Odfjell acquiring Georgiopoulos chemical vessels to be delivered and taking the commercial management of the delivered vessels in a common pool.

When Peter Georgiopoulos jumped on the band wagon back in 2014 and moved into the chemical tanker sector with a speculative order in China and establishing Chemical Transportation Group, it was clear that the MR/ handysize stainless sector was clearly going to be over invested and rates would disappoint from the excess capacity.  I have mentioned this in a prior post: Is Peter G’s sudden foray into chemical tankers a clear signal to short the sector?  http://amaliatank.blogspot.gr/2014/04/is-peter-gs-sudden-foray-into-chemical.html.

Peter was a chemical tanker outsider with no knowledge of the industry and a career of speculative asset plays. Peter G is essentially an asset trader with mixed reputation on operating profits. He has made some very good asset plays and had also some very bad calls resulting in disastrous hits for his investors that crashed into bankruptcy and reorganization like Genmar and Genco.

Now we see Georgiopoulos monetizing half of his chemical fleet and breaking off from his pool managers, Hansa Tankers, to a new pool with Odfjell, who already has Celsius Tankers backed by Breakwater as clients. This appears a wise move on his part. Doubtful that he is making the profits that he expected but then he walked into a sector of the market where he had no experience.

Chemical tankers have had traditionally poorer returns on asset than any other shipping sector. It is small market that is only 3% of the entire tanker market. Stainless steel chemical tankers are expensive, specialized assets that only a few can operate efficiently because of the parcel nature of the cargo lots and the need for a contract base with end users. The vessels are often built to order for the needs of the major operators. It is generally a very narrow resale market where the best contenders are a handful of peer operators. It is difficult to time the sales because the vessels are committed to contracts and cannot easily be freed up. Because it Is a relatively small market size, it does not take a lot of ordering to flood the market with over capacity.

A great deal of ordering has been motivated by the shipyards. In this particular cases, Ding Heng in China wanted to develop a niche market reputation for handysize stainless-steel chemical tankers. Building a stainless chemical vessel is much more difficult than an LPG carrier. In the case of LPG vessels, the cargo tanks are pre-fabricated by the manufacturer and then mounted into the vessel by the shipyard. LPG vessels only have a very few cargo tanks. In the case of stainless steel vessel, the cargo tanks are many and they have to be built into the vessel. This work is very costly and requires skilled welders that know how to work with stainless steel. It can also result in painful, loss making contracts for novice shipyards with higher construction costs, unexpected delays and performance problem.

The Italians built the last generation of stainless vessels back in the late 1990’s under state yard subsidy schemes. They were replaced in part by a new generation of vessel with Marine Line coating built speculatively in Turkey. None of these vessels built every made much money for their owners from these two periods of ordering binges.

The Japanese have been very successful in building high quality clad stainless vessels with very standardized designs without room for modifications. They are supported by domestic Japanese owners, who then time charter them on a long term basis to the major operators like Stolt, Odfjell and Tokyo Marine. These are very reliable cookie cutter designs of good quality.

The above major chemical tanker operators are a ‘defacto’ industry oligopoly. The entry barriers with the end users for major contracts are substantial. They create base cargoes for which profits come from the completion cargos on the spot market. As in any competitive, relatively low margin business, the major operators are best served with a mixed fleet of chartered and owned vessels, where they can add and subtract tonnage according to market conditions. Speculative owners are very much price takers in this process.

Georgiopoulos tried to soften this by turning to Hansa Tankers in Bergen, Norway for pool employment. Hansa was a break off from the collapse of Bryggen Tankers where one of the partner, Hans Solberg, decided to go on his own. Hans Solberg has built up a very impressive commercial/ pool management business in this sector with an impressive roster of clients, comprised of some major Japanese names, some institutional investors in the sector like Princimar and Greek operators like Interunity and Georgiopoulos who moved into the sector a vessel operators without chemical tanker commercial management skills. Commercial management in the chemical sector is a lucrative business.

Currently, the chemical markets are weak. Last year was not a good year and this year is proving difficult. The Odfjell move makes sense and is no surprise as part of the inevitable chemical tanker industry consolidation process. You have a major chemical tanker operator partially absorbing a novice operator as well as undercutting Hansa commercial management and poaching the existing Georgiopoulos vessels to their own management.

End run for Berlian Laju Tankers bankruptcy and reorganization and challenges ahead

