’s ranking see the University of Dundee and Royal Holloway slipping out of the global 200.

China’s new top university, Tsinghua, claims 25th spot, and overtakes the UK’s LSE for, which falls one spot to 26, and the University of Edinburgh which drops from joint 27 to 29.

There are a number of climbers in the UK, with University College London rising two spots to number 14, and the University of Warwick scaling 12 places to joint 79th.

The University of Birmingham jumps 25 positions to joint 116, while the University of Aberdeen leaps 27 positions to 158th.

Phil Baty, editorial director of the global rankings, said: ‘We see some individual stars in the UK this year, but the broader national data story is really one of stagnation and modest decline, with the UK taking a minor hit to its research reputation.

‘We can only speculate at this stage as to any connection with Brexit, the risk, however, to the UK’s reputation and research capabilities from its separation with Europe is very real.

‘The ground-breaking work of UK universities mustn’t be undermined by complacency and politicking.

‘To ensure they continue to thrive on the global stage, positive immigration and investment policies are crucial.

They must be free to attract and retain the very best international talent and international students post-Brexit, and they must be protected from cuts, the flow of research funding and academic talent mustn’t be impacted.

French Law

Experiment of new rulings (procédures de rescrit) under French Law

Law dated 10 August 2018 (n°2018-727) creates by way of experiment the possibility for a plaintiff to raise a written question in order to obtain a legal position related to the application of the law. The particularity of such a new regulation is that such a question may be raised before French administration (Article 22 of the law) or before the administrative judge (Article 54 of the law) (depending on the applicable procedure).

Inspired by the historical roman institution (rescrit du préteur), this new legal institution is additional to the already existing ones, such as the question préalable (for administrative law), the question préjudicielle (for EU law), the question prioritaire de constitutionnalité (QPC) (for constitutional law) or the tax ruling (for tax law).

The mechanism underpinning the procedure is the same: raise a question on the application or construction of the law. The addressee is however different: judge for a question préalable, a question préjudicielle or a QPC, administration for the tax ruling and administration or judge for the new rulings. The experiment will last for a period of three years starting the date of publication of a specific decree.

These procedures aim at improving legal safety (even if it can be alleged that the drawback of the multiplication of these rulings may lengthen the process).

Magneto PHOTO

An invitation to MagentoLive Europe

MagentoLive Europe promises to be one of the largest gatherings of eCommerce innovators in Europe, and we’d like to you be there!

Just a few short months after the close of Adobe’s acquisition of Magento Commerce, Adobe and Magento will reveal jointly how the two companies plan to empower businesses to realize the full potential of experience-driven commerce. Join Adobe CEO Shantanu Narayen and Mark Lavelle, Senior Vice President of Commerce, to learn:

  • The topics and trends transforming the world of commerce and how this can help you develop effective strategies for future expansion.
  • How Magento Commerce Cloud integrates with Adobe Experience Cloud and what this means for experience-driven commerce.
  • Case studies from 20 successful customers on how Magento digitally transformed their business in migration, omnichannel and commerce.

Book your place now – 9th-10th October, Barcelona

What’s more, we’re offering a special €195 ticket price to people who register via this InMail, representing a €500 discount off a Standard Rate ticket. Simply enter promo code ADOBEMER195 during registration to receive your discount.

If you would like to secure your place at MagentoLive Europe, please click the following link: https://live-eu.magento.com/registration

Bitcoin PHOTO

Market Watch: Bitcoin has fallen to its lowest point since November

On Friday the price of Bitcoin fell to $5,791, the lowest since last November, and while it recovered in Tokyo, the fall has led to a flurry of speculation that it will be wiped out. We cannot know, but since it is the largest of the cryptocurrencies, and other smaller examples are apparently now worthless, the possibility is clearly there. But of course, that may prove wrong – there may be some value after all.

What can we sensibly say?

First some thoughts about money in general; next some about this particular so-called “currency”; and then some about the consequences of a total collapse, or a recovery.

