"The Beginning of the End of Putin"

(KBHM) Great article about Putin in the previous edition of The Economist. 

I especially like their list of reforms Putin must do to be remembered favourably in history:  

• Promise not to run for President again in 2018
• Offer to hold a fresh parliamentary election
• Establish the rule of law and reform the economy (which he has previously promised)
• Reinstate wholly free elections for regional governors as a step towards greater decentralisation of power
• Release Mikhail Khodorkovsky, the jailed former boss of the Yukos oil company 
• And instead of Mr Medvedev, choose as prime minister a relative liberaliser such as Alexei Kudrin, a former finance minister who has sought to engage the protesters

If Putin were to complete these suggested reforms, Russia could be heading toward a brighter future. With public spending accounting for 40 % of their GDP, which is high for a middle-income country. Russia's federal budget in 2007 needed oil prices of $30 per barrel to balance. 2012 however, Russia will need a number closer to $130. 

Oil WTI, currently trading at $107.6 per barrel. 

Trøim Comments on Recent SDRL Sale

(KBHM) As I noted the other day, Fredriksen recently sold 24 million Seadrill shares, totalling a little under $1 billion. He is rumoured to use this money for building a larger position in commodity carriers, among others oil product vessels. 

His right hand man Tor Olav Trøim comments on the sale to Reuters: "John wants to have large liquidity to expand in commodity shipping but it won't be tomorrow or next month". 

He goes on to say "He is looking further out and expects markets to improve in 2014 or 2015. If you want to get newbuilds in 2015, you have to order them and make down payments in 2012-13". Does this mean we have to hold off until 2014-15 for better freight rates? 

Seadrill (SDRL) currently trading at NOK 220.50, up 1.38%.

Depressed Capesize and Jolly Handysize

(KBHM) Good interview on Bloomberg last night. Quite rare to hear the lads at Bloomie talk about the shipping industry. Johnson Leung from Jeffries Bank, is defending the container industry. He points out that he likes the Japanese names as they currently have "distressed valuations", before the cycle turns. He sees a 20-40% upside in the industry. His reasoning is that "the industry lost so much money last year", which I'm not sure is enough of a story for me. 

He has some good information about the bulk market, however. The figures are gradually rising in general. Capesize vessels are under a lot of pressure, due to fear of China's economic downturn; which would result in decreasing iron ore imports. Smaller sized vessels, on the other hand are looking good. He notes that Handysize freight rates have gained 30% the last month. 

That may be the reason for his recommendation (or pitch, had he had the air-time) for Pacific Basin (2343:HK), who's owns 35 bulkers, all non-Capesize, and charters another 75. Their current new-build book consists of eight Handysize and six Handymax.  

Pacific Basin (2343:HK) closed yesterday at HK$ 4.15, up 1.2%. They currently offer a 5.1% dividend yield. March 1st the company posted a 69% profit drop in 2011 due to lower rates and a write-off of vehicle-carrying ships. 

"The time to buy is when there's blood in the streets"

- Baron Rothschild, 18th Century 

Shipping and Offshore Update

(KBHM) John Fredriksen's Golden Ocean Group (GOGL) has been hammered in the last week, dropping a whole ten percent on the back of a bad bulk market. However, the Baltic Dry Index (BDIY) was up a few points on China's ever increasing iron ore imports. Baltic Dry ended Monday up 1.58% and is now at 837 points. Both DNB Markets and Arctic Securities now have a BUY recommendation on the stock. 

Although one should never listen to analysts, Golden Ocean has proved to be a dividend friendly company, with an excellent management team led by Herman Billung, and backed by John Fredriksen. GOGL ended trading today at NOK 4.96 up 3.77%.

For the daydreamers: all time high for the Baltic Dry was 11 793 in May, 2008. 

And for the optimists: all time low was 554 in July, 1986.

While there may be some optimism and positivity around GOGL, Fredriksen's drilling company Seadrill (SDRL) just got downgraded from BUY to HOLD by Sociéte Générale today. With that said, what do the French know about shipping? 

Another piece of company news emerged today, SDRL signed a contract with Saudi Aramco. It is a three year deal for the jack-up rig "West Callisto", with a one-year option. According to the press release this deal is worth approximately $164 million, plus a $20 million mobilisation bonus. The start date is set for September, 2012. 

Fredriksen recently sold approximately 24 million SDRL shares to "increase firepower for shipping acquisitions". It is rumoured he is gearing up for his largest shipping investment in more than 12 years. Between 1996 and 2001 he purchased 80 vessels totalling $4.6 billion. He will probably be aiming to enter new shipping areas, such as oil-product tankers. 

Can we draw any conclusion from Fredriksen's actions? Does he not like offshore, or does he simply prefer shipping at this moment in time? Is he telling the market it might be time to buy big? 

Putin: Bad for Russia, Good for Gazprom?

(KBHM) March 4th, Russian Prime Minister Vladimir Putin won six more years as President. Putin has been in power the last 12 years, the last four as Prime Minister. He received 62 percent of the vote, amid rumours of fraudulent activities. The case of fraud during the December parliamentary elections have still not been addressed, and demonstrations are believed to carry on.

According to President Putin's campaign manager, Stanislav Govorukhin, the election was the cleanest elections in the “entire history of Russia”. This remains to be proven...

Personal opinion aside, it looks like investors are more than satisfied with the election results. Russian equities reached their highest level in more than seven months. Investors are hoping Vladimir Putin’s return to presidency will extend a rally in the developing world’s cheapest stocks. The MICEX, (Moscow Interbank Currency Exchange, for those of you who are slacking) trades at the cheapest valuation of the 21 emerging markets tracked by Bloomberg. According to S&P this is due to the lack of political and financial transparency. This is thought to improve in the future, but as I was told by a gentleman with deep knowledge of the matter: "It will take generations to improve, as corruption is not part of the system, it is the system".

I read an article saying: "A Putin victory is good for equities that have chief shareholders closely associated with the incoming president..." To be honest, you can only pick a handful of MICEX companies that President Putin does not have a certain influence towards. 

The most globally-traded Russian stock is Gazprom (GAZP:RU). As an analyst told me a while ago, "if you buy Russia, you buy Gazprom". Who was the Chairman of the Gazprom Board 2000-2001 and 2002-2008? Our good friend Dmitry Medvedev. So, under the theory that Putin-influenced companies will thrive under his reign + oil trading at $125/bbl - should we be shouting BUY GAZPROM?

Africa: The Next Big Thing in Shipping?

(KBHM) This really is a very interesting speech, and quite motivational coming from such a young man. I would highly recommend seeing the full 15 minutes of the video.

I like the fact that he refers to BRICs as a "very fashionable term", and has a slightly out-of-box mentality. Especially given that he is himself Indian, one would think he would be selling ideas in India, which makes his thoughts about Africa maybe more credible. China really did change the industry 10 years ago, and his prediction is that over the next 10 years, Africa may partly take over Chinas position.

He has some interesting points regarding foreign investment; serious investors sit down with top officials, and in some cases, heads of state. This is not the case in say, China or India. Also interesting, is that there is "serious money" going into Africa. Foreign money building roads, ports and various infrastructure, is a good sign that they're not in for the quick buck, but for the long term.

The coal mines of West Africa could also be a large driver for bulk shipping in years to come. Could they replace/take over the position of say Australia? There are a lot of interesting and important questions asked in this speech, and I will continue to research this topic further and be posting about Africa's commodity opportunities in the the future.