With KKR and York Capital now owners of 65-70% of the bank debt in Berlian Laju Tankers (BLT), they are likely to come out with a sizeable equity stake in the company.  This would appear to resolve what was a very messy bankuptcy without any clear source of recapitalization or clear outcome when first declared.  Unlikely that the private equity firms would be prepared to accept further involvement of the Surya family in the business.  Obvious direction would be to rebuild the company with Jack Noonan as CEO, which was already built into the restructuring plans.  Private equity is said to hold presently US$ 500 million of BLT senior debt, which is secured by first preferred mortgages on the vessels in the fleet.  Only a few months before declaring bankruptcy protection, BLT had completed a massive US$ 685 million restructuring led by banks like Nordea and BNP Paribas.  New banks like Standard and Chartered participated in a large refinancing.  These bankers did not appear to do proper credit analysis of the risks, even willing to extend new money to BLT as part of the restructuring package or Standard and Chartered to refinance problem credits of other banks.  Their claims were that the Surya family was extremely wealthy and would stand by the company with their resources if needed. The swift fall into bankruptcy thereafter opened controversy about where fresh funds were deployed. Delos, one of the creditors has alleged US$ 135 million diversion of funds.  In any case, the Surya family did not show interest in supporting BLT financially in difficulties.  There were calls at the time about the necessity of keeping them in the management, but this never made any sense to me. In the end, the private equity firms are said to have bought out the bank debt at discounts between 70 to 80 cents on the US dollar.  BLT has been a zombie company since the declaration of bankruptcy in early 2012.  Since then, there has been a surge of newcomers and new investment in the chemical tanker industry.  Players like Celsius, Navig-8 with an Oaktree partnership and even Peter Georgopoulos have started a new order binge mainly in Chinese yards for stainless Dwt 20-25.000 tonnage, which was the mainstay of the Chembulk operation that BLT acquired from AMA with considerable mark up that eventually brought them down.   Delos had invested in two BLT stainless units on a lease back deal prior the bankruptcy for which they have since repossessed but kept with the Noonan operation (former Chembulk) on employment. KKR has been backing Borealis, who specializes in smaller chemical tanker tonnage trading regionally in north west Europe under North Sea Tankers commercial management.  Borealis has recently acquired the Crystal Pool as well as bought two small ethylene carriers at auction.  The BLT operation is not obviously compatible with Borealis.    The challenge for KKR and York will be rebuilding and rebranding BLT under the former Chembulk operation in Connecticut.  They will have to contend not only with the slew of above-named new comers with more modern, fuel efficient tonnage, but also the chemical tanker majors like Stolt, Odfjell, and Jo Tankers allied with Tokyo Marine in Milestone Chemical Tankers in Singapore.  These are older, operators that have moved into a more diversified logistics provider business model and have built up over the years large contracted customer base with their brand image.  These groups have punted in defense of their earnings margins and need for competitiveness by ordering larger stainless tonnage Dwt 30-38.000 for the long haul routes that risk putting pressure on the freight rates of the smaller Dwt 20.000 units, even those of the newcomers.   Stolt and Ofjell also have the back stop of a profitable chemical storage and terminals business sheltering them from the vagaries of the transport side.  All the mature groups have looked to diversify into other shipping sectors, particularly the LPG sector in the case of Stolt and Odfjell. Private equity has poured a lot of money in the chemical tanker sector the last few years.  Triton bought up Nordic Tankers and some other smaller European operators like Herning.  Apollo Global Management has created a new offshoot Princimar Chemical Carriers managed from Connecticut. It will be interesting to see how these investments perform and how these firms will ultimately divest of their holdings.

Is Peter G’s sudden foray into chemical tankers a clear signal to short the sector?

 Peter Georgiopoulos in his effort to make a comeback in the shipping space has decided to enter the chemical tanker sector with a speculative order for five firm 25,000-dwt vessels, plus five options at the state-owned Avic Dingheng yard. Well-placed sources say the ships are costing more than US$ 40 million each, with Avic slated to deliver the firm units in 2016 and 2017. Rumor is that Georgiopoulos had teamed up with unidentified private-equity investors to enter the chemical tanker segment. Given the recent history of his tanker company General Maritime in and out of Chapter 11, with massive losses to share and bond holders and his dry bulk company Genco teetering on the edge of Chapter 11 reorganization for some time now, should investors jump in to support this sort of asset play, especially in an entirely new sector where he has no prior operating or commercial experience? 

This latest movement of Peter G could well serve to vindicate the viewpoint of Niels Stolt Nielsen that “the amount of [private equity and institutional] money now entering into shipping is extremely worrisome……”  The Stolt CEO goes on to say: “The orders for new ships are being driven not by increased demand for logistical services, but by the overflow of capital available in the market.”   Finally, he expresses his concern about the acceptance of fee structures where the managers of these new “shipping companies” get fees up front when ordering ships, or for managing the ships they order, without having any equity stake in what is being ordered. 

Peter G’s new venture opens all Stolt Nielson’s concerns. If we take as a benchmark the Georgiopoulos dry cargo venture; Baltic Trading has had fairly steady losses from inception until very recently, but provides valuable source of collateral revenue, shoring up his main dry cargo operation Genco, with a hefty management fee structure to husband Baltic. It is speculative, asset arbitrage driven venture. Not surprisingly, Baltic stock trades very much like a freight market derivative instrument.

The challenge for any investment in the chemical tanker sector is that historical returns on asset have been exceptionally low (less than 10%). The number of players is limited, making for an illiquid sale and purchase market. In the case of the Eitzen Chemical distressed debt, senior lenders preferred to become shareholders and even waive loan spread, staving off any distressed asset sales under these limitations. Finally, this is has been a high cost, low margin business based on contracts of affreightment for base cargoes and the spot market to fill up the remaining empty space. The cargo contract commitments on the vessels further limit flexibility for asset plays in this sector because they create restrictions on timing for sales.. 

The mature groups in the chemical tanker sector have all transformed their business models from vessel  to logistics services provider and diversified into parallel sectors like chemical storage and gas shipping to improve their financial returns and risk profile. They have also kept their finance costs as low as possible and maintain strong balance sheets. None of the major players like Stolt see a quick market turnaround. They are companies with long term commitments to their customer base. 

None of this fits with Peter Georgiopoulos and his business approach. Peter G is above all an asset player. He keeps to the traditional Greek business model of vessel provider. His focus is mainly on acquiring shipping assets in large block deals. Further it is unlikely that he is putting a large amount of his own increasingly limited capital into this new venture and more likely that he is acting as an asset manager in this venture.  Here, however, in contrast to Baltic Trading, he does not have an operating company like Genco to back this new venture, which is fundamentally a start-up play. 

Another interesting twist is that the Avic Dingheng yard is also a newcomer to chemical tanker construction. The large, established players like Stolt and Jo Tankers have contracted larger size units (Dwt 38.000 and 30.000) at Hudong and Minde respectively. They appear to be aiming for lower unit costs, using larger deadweight units for emerging US chemical exports over the smaller competitor vessels. Both these yards have a proven track record in building chemical vessels. 

The Navig8 venture with Oaktree Capital has placed their orders (Dwt 25.000) at Kitanihon Shipbuilding and Fukuoka Shipbuilding, which are well established, first class Japanese yards with a long history of building stainless chemical tankers. By contrast, Avic has only built small coastal chemical tankers.

It will be very interesting to see how this new venture fares, but it likely be challenging for the investors unless there evolved an exceedingly bullish market given the stronger position of competitor peer companies.

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.

Berlian Laju Tankers defaults on US$ 418 million senior debt and lease payments

Just a few months after major loan restructuring as well as new large leasing deal that led to a credit upgrade, Berlian Laju (BLT) has frozen their debt repayments and is facing a serious financial crisis. The major issue will be recapitalization and restructuring. It may follow its Indonesian compatriot, Arpeni Pratama, into US Chapter 11 proceedings.

