Monday, March 5, 2012

Berlian Laju Tankers accused of diverting US$ 135 million in cash from company accounts


Last week BLT informed the Singapore Stock Exchange that it has defaulted on its interest payments on bond loans and bank debt.  BLT called in FTI Consulting as a financial adviser for its debt payment freeze and now it has added leading Asian insolvency specialist, Borelli Walsh.  Now there are serious allegations from Delos Shipping that BLT’s largest shareholders, the Surya family, have diverted $135 million in cash from company accounts to their coal business. Will all these high paid advisors be able to turn around this lame duck company or will the fees just increase creditors’ losses?

Until recently, BLT was everyone’s darling in the market. As a rapidly growing company it was an ever-expanding source of brokerage fees and high yield financial placements. Industry rumor has it that AMA Capital Partners earned a 100% mark-up in selling BLT the Chembulk business from the original price that AMA paid Doug MacShane for the Connecticut-based firm. This acquisition needed massive financing, and leasing firms and banks earned exceptional financial yields.

Last year, BLT had to negotiate a massive $685 million senior debt restructuring by a 6-bank consortium plus a $90 million sale leaseback deal for four chemical tankers, including one new building under construction with Standard & Chartered (S&C). S&C also participated in the consortium deal that refinanced $593 million of BLT’s debt to repay 10 outstanding loans. Both the 6-bank consortium and S& optimistically considered the Surya Family’s involvement to make BLT as good as sovereign risk (albeit with the recent Greek PSI+ this sort of risk is what not is used to be….).

Yet, if you take a glance at the BLT balance sheet over the years, this was not a company that was ever making a lot of money. Historically, chemical tankers have seen return on assets below 10%. BLT promoted their Indonesian cabotage business, but in fact the Buana spin-off last year showed a small operation that accounted for only a relatively small part of BLT’s total turnover. Indeed Buana had made losses the previous year.

BLT also pointed investors to its low manning costs. We investigated these claims two years ago with MTM Singapore, who originally managed the Chembulk vessels. MTM told us that such assertions were false and misleading for chemical tankers in international trading. Crew costs for competent chemical tanker crews were converging and under constant upward pressure. One possible explanation could be that BLT was skimping on maintenance with very new vessels to keep costs so low. Declining maintenance standards is a common failure path for chemical tanker companies on the verge of bankruptcy that eventually leads to withdrawal of Majors approvals and increasing operating losses.

BLT’s computer glitch last spring on its accounts seemed rather disingenuous, especially when results later came out that showed widening losses in 2010. Was this a coincidence? Were BLT’s creditors diligent in their credit analysis in their restructuring negotiations last year? Why with such generous terms were there no requests for the Surya Family to support the operation with more equity as a condition for the debt restructuring?

Finally, after the declaration of default, I looked into a recent financial analysis of the company from major shipping investment bank. The analyst forecast a reasonable cash balance through 2011. For these reasons, I can sympathize with the ire of Delos’s Brian Laden. Clearly BLT and the Surya family owe Delos, as well as their other creditors, some serious explanations.



Effort to prevent triggering of Greek public debt credit default swaps: major control fraud with government collusion


S&P has declared that the Greek government is in default.  Most common sense definitions of default — failing to make payments on a timely basis, declaring your intention to default, etc. — have already occurred. Yet the International Swaps and Derivatives Association, in a nonpublic meeting of derivatives bankers, declared this to be a NONDEFAULT!  This leaves those bankers who earned a premium by selling Greek CDS instruments as insurance to the hapless purchasers with pure risk-free profit. This sad story is one of the largest government-sponsored financial swindles of all time!

This saga started in the U.S. with The Commodity Futures Modernization Act of 2000, sponsored by Texas Senator Phil Gramm. According to FusionIQ CEO Barry Ritholtz, Gramm did this as a favor to his wife Wendy who sat on the Board of Directors of Enron, which wanted to trade energy derivatives without oversight. The Bill was rushed through Congress in 2000 and signed into law by President Bill Clinton.

This rule change exempted CDSs from insurance oversight and led to a very specific economic behavioral change: Companies that wrote insurance had to explicitly reserve for expected losses and eventual payout in a conservative manner. Companies that wrote credit default swaps did not. AIG was permitted to underwrite over THREE TRILLION DOLLARS worth of derivatives, without any obligation to maintain any reserves against potential claims, leading to the notorious U.S. government bailout in the fall of 2008.

The E.U. hypocritically argues that they do not want to trigger these CDS instruments by a Greek sovereign default because it would reward ‘speculators’. In fact, these actions are blocking mainly banks hold these instruments as default insurance from being reimbursed for the premium money paid.

