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“Nowhere To Hide” As Baltic ‘Fried’ Index Careens To Fresh Record Low
“Nowhere To Hide” As Baltic ‘Fried’ Index Careens To Fresh Record Low
“This looks like a ripple effect from what happened back in August,” adds Alexandre Baradez, chief market analyst at IG France, hopefully looking forward, “it might continue for a few weeks, but given China’s central bank fire power, it shouldn’t last for more than that.”
But Deutsche’s “perfect storm” looms…
The improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we’ve had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of “for sale” tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values
The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries.
The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.
…click on the above link to read the rest of the article…
A “Perfect Storm Is Coming” Deutsche Warns As Baltic Dry Falls To New Record Low
A “Perfect Storm Is Coming” Deutsche Warns As Baltic Dry Falls To New Record Low
At 468, The Baltic Dry Index is now at a new record low…
And US Manufacturing imports suggest things are getting worse, not better…
Which leads Deutsche Bank to warn of…A Perfect Storm Brewing
The improvement in dry bulk rates we expected into year-end has not materialized. And based on conversations we’ve had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of “for sale” tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values
The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries.
The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.
The move to sell assets in unison can lead to a downward spiral, where the decline in values leads to an immediate need for additional equity to cure LTV breaches.
Source: Deustche Bank
“Critical” Debt “Domino Chain” Threatens To Destabilize China’s Financial System, SocGen Says
“Critical” Debt “Domino Chain” Threatens To Destabilize China’s Financial System, SocGen Says
Since the beginning of March when we first explained why QE (or at least some manner of “unconventional” monetary policy) may be inevitable in China, we’ve tracked developments around the country’s local government debt refi effort closely. For those in need of a refresher, we’ve documented the program from inception to implementation and beyond in exhaustive detail in the following posts:
- China’s Latest Spinning Plate: 10 Trillion In Local Government Debt
- China Floats QE Trial Balloon, PBoC May Launch LTROs
- Failed Chinese Local Bond Offering Leads To PBOC Easing Confusion
- China Officially Launches Critical Local Government Debt Swap — But Is The PBoC Really Just Issuing Treasury Bonds?
- China Creates Perpetual Leverage Machine After Dropping Debt Directive
- Confusion Reigns At PBoC As Multi-Trillion Yuan Bailout Threatens To Undermine Rate Cuts
While we won’t endeavor to recap the entire series of events here, note that the entire effort comes down to one simple thing: China’s local governments have managed to accumulated a debt pile worth 35% of GDP via off-balance sheet, high-cost loans which are now being swapped for low interest muni bonds in an effort to reduce debt servicing costs and extend WAM. This is part of a wider effort on China’s part to deleverage an economy laboring under $28 trillion in debt. This deleveraging effort goes far beyond local government debt, as Beijing is now moving to allow for more corporate defaults as the country moves to liberalize its financial markets.
There’s a critical link between local governments’ off-balance sheet financing (the loans that China is now working to restructure) and China’s financial system as a whole.
…click on the above link to read the rest of the article…