If you look at the BLT balance sheet over the years, it has never been a tremendously profitable company. Their expansion was heavily financed by debt. They acquired assets at high prices in the boom years. Accordingly, BLT was the darling of the banking community because it was 1.) too big to fail and 2.) in need of money and willing to pay more than sounder companies to get it. Lenders could get loan pricing with BLT that would be impossible with mature peer chemical tanker operators like Stolt or Odfjell.

The rating agencies had downgraded BLT to CCC by this time last year. BLT was upgraded to B- in spring 2011 after a massive $685 million restructuring plus another $90 million leasing deal. Fitch brought the rating back to CCC last December and very recently C.

The lenders do not appear to have done a very good credit analysis given this massive default less than 12 months later. Indeed they even gave BLT additional funds, increasing their loan exposure to the beleaguered company. There was apparently no request for a significant increase of capitalization nor does there appear to have been any demands for asset sales to reduce exposure. It was very clear that BLT would face serious funding problems in 2012 both for capital expenditure needs and as well as US$ 122 million bond maturities to be refunded.

Now the recapitalization issue is likely to be paramount for BLT. Will the controlling Indonesian shareholder family follow the footsteps of Big John Fredriksen and put up substantial capital of their own to save the company and retain control? Alternately, will they chose the route of Peter Georgiopoulos and find a private equity partner like Oaktree and risk losing control of the company?

One thing that BLT could do to raise cash and deleverage would be to sell their Chembulk operation, one of their most valuable assets. Doug MacShane (the founder and previous owner of Chembulk) is already rebuilding MTM (MTM controlled the Chembulk operation prior Doug MacShane’s divestiture) with fleet expansion at prevailing low tanker prices. MTM’s Singapore subsidiary continued the technical management of the vessels for some time after BLT acquisition. MTM could easily start poaching Chembulk’s customers, with whom Doug MacShane has had 20 to 30 year relationships and where they might feel more comfortable.

Stolt Tankers has the money to buy BLT’s Chembulk operation, if they wish. So could its rival Odfjell, who could potentially secure Lindsay, Goldberg backing. Linday Goldberg, a first class NY-based private equity firm, is already a 49% partner in Odfjell’s chemical storage business.

This possible spin off would allow the Indonesians to concentrate on their cabotage business, Buana Listya, and concentrate on FPSO contracts in its home market. BLT also has smaller chemical tankers suitable for the Asian market as well as a fleet of LPG vessels, some fitted for ethylene.

We will see shortly what route BLT takes to get out of this financial impasse.

Major Chemical Tanker Operators continue to expand in liquid storage with new acquisitions and innovative financial partnerships

Both Stolt Tankers and Odfjell AS continue to leverage their considerable franchise in chemical transportation expanding in the chemical storage business. Both have a chemical logistics operation with sizeable cargo books. They control a major share of the chemical transport market. Liquid storage is a healthy growing business with good return on asset and attractive risk profile. This diversification enhances bottom line results, provides increased earnings stability and gives them competitive edge over peer competitors.

The chemical sector is traditionally a very low margin business with high operating costs and asset values, suffering from poor returns on investment. These companies have created a valuable franchise in chemical transportation, but they need earnings stability and improved returns on investment for their investors.

They have built up a global presence in chemical storage facilities that assists in meeting these goals. Sometimes, they have gone into new facilities alone like the recent Stolt acquisition of Den Hartogh Holdings bulk-liquid storage terminal in the Netherlands, other times in partnership with peer storage operators like VOPAK, Oiltanking and Vitol in select locations.

Odfjell chose a novel approach to finance the expansion of their terminal business in Europe and North America: a strategic partnership with Lindsay Goldberg LLC, a U.S.-based private equity firm. This firm has been involved in chemical projects in the past with their holdings in PL Propylene LLC (an evolution of an earlier Lindsay Goldberg sponsored venture, PetroLogistics). PL Propylene is now constructing the largest propane dehydrogenation plant in the world to service Gulf Coast propylene consumers. Lindsay Goldberg first entered the PetroLogistics venture by supporting their purchase of an ethylene pipeline.

It will be interested to see how the Odfjell-Lindsay Goldberg partnership evolves in the liquid chemical storage business.

Berlian Laju losses widened significantly in 2010

Berlian Laju Tankers (BLT) delays in releasing latest corporate earnings never boded well for investors There is a lot of money out on this too big to fail company with its recent massive US$ 685 mio senior debt restructuring by a 6-bank consortium plus a US$ 90 mio sale leaseback deal with Standard & Chartered (S&C). What if these lenders are wrong on their turnaround story and market recovery does not come as anticipated?

Albeit BLT was hampered by computer glitch, there certainly was not much incentive for a timely release of the results.

This beleaguered, over-indebted group dropped deeper into the red in 2010 as finance and operating costs stacked up. Losses were substantially higher than analysts had predicted. The net loss for 2010 amounted to US$ 150 mio, versus a loss of US $117 mio in 2009. Its chemical operating profits were down by US $7 mio from last year. Even its much touted FPSO arm recorded an operating loss of US $11.8 mio compares with a gain of just over US$ 14 mio a year ago.

What is very scary is that the loan restructuring and lease deals will increase substantially the finance costs that plagued them last year even if operating profits do improve. BLT will get some liquidity relief from senior lenders, but a larger share of their operating income will be sucked up by finance charges.

BLT management has always seemed very indifferent about its cost of capital. Whilst is peer rival Stolt is paying only 6,63% on its latest bond issue. BLT revels in high leverage and expensive leases with ever mounting finance charges. Whilst Stolt has good collateral earnings from a very profitable liquid chemical storage business that is complimentary to its parcel chemical tanker operation, BLT is making losses on its FPSO venture. Its spin-off Indonesian cabotage business is only a very small operation to soak up the magnitude of losses in the parent company.

BLT is a turnaround story because of its high financial and operating leverage. Its management has a firm expectation of a killing in a coming boom in the chemical tanker market and its bankers seem to agree in maintaining and even increasing their exposure to the group.