What EU authorities really want to avoid is any market-based pricing system outside of their control that objectively rates default risk in the Eurozone. The same perverse logic and self-denial applies to their constant railing against rating agencies that question the solvency of their member states, the viability of their debt load and the wisdom of E.U. debt deflation policies.

The E.U. has a badly undercapitalized banking system, where banks are considered quasi-public utilities and sovereign lending has been heavily subsidized. The single currency euro system makes heavy use of its commercial banks to finance public debt and does not require any reserves for possible losses, exhibiting the same pernicious mentality that led the U.S. authorities to allow their financial institutions to write CDS instruments freely without any backstop for losses. Public policy makers and politicians hide a multitude of sins….

It is said that the majority of the CDS instruments were underwritten by U.S. financial institutions and purchased by E.U. banks with weak balance sheets as a means of cover.

This E.U. political turn-say propaganda about the CDS trigger is just one of many E.U. manipulations that come at the expense of the general public at large. The looming question is whether saving this single currency union is worth the sacrifices of its members, when the burden sharing is so unequal and the results so pernicious in terms of low growth, asset misallocation, credit mispricing and high rates of unemployment.

Greek debt crisis: the Greek political elite just committed national suicide!


Only fools commit a nation to a course of action without providing any emergency alternatives in case of policy failure. Greece has signed off all its sovereign rights to its creditors for a half-baked debt exchange and a 130 billion bailout loan that resembles a Ponzi scheme and that the IMF’s debt viability studies deem insufficient.   Swedish finance minister, Anders Borg, cynically remarked that the agreement was not to solve the Greek problem, but to isolate the Eurozone from it. Greece has nothing to fall back on in the eventuality of a hard default and ejection from the EZ.
 
The third Hellenic Republic is now a dead letter. Greece is effectively a colony of the E.U.! The Greek political elite have sent Greece into oblivion as a nation, even pledging its gold reserves to E.U. Creditors.

The Greek political elite are obsessed with a failed ideology. For the last 30 to 40 years, being part of the E.U. was their sole national strategy. Instead of building a productive economy, opening markets for export of goods and services and developing a sense of national pride from economic accomplishment, the Greek political elite preferred artificial credit enhancement from Eurozone accession and E.U. transfer money to buy votes and support a corrupt, crony capitalism centered on a bloated public sector.

Eurozone membership (effectively a greater Deutschemark zone) wiped out local production and accelerated substantial E.U. import dependence. The artificially low interest rates led to massive asset misallocation and over indebtedness. The hard currency rates destabilized the Greek balance of payments without having currency depreciation or national monetary tools as an adjustment mechanism.

The E.U. initially looked the other way in the interest of economic integration, until Greece lost access to public markets and the crisis started to threaten Europe’s single currency union. The ensuing E.U. austerity measures resulted in classic debt deflation. From a public debt ratio of 110% GDP in October 2009, the ratio soared to the present 170-180% of GDP due to the E.U. program.

The latest E.U. imposed ‘voluntary’ PSI+ scheme forces substantial ‘haircuts’ on private creditors but gives E.U. public creditors seniority. This gives Greece alleged debt sustainability at 120% by 2020 – far higher than the 110% at the outset of the crisis! While the IMF questioned this restructuring scheme, the EU coerced them to recant.

The Greek political elite - and the middle class who supports them - have collectively sadomasochistic consciousness. They derive a perverse joy in the pain resulting from the humiliation and economic carnage that has gone on in Greece: 25% of the Greek private sector is in bankruptcy, There is 20% unemployment and 50% youth unemployment. GDP has compressed 14% (more than the U.K.’s GDP drop in the Great Depression) and is accelerating.

After so many years of living parasitically on E.U. transfer money, mired in ever increasing dependency, the Greek political elite have an atavistic, myopic desire for more Ponzi-type loans and transfer money to remain in what is an economic prison for its citizens with drastically lower living standards for many years ahead.

The European Commission, the ECB and the IMF are only getting away with this carnage in Greece because of a confidence game. They assert in bad faith that the necessary "tough medicine" will restore solvency and the economy will grow again. The reality is that the Greek government has been systematically sacrificing the well-being of its citizens and colluding with foreign creditors to shift the cost and burden onto the Greek people to minimize public creditor losses.

Unfortunately, Eurozone membership on an empty stomach and poverty for a large part of the Greek population is not opium that will last forever. The growing public rage is leading to collapse of the political system and social revolt.