Cryptocurrencies are quite new but the history of money is very old. People have used something as money for at least 20,000 years. Paper money is only a few hundred years old in Europe but was used a couple of thousand years ago by the Chinese. The classic functions of money are threefold: they are a medium of exchange, a unit of account and a store of value. The second is simply something we can price things in, thereby measuring comparative values, and the first and third are obvious.

On this tally, none of the cyber currencies stack up. They have a marginal use as a medium of exchange because some people will accept them in exchange for goods and services, but they are too volatile to be useful as a unit of account or store of value. Indeed in most transactions, they don’t really serve as mediums of exchange because they have to be switched into real money first. They are, however, an asset class like gold, fine wines or classic cars.

That leads to the next question, and maybe soon very relevant question: what happens now to their value?

With regular currencies there is an issuing body that will in extremis stand behind them: usually a national government. Ultimately the backing is the taxing power of the state. Sometimes that taxing power is inadequate to support the currency, or the central bank issues too much of it. The most recent example of this is Venezuela right now. The Bolivar has lost 99 per cent of its value against the dollar this year (Bitcoin has lost 58 per cent), and if I have got my decimal point in the right place the current rate is more than 100,000 Bolivars to the dollar. So it is in effect worthless. The poor country (which given its oil revenues should be the richest in Latin America) is running on barter and dollars. Currency reform is promised for August, and we’ll see.

So what is behind Bitcoin? Well, it is not clear that there is anything there at all. It may be that the holders of Bitcoin will collectively support it, in that they will accept it in return for goods and services. That would allow it to continue. But if they collectively try to bunk out, there would be a Bolivar situation.

Might there be collective support? The trouble is that we don’t know who owns the Bitcoin. A huge amount of energy has gone into uncovering ownership but apart from a few high-profile holders such as the Winklevoss twins in America, the names remain concealed. By looking at IP addresses, it is clear that ownership is very concentrated. According to BitInfoChart, 87 per cent of all coins issues are held by 0.5 per cent of holders. But the big holders don’t seem very active, for many of them don’t seem to have sold any at all.

Anecdotal evidence suggests that the larger holders in the developed world fall into five groups. There are some tech-savvy people who got in very early and saw cryptocurrencies almost as a game. They are probably still holding onto all or most of their stock. Second, there are people around the world who have suddenly come into money – oil workers in Kazakhstan – and want to pop it into a variety of different investments. Third, there are computer students, who literally bought the hype and put cash into a few Bitcoin while there were still affordable. Four, there are general investors, many of whom who got suckered in last autumn and are sitting on big losses. And finally there are the illegal or tax-avoiding holders who want an asset that is under the radar.

The intriguing question is this: who, among these groups, really needs to sell? We have seen a collapse of the currency, but from a very high level. Many holders, probably most, will be still on a profit. So the question will be whether enough of them decide that they do want the deposit for a house or whatever else.

But this is in the West. Most of the trading in Bitcoin is now in Asia, with much of that in China. It may be that this is more trading than holding, or it may be that investors in the developed world have indeed been gradually unloading their stock and this is being picked up by Chinese investors. It may be that as and when the final collapse comes, the run will start in Asia. We simply don’t know.

What we do know is that cybercurrencies are much frowned upon by the financial establishment in the West. There are a few supporters but not many. On Friday Mohamed El-Erian, chief economic advisor at Allianz, said Bitcoin would be a buy if the price falls below $5,000. The most scathing and detailed commentary came last week from the Bank for International Settlements (BIS). It said there were three problems: scalability, stability and trust.

On scalability it pointed out that these currencies were now using enough electric power to run Switzerland. It follows that if they were to grow further there would not be enough power in the world to drive them. Stability, well – we have seen what has happened. And trust? The BIS thinks that the decentralised nature of cryptocurrencies is a weakness rather than a strength.

We will know the answer pretty soon. My instinct is that these cryptocurrencies will disappear in a puff of smoke. I just hope too many people are not too damaged when it happens.