Stolt in enviable position to issue bonds and lower its cost of capital

Stolt Nielson is chemical tanker leader with a strong contract base, consistently good P+L results and moderate financial leverage. They recently tapped the bond market to fund expansion opportunities and raise general corporate funds. After a swap, this results in a low fixed-rate US Dollar obligation. How are beleaguered peers like Eitzen Chemical and Berlian Laju Tankers (BLT) under the weight of their heavy debt loads/ leasing obligations with high finance costs going to compete with Stolt?

The Oslo-listed chemical tanker company has placed NOK 1.6 bn (US$ 300 mio) of five-year senior unsecured bonds. These bonds, which will be listed on the Oslo Stock Exchange, carry a coupon of three-month NIBOR plus 4.75%. Stolt has converted them though a swap to a fixed-rate US Dollar obligation of 6,63%.

The chemical tanker sector has less tonnage overhang supply problems that most other shipping sectors. Demand is expected to outpace supply as long as global GDP grows by 3% or more. The IMF forecasts 4.4% growth for 2011. Supply side characterized by newbuilding delays and high entry barriers. On a base case scenario, this would call for a 2,6% increase in fleet utilization that could lead to a 20% rise in asset values.

The only negative aspect for Stolt is that due their heavy contract book, rate increases would lag in their P+L results until contract book roll-over and rate renewal.

Presently time charter rates are flat in the chemical tanker market with stainless Dwt 19.900 tonnage fixed at rates of US$ 12.500 for twelve months. This business climate continues to favor Stolt over its weaker peers in the sector like Eitzen and BLT, who have to absorb the high financing costs, live with the slim margins and hope for upturn.

Aside from its chemical tanker business, Stolt also has a very lucrative chemical storage business that has a higher return on assets than the shipping business and a stable long term secured cash flow that adds earnings stability.

Eitzen and BLT are totally dependent on the vagaries of chemical tanker market and are paying easily double the financing cost of Stolt on a much higher debt load.

Should there be an unexpected double dip recession, their lenders will be facing some very nasty losses. Further if their financial position deteriorates, then Stolt will pick up market share from their end-user customers worried about rising contract performance risk.  Stolt would be in the enviable position of picking up their better assets at cut rate prices.

BLT successfully spins off its domestic cabotage/ FPSO business

Berlian Laju's domestic cabotage spinoff Buana was up 11% on debut and over subscribed 16,77 times. This marks the third step in the group restructuring initiative this year. Previously, the company did a massive US$ 685 mio debt restructuring with senior lenders as well as a US$ 90 mio sale and lease back deal for four chemical tankers with Standard Chartered bank. These initiatives buy time for this over financially overstretched group until underlying market conditions improve.

The new credit facility will be used to refinance ten loan facilities of US$ 593 mio and fund capex on 3 of 4 newbuildings for delivery in 2011. The refinancing will reduce total instalments over the next three years with US$ 167 mio in total. BLT will mortgage forty of its existing vessels as well as the 3 new deliveries for security.

We believe that separately listing the Buana entity will enhance the imbedded value of their cabotage business better than currently reflected in the BLT share price. In any case, this much touted Indonesian cabotage business accounts for only a relatively small part of their total turnover.

Buana just recently turned to positive operating profits after making losses the previous year.  It is a relatively small operation with three tankers and one FPSO unit, but BLT wants to scale up the operation.

Meanwhile, BLT has consolidated the commercial management of their fleet in the Chembulk operation that they purchased several years ago from American Marine Managers. Chembulk CEO Jack Noonan has been making an upbeat case about the chemical tanker market, arguing that ‘bleeding has stopped’.

BLT has high financial and operating level that makes it a speculative play should the chemical markets turn up. The order book overhang for chemical tankers is presently the smallest in the tanker sector, albeit Stolt Tankers - a market leader and outperformer in the sector - has been taking a cautious view, not expecting any major relief on rates until the second semester 2012.

BLT continues to leverage up and does not seem concerned about risks or cost

Berlian Laju Tankers has made a news splash with its recent US$ 685 mio senior debt restructuring by a 6-bank consortium plus a US$ 90 mio sale leaseback deal for four chemical tankers including one new building with Standard & Chartered (S&C). S&C also participated in the consortium deal that refinanced US$ 593 mio debt to repay 10 outstanding loans. Another too big to fail company with substantial borrower leverage.

In addition to its 65 chemical tankers, BLT also operates a fleet of 14 gas tankers and 14 oil tankers. It has an oil tanker subsidiary Buana Listy Tarna owning three tankers and an FSPO. BLT is hoping to get benefit of new Indonesian cabotage rules in the FSPO sector. The company is expected to have negative free cash flow this year but a surplus next year.

There is talk about selling off a 40% interest in Buana as well as two Suezmax crude tankers as early as spring this year.

In the market place, it is said that BLT is almost as good as sovereign risk with a prominent Indonesian family as controlling shareholders. The banks seem eager to lend to them more money despite the high leverage. On the other hand, the company seems delighted to pay the increased financial cost from the high leverage, betting on a market turnaround bonanza.

Management continues to have an extremely bullish view on the chemical tanker sector. This year there has been some stabilization in rates and from 2012 the orderbook overhang will be substantially reduced, so perhaps there lies ahead a silver lining  for the sector.

BLT is the most leveraged play in the chemical tanker market so they will profit the most in an upturn, but they will face potential problems should there be further unexpected downturn. The senior lenders seem to be betting on the rosy scenario.

Chemical war of attrition

The chemical sector experienced some revival earlier this year, but rates softened again during the summer and there remains a great deal of uncertainty yet about the time of a market upturn. Financially weaker operators like Eitzen and BLT continue their optimism, the more established major operators like Stolt and Odfjell remain cautious and see a longer market recovery period.

