This is the second of our 2-part report on Berlian Laju Tanker.  The first report highlighted the leading chemical tanker operator’s low-cost fleet expansion opportunity at a time when Cabotage allows it to grab market share from foreign-flagged vessel operators.

Demand for chemical tankers is replacing that for product tankers, says Peter Chayson. Photo by Leong Chan Teik.

BERLIAN LAJU’S takeover of Olso-listed Camillo Eitzen (CECO), which it expects to complete by Nov, will create the world’s largest chemical tanker operator.

The world's No. 3 chemical tanker operator announced yesterday its intention to launch a “voluntary exchange offer” for all the shares in CECO, another leading chemical tanker operator.

And it intends to seek a secondary listing on the Oslo stock exchange following the merger.

The current bad market condition is an opportunity to buy growth since quite a few good companies with strong track record have been affected by the crisis, said Peter Chayson, who is Berlian Laju's general manager.

CECO, for example, incurred a net loss of US$21.8 million during 1H09.

CECO is headquartered in Copenhagen and has more than 80 offices worldwide.

Total revenues of the merged entity for the past 12 months amount to about US$2.3 billion, and EBITDA amounts to US$499 million.

In comparison, Berlian Laju generated revenues of US$305.7 million and EBITDA of US$134.5 million for 1H09.

Including new vessels, the enlarged group will operate 157 chemical tankers, or double that of the next largest players.

In addition, it will have 14 oil tankers, 42 gas tankers, 50 to 60 bulk carriers and one FPSO.

Berlian Laju also wants to buy vessels that are 5 to 10 years of age for deployment in Indon waters for opportunities arising from the Cabotage rule.

This year’s capex was U$60 million, and Peter expects another whopping US$424.5 million in the following 3 years.

Berlian Laju keeps its fleet young at average age of 7.7 years, half that of its competitors.

Large capex is no issue where there’s financing

While the size of Berlian Laju’s expansion plans may seem imposing, Peter is confident the company has the clout to raise external finances.

CECO shareholders will be offered mandatory exchangeable bonds with an indicative face value equivalent to NOK 25 per share, which works out to an estimated US$175 million of bonds.

In Aug, it raised about S$85 million via a one-for-three rights issue at 6.1 cents (Rp425) per share, and lowered its gearing to 1.6X.

The company is operating short and long term credit lines with numerous banks.  Additional loan facilities in the pipeline, especially from local banks, said Peter.

During 2Q09, Berlian Laju managed to obtain another two long term loan facilities - 500 billion rupiah from Bank Mandiri and US$31.5 million from DnBNor.

The Indonesian government has also passed several important laws and regulations, such as the new Shipping Law, the Law on Arrest of Ships, the Law on Mortgage.

These policy changes will encourage local bank lending to local shipping companies.

Another possible source of funding is the sale and leaseback of vessels, such as the 19,900-dwt chemical tanker that it sold and leased back in 1Q09.

Even during the pit of the recent economic crisis, Berlian Laju managed to complete significant amounts of sale and lease back transactions and continued to receive substantial amounts of funding from its shipping banks, said Peter.

1H09 operating profits were hit by lower freight rates and high costs, but Peter believes demand outlook is positive.

Confident about revenue outlook

Other than replacement demand for foreign-flagged vessels, shifts in production and consumption trends may also increase demand for tanker shipping.

For example, export of chemicals from Asia and the Middle East is expected to grow.

Chemical tanker demand in South America is also very strong, says Peter. 

Charter revenues from chemical tankers contributed 74% to Berlian Laju’s 1H09 top line.

As for gas tankers, freight rates remained resilient through the global economic crisis, and pockets of growth opportunities exist.

Most revenues from gas are also secured by contracts, added Peter.

For example, natural gas released during oil exploration and production is difficult to store and transport, so in the past, oil majors used to just burn the gas.

However, with IMO’s regulation on prohibition of flare gas, demand for small gas tankers will increase.

Charter revenues from gas tankers (which carry LPG and LNG) contributed 6.8% to group 1H09 top line.

Finally, Indonesia is a net importer of oil, and wants to increase domestic production.

He expects oil exploration and production by the global oil majors in Indonesian waters to increase and thereby boost demand for FPSOs.

The plan is to buy cheap second-hand tankers, which are not double hulled, and commission an external yard to convert these to FPSOs.

Charter revenues from the company’s FPSO vessel contributed 1.8% to group 1H09 top line.

The FPSO (floating production supply and offloading) vessel sails to an offshore platform, loads and processes oil and gas, and stores it until the oil or gas can be offloaded onto a tanker or transported through a pipeline.

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