The chemical tanker sector was badly hit by the 2008 GFC. Cargo volume dropped dramatically in nearly all trades. Markets during 2009 were sustained mainly by US chemical feedstock exports to China, with tonnage swelling in the FE struggling for return cargo. This year after a stronger first quarter, the chemical tanker market saw a pullback. The transatlantic trades slowed, not helped by continued weak petroleum product markets. Reduced requirements for aromatics from China, which sustained the market in 2009, led to less demand for larger commodity parcels (above 5,000 tons) and with plenty of available vessel space as a result. The biofuel market withered with the US putting a 54 cent/gallon import tariff on most foreign ethanol supply and Brazilian ethanol production has been hurt from high sugar prices and heavy rains in 2009.

Stolt has been outperforming its peers with its solid contract base, diversified income from storage and other activities, and its sound financial position with moderate leverage. Stolt was very fortunate in its CAPEX obligations because delays at the SLS Shipyard allowed them to renegotiate price and delivery of their Dwt 44.000 coated newbuildings placed in 2005 for ME commodity chemical trading and they eventually secured full refunds for their Dwt 43.000 stainless orders. STJS cargo volume transported was up 7.6% from 1Q10 albeit freight rates remaining flat. Stolt finished its 2Q2010 with US$ 27.5 mio net profit. 　

Stolt's main competitor Odfjell finished its 2Q2010 with a net loss of US$ 64 mio, but much of this was due to their decision to enter the new Norwegian tonnage tax system at a total cost of USD 42 million. Time-charter results per day increased by 2% compared to first quarter. Odfjell is not running any cash losses, but its balance sheet is somewhat weaker than Stolt with higher bank leverage.

Stolt expects a continued weak market for the rest of 2010 and 2011. Odfjell reports falling cargo volume in 3Q2010 accompanied by weakness in outbound voyages from US and Europe. They see increased competition for cargoes.

Ailing Eitzen Chemical with the recent exit of its CEO Annette Malm Justad and failure of its much touted merger with BLT gained reprieve by selling off its 74.3% stake in Eitzen Bulk, which brought a total profit of US$ 60.7 mio for the 2Q2010. Total freight income in the quarter dropped from US$ 31.03 mio to US$ 29.03 mio as the ethylene market remained weak and there were a number of drydockings. Eitzen has had extensive loan restructuring with its senior lenders and has extended its covenant waivers for several years, but it is far more dependent on a quick market recovery than financially stronger competitors. All the more so because it has a weak contract base, more dependence on the spot market and clean petroleum products.

The most optimistic and aggressive chemical operator, Berlian Laju (BLT), was recently down graded by Fitch, who cut its rating on the tanker owner from “B” to “–B” with a negative outlook. It also dropped its tag on BLT’s $400m unsecured notes from “CC” to “CCC”. Its Indonesian management believes fervently in rapid return to bull market conditions and it maintains a very aggressive new building program. This is an unlimited growth mentality similar to that of Seaspan's Gerry Wang, but without the support of long term SOE charterers to underwrite the business. BLT derives less than 10% of its revenues from Indonesian business, although lately it has shown interest to diversify into Indonesian FPSO and more domestic tanker cabotage business.

The weight of the shipowner’s significant capital expenditure requirements led Fitch to concerns that it may breach certain covenants if current market conditions persist. BLT leveraged up its balance sheet in 2007 when it purchased Chembulk from AMA at the peak of the market boom with a sizeable markup from the price that AMA had acquired this Connecticut-based chemical tanker operator from its founder Doug MacShane just a few months earlier in the beginning of the year. Having paid a premium price, the company strained considerably to raise the cash to complete the deal with AMA, selling and leasing back existing vessels in its fleet as well taking on heavy bank debt.

Eitzen and BLT have smaller vessels than Stolt and Odfjell. Particularly, the Eitzen fleet is concentrated in Dwt 12.000 stainless units and also has a fleet of coated chemical tonnage. BLT has some larger stainless tonnage in the Dwt 20.000 range, but this has come from their acquisiton of Chembulk, left largely with the US management. Their Asian fleet are smaller units. Both companies have smaller contract books than Stolt and Odfjell.

The future depends on how the markets play out. A V-recovery and bull market would greatly benefit BLT due its very high operating and financial leverage. A prolonged slack market will benefit Stolt with its resources to pick up distressed opportunities. Clearly Stolt and Odfjell with their stronger balance sheets and customer bases have more staying power than Eitzen and BLT. Eitzen needs very much a quick market recovery before its lenders become restless again and BLT could face loan restructuring with its senior creditors or even worse, be forced to sell off its Chembulk acquisition to raise cash.  

Berlian Laju taking its distance from Eitzen Chemical in the CECO Merger

Berlian Laju (BLT) plans to leave Eitzen Chemical as a separate entity and retain the previous management to run it. They will transfer Eitzen Chemical debt from the CECO holding company back to the subsidiary. As a deal prerequisite, CECO lenders must agree to waive all principal payments and loan covenants for a three-year period. Of the US$ 200 mio cash that BLT is required to inject in CECO, only US$ 50 mio will go to Eitzen Chemical. BLT will invest US$ 130 mio of these funds in Indonesian projects.

It is clear that BLT does not have the management resources to run Eitzen Chemical and prefers to rely on its existing management to deal with its problems rather than to be involved directly themselves. They make it a condition that the senior lenders grant forebearance for three years as a condition to their participation in the merger deal.

BLT is sheltering itself from Eitzen by removing all the Eitzen Chemical debt liabilities from Camillo Eitzen and Company (CECO) and putting them back on Eitzen Chemical. BLT's share in Eitzen Chemical through CECO will be just under 50% and their role will be as shareholders with any transactions with the company taking place on a third-party basis.

There are no plans to fold CECO or its operations into BLT. There appear no major changes in the way CECO does its business. Of the US$ 200 mio cash that BLT is raising by a bond issue for this transaction, only US$ 70 mio will go to CECO and of these funds, US$ 50 mio will go to Eitzen Chemical.

Needless to say previous reference to cost savings and synergy in the merger deal was mostly window dressing for retail investors, since BLT has confirmed that will be no integration or rationalization. On the chemical side, BLT is three different companies operating independently:

• BLT's Indonesian operation trading cabotage in Indonesia and internationally in southeast Asia, which is their home market and core business.
• Chembulk operating from Connecticut with stainless vessels mainly Dwt 20.000-30.000 with fairly large tanks in long haul trades.
• Eitzen Chemical (subject the merger), which also has a Connecticut office that they acquired from the Songa merger in 2007. Their fleet is mainly smaller vessels of which the largest concentration is their City class units: stainless Dwt 12.000-13.000. They also have some coated units.

Compared to larger, traditional chemical parcel operators like Stolt or Odfjell, this new BLT/ Eitzen Group has little resemblance. Stolt and Odfjell are fully integrated operations. Their vessels have many small tanks suitable for higher-paying specialty chemicals carried in smaller lots. They have a worldwide presence in both regional and long haul markets together with a complimentary tank storage business in key areas like Houston, Rotterdam and Singapore. They are heavily contracted with end-users up to 70%. Both companies have positioned themselves in the Middle East with local partners for the commodity chemical business envisaged from the new refinery projects. Financially, they have been outperforming BLT and Eitzen in bottom line results.

BLT/ Eitzen by contrast have vessels on the smaller end of the scale. The larger Chembulk units have fewer and larger cargo tanks than the Stolt or Odfjell vessels and more suitable for product-oriented and commodity chemical trades. BLT/ Eitzen have no tank terminal business. Their contract base is much thinner. Eitzen is only 30% and BLT is 50%.

To a large degree, Eitzen Chemical will have to stand on its own. BLT is using US$ 130 mio of the new money raised for this merger deal in its own operations in Indonesia. Their cash risk in the CECO merger is US$ 80 mio of which US$ 50 mio is in ailing Eitzen Chemical, but their leveraging the merger deal to put new capital in their own domestic operations.

The fact that BLT is looking to put most of the new capital (US$ 130 mio) in their domestic activities is not a good sign of support for Eitzen Chemical. It shows where they view their priorities. It is also a graphic example of the value they are bringing to the table for CECO/ Eitzen Chemical in this transaction. BLT is doing what they know best: Indonesian cabotage business and taking its distances from Eitzen Chemical. They get the benefit of the profitable CECO dry cargo operation and the offshore business. It is an attractive share exchange deal where they put minimal cash in CECO and get additional cash for their own business.

Frankly, I would have expected the Eitzen senior creditors to be a lot more demanding to grant CECO a three-year moratorium on principal payments and loan covenants and especially to dilute their security by accepting the risks in transferring the Eitzen Chemical debt from the CECO holding company. In effect, all they are getting from BLT in comfort is an additional US$ 30 mio in CECO and US$ 50 mio in Eitzen Chemical. There is no new management, no revised business plan or attractive commercial synergies, except in promises for the future. There is also no extended financial involvement, but rather an attempt to limit their future liabilities.

BLT-Eitzen Merger: too big to fail or too unmanageable to succeed?

The ailing Camillo Eitzen Group recently astounded the market with a merger announcement with the Indonesian-based Berlian Laju Group (BLT) by share exchange to comprise the world’s largest and most modern chemical tanker fleet. Yet neither company is financially strong and both companies suffer from over leverage and aggressive expansion at top of the market prices during the boom times. Fitch promptly revised the rating of the acquiring company BLT as "B" with rating watch negative (RNW) while its US$ 400 million bond issue is "CCC", also with RWN.

Will this merger make a stronger company with a better balance sheet and a good synergy with a shared vision and complimentary product lines that leverage existing infrastructure or vertical integration?

Certainly the joint announcement presents a rosy picture for investors. Total revenues of the combined company for the past 12 months (presumably 30.6.2008 - 30.6.2009) amount to approximately US$ 2.3 billion with an EBITDA of US$ 499 million. Including newbuildings the group will own and/or operate 157 chemical tankers, 14 oil tankers, 42 gas tankers, 50‐60 bulk carriers and 1 FPSO, in addition to services offered through Eitzen Maritime Services (“EMS”). Given that BLT and Eitzen have market shares of 5,3% and 8,2% respectively; the new company would have a 13,5% share roughly the size of Stolt Nielsen!

BLT says that it plans to submit a voluntary exchange offer for all outstanding shares in CECO (Camillo Eitzen Group). CECO shareholders will be offered mandatory exchangeable bonds (MEB) equivalent to NOK 25 per CECO share which will be converted into shares. BLT said the offer represents a premium of 270% on the CECO share price of NOK 6.75 ($1.17) at the close of business on Friday. The deal is subject to a number of conditions including the successful private placement in BLT of a minimum of US$ 200 million in new equity. The offer is expected to be completed by the end of November.

Eitzen has a strained balance sheet. The group has grown rapidly in the chemical tanker sector during the boom years by both vessel acquisitions and mergers. There have been been some integration problems. Their 30-35% contract cover for their fleet is much lower than established chemical operator like Stolt and Odfjell (approx 60-70%) and their dependence on the product markets is relatively high. They were poorly positioned to face the market downturn from the financial crisis. The drop in cargo volume and exposure on the spot market led to a significant drop in their free cash flow whilst they were over leveraged from their aggressive expansion.

Last week CECO and Eitzen Chemical reached agreements with banks to restructure loans of over US$ 800 million. Further they are on the verge of a US$ 100 million equity issue. The merger announcement saw its market value rise 22.17% to NOK 2.81 per share, or NOK 479.86 mio. Eitzen share value had fallen fallen 65.88% from a high of NOK 48.90 each this year following its high-profile financial difficulties.

BLT has also been expanding rapidly in the chemical tanker sector. The group started in the Indonesian cabotage trades first in oil tankers and later products and chemicals with Pertamina employment.. In 2007 it began its global expansion with a US$ 850 million acquisition of US-based chemical-tanker specialist Chembulk. This gave the company access to the US markets, although in 2008 a full 75% of its revenues still came from the Middle East and Asian markets.

American Marine Managers had bought Chembulk earlier in the year as MTM from its founder and main shareholder Doug MacShane and then marked it up and sold it for a premium to BLT at the peak of the market. To finance the $850 million deal, BLT turned mainly to bank debt. The company still has US$ 400 million senior unsecured notes due in 2014 and a US$ 125 million five-year convertible bond due in 2012, issued by BLT Finance BV, a wholly owned subsidiary of BLT. This sent the company's gearing into orbit and it had to resort to drastic measures including sale-and-leaseback deals to bring down its debt load.

BLT appears to have a better contract book than Eitzen, but it is reportedly only 50% so they have considerable spot market exposure and it has been hitting their bottom line. BLT's most recent audited accounts for the first six month period 2009 indicate a fall in gross profits of 32%. BLT closed 30th June 2009 with a US$ 5,98 million net loss as opposed to a net profit of US$ 109 million for the first six months in 2008.

Given the above, it is surprising that BLT has the financial capacity to undertake this merger. The recent Fitch cautionary note on high risks is not unexpected. Of course, the operation is a share exchange and dependent on BTL raising US$ 200 million in new equity with a CCC bond rating subject to downgrade. BLT is merging with a troubled company that needs to be turned around and has severe financial problems. Camillo Eitzen booked a US$ 215 million loss last year as revenue declined 14 percent to US$ 1.32 billion. No one knows whether this deal is a bargain or simply a Trojan Horse. There is a serious risk that this merger - if it goes badly - could cause BLT, which is already in a weak financial position, severe problems.

Statistics indicate that only approximately 50% of all mergers succeed. Both these companies are already pieces of other companies due their recent expansion. Integration and the timing of the market upturn will make or break this deal. Eitzen clearly was not a total success in its merger and expansion deals or it would not be facing its present woes. Putting Eitzen in order is a tall order for anybody.

BLT's main move was its Chembulk acquisition but we do not really know how successful they have been in integrating the Westport-based operation. Off-hand, Indonesians running a US-based outfit with American managers seems a challenge where formible foreign firms like Daimler have met their match and failed in the US. The value of the Chembulk contract book with end-users depends on end-user client satisfaction, which could be potentially eroded by the new ownership or sudden defections by the American management.  It seems that BLT may have let Chembulk run independently and its home office works more like an Asian operation than to try to integrate it.

Axel C. Eitzen will remain actively involved in the further development of the combined group, and will be its second largest shareholder. How will these two groups be integrated successfully to add value to shareholders? How will Eitzen get along with the Indonesians?

* Will the new executive team speak with one voice?
* Will employees of either the buyer or the seller bad-mouth the deal?
* Will the reputation of either company alienate customers?

The merger announcement boilerplate reads:

"The combined entity will create a truly global network capable of serving an international customer base across key markets. In addition to the complementary businesses of the companies, both share a set of common values, and a belief in the value of strong corporate cultures..."

How much of this is really true remains to be seen since there is nothing about this that is prima-facie obvious. It also remains to be seen when chemical market will start to improve. This year 2009 has been miserable.  Both companies are making losses and face challenges with senior lenders.

The only savings grace has been a rise in chemical feedstock imports to China due the cheap prices but this only filled vessels in one direction.  Whilst operators like Stolt with a large contract book benefitted, this offered little comfort to those with spot exposure faced a difficult return voyage with very low rates. Even Stolt and Odfjell have been redelivering chartered vessels, reducing capacity and cutting costs.  Chemicals are tied to consumer economies and the market is not likely to pick up until a return of positive growth in the US and EU. Many commentators, including DnB-NOR bank, are projecting a slow, sluggish recovery for 2010.

If this prevails, it may prove a very trying time for this merger together with the immense challenge of integration and value creation for shareholders.

Odfjell is well positioned in the current shipping crisis

Odfjell is one of the big four traditional parcel chemical tanker operators together with Stolt Nielsen, JO Tankers and Tokyo Marine. Odfjell controls 17.8% of the global core chemical market. They have an integrated logistical system with tank storage, large chemical tanker fleet and sizeable contract book with end users. They are expanding their tank storage business to complement their ME partnership with NCC for Middle East refinery exports to the Far East.

Odfjell is a mature chemical parcel operator with the largest share of the world market of any peer operator. They are well positioned to weather the financial meltdown and current shipping market slowdown. In recent boom years, they expanded moderately their fleet without taking on excessive leverage.  They relied on time-chartered tonnage to fill excess demand. Their large contract book protects them on the downside.

The drop in cargo volume and nominations has caused bottom line damage. EBITDA first half 2009 for their parcel chemical tankers was US$ 49 million, compared to US$ 101 million in the same period 2008. Operating result (EBIT) was a loss of US$ 9 million first half 2009, compared to a gain of US$ 47 million in 2008. Compared to their peers in dry cargo, tankers and container; they are sharing the pain of the downturn, but their situation is comparatively more manageable.

Odfjell is focussing on building up their partnership with their Saudi-Arabian partner National Chemical Carriers (NCC) in the Middle East. In the first quarter the entered into an agreement with NCC to bare-boat charter three 37 000 stainless steel parcel tankers for ten years with purchase options. The three ships are NCC Jubail (1996), NCC Mekka (1995) and NCC Riyad (1995). Furthermore, Odfjell entered into three to six year time charters for three ships that earlier were owned by NCC. These ships are Bow Baha (24 728 dwt/1988), Bow Asir (23 001 dwt/1982) and Bow Arar (23 002 dwt/1982).

In June 2009 Odfjell SE signed a new 50/50 joint venture agreement with NCC to establish a company in Dubai, to be named NCC-Odfjell, to commercially operate our respective fleets of coated (IMO 2/3) chemical tankers of 40 000 dwt and above, in a joint pool for trading in the chemicals, vegetable oils and clean petroleum products markets on a world-wide basis, with emphasis on the growing production and export of the Middle East region. The new company will start operations early next year with 15 vessels and a total dwt capacity of nearly 660.000 tons, which is planned to grow to 31 vessels and total dwt of nearly 1.4 millions tons over the next three years.

Stolt is competing with Odfjell in their partnership with Gulf Navigation where they have ordered a series of Dwt 44.000 coated chemical tankers from Korea, but Gulf is a much weaker partner in providing local commercial business than NCC.  Stolt has recently refused to take delivery of one of these units due late performance.

The Odfjell expansion in its Singapore tank terminals is to facilitate the Far East export business that they expect to develop from the Middle East refinery projects coming on on line. In this context, it is not surprising that senior debt financing for the tank terminal project was easily forthcoming.

Eitzen moves to consolidation after a period of aggressive growth,

The Eitzen group has expanded aggressively in the chemical sector the last few years, becoming a major operator. The rapid growth caused them initially operations problems. They started to suffer in bottom line results last year. Now with the recession leading to declines in both cargo volumes and rates, management has its hands full.

Whilst the major established operators like Odfjell and Stolt enjoyed robust profits in 2008, a slashing of its fleet value and soaring expenses sent Eitzen Chemical to a US$ 192.5 mio loss last year.

Eitzen’s fleet lost 20% of its value in the second half of 2008 leading the Norwegian to book an impairment charge of US$ 156.2 mio in the fourth quarter alone. Over the course of the whole year impairment charges reached US$ 160 mio.

During the last five months of 2008, a fall in seaborne chemical transportation rates was seen in the order of 30% or more. Volumes on key routes like the transatlantic dropped to very low levels. This development was brought about by the plunge in global macro economic activity, which severely impacted chemical demand. Many production plants had to reduce operating rates (and some temporarily idled output) due to the lack of available credit. This further hurt trade, and thus negatively impacted fleet utilization.

The state of the chemical shipping market has so far in 2009 not changed dramatically from that seen towards the end of last year. Volumes remain fragile, and the question is when trade will start to pickup again? Most charterers are fixing only on a short-term trip charter basis until visibility improves.

Eitzen Chemical's average rates for the company’s fleet below 30,000-dwt fell 5.8% from the third quarter to the fourth quarter and those for the fleet above this size slipped 9.4% in the same period.

With a projected gross fleet growth of 20.8% and 12% in 2009 and 2010 respectively, the chemical shipping market is faced with a high delivery schedule of new vessels. The credit crunch could perhaps have some impact on the magnitude of potential order cancelations and renegotiations so the actual delivery schedule could differ.

Whilst major chemical tanker companies like Stolt and Odfjell have largely covered financing needs for their capex requirements, Eitzen Chemical has about $184 m of vessel capex to fund in 2009/2010. They could be exposed to liquidity problems if tight market conditions persist.

Trade patterns are changing with major Middle East refinery projects coming on stream in the next few years. Production at source give them a competitive advantage and chemical production has higher margins than feedstocks. This will increase demand for chemical vessels but it could lead to cannibalization of the product tankers and LNG trade, with increased domestic demand for these products.

In the meantime, the reclassification of vegetable oil cargoes to chemical vessels will help mitigate somewhat this market recession. Intensified scrapping will also assist. There have been major design changes in chemical vessels and much of the older fleet is obsolete.

Most companies in the chemical sector have solid NAV support. That said, the profits are likely to be at sustained low levels. In addition to the potential for further pressure on asset prices, this should induce a pricing discount to NAV.

Selected stocks such as Stolt-Nielsen with their very strong contract base and balance sheet may prove robust value cases in the longer run.

AMA Capital in MTM chem fleet buy out

MTM is a privately held business and we have limited information on the fleet buy-out, but let me make the following observations as an outsider:

I certainly have no doubts that the prime motive of AMA is a financial play.

MTM is engaged in the world-wide transportation of bulk liquid chemicals, edible oils, acids, and petroleum products. The MTM fleet is interesting and valuable in the simpler end of the parcel chemical tanker trade. The fleet under management consists of approximately 20 vessels totaling more than 400,000 dead-weight tonnes capacity, with an annual volume carried of about three million tons. The company provides its commercial service through long-term contracts of affreightment (COA's) in combination with spot fixtures in several key parcel tanker trading areas, including trans- Pacific, Middle East Gulf - east and west, US Gulf - east, South East Asia - Europe/Med, and trans-Atlantic. Some of MTM's larger customers have included British Petroleum, Shell, Equate, Cargill, Archer Daniels Midland, Mitsui, Mitsubishi, Wilmar, and Kuok Oil Group.

From the press reports, it seems that the MTM group has a valuable COA book and its fleet is mainly leased from Japanese owners with purchase options. Doug MacShane came from Stolt's chartering department. MTMM started as brokers in 1982. They moved to operations as time-charterers in the mid 1980's.
This kind of business model was based on trading and turnover without a heavy asset base. An asset base is a drag on IRR initially since newly acquired tonnage has a premium in its price as a function of prevailing market conditions at purchase. Later out, however, as the units are amortized and with capital appreciation it can be a source of leverage.

The press reports maintain that AMA got a good deal because the operating leases give them control of a fleet at a cost that is far less than if they actually bought the vessels. Doug MacShane got his timing right for his fleet expansion plans. This was back in 2003-2004, when the current market cycle was just beginning to firm.

Of course, one would expect that Doug MacShane would be seeking top dollar to cash out. We do know what the buy-out terms are in terms of cash payments, etc. We should assume, however, that the ships will have been effectively marked-to-market with this buy out transaction, so more realistic costs will drive their chartering and their operating margins will be tighter.

The normal path of any private equity play is to cash in sooner rather than later. It is very likely that AMA will seek to take it public to capitalize on significant free cash for further investments. There may already be sufficient earnings multiples for an attractive cash out through an IPO, but the premium that they will get depends heavily on an attractive story for further growth and forward earnings.

Their newly appointed CEO Bob Burke is a financial man, investor and outsider to the chemical parcel industry, He is a King's point graduate, but with prior limited practical chartering or ship operational experience. He has reportedly hired Johan Molenaar, an ex Stolt senior chartering manager, to take care of the commercial side of business. His mission will undoubtedly be to try to make the business grow. This may be hard with today's prices for incremental tonnage and the marked up cost structure.

It will be a challenge to keep the company together and leverage the good will for further gain.

As a postscript, AMA succeeded to turn around and resell their investment in MTM to Berlian Laju Tankers by the fall of 2007. Bob Burke did a good job to reorganize the company and it was a very successful transaction for both him and AMA.