Nordic funds and investors are hungry to snap up shipping bonds if companies make them available.
The appetite for new shipping bonds is expected to remain healthy throughout the year, unless there are any unforeseen events, Martin Borter, head of credit research at DNB Markets, told TradeWinds.
Activity in the Nordic shipping bond market was low last year. It was the second consecutive year with negative net issuance, according to DNB data.
“The Nordic bond market, historically strong in the shipping sector, currently faces a shortage of shipping bonds,” Borter said.
“This is due to several issuers repaying bonds in cash amid a rising market, moderate investment levels and the return of traditional lenders. Additionally, mergers and acquisitions have led to some companies exiting the market.”
The outstanding volume of shipping bonds with Nordic documentation fell from NOK 56bn ($5.4bn) at the end of 2021 to NOK 43bn at the end of 2023.
“Both in percentage and billions that is a big drop, especially when considering the increasing demand for high-yield bonds in the same period,” said Ole Kjennerud, credit strategist at DNB Markets.
At the start of this year, there has been some activity in the Nordic credit market.
Danish product tanker owner Torm sold $200m of five-year senior unsecured bonds on Thursday. They will carry a fixed coupon of 8.25%.
Norwegian investment company Aker has issued a NOK 1.25bn five-year senior unsecured bond with a coupon of three months Nibor plus 1.87%.
Very good returns
Thomas Eitzen, head of credit strategy & research at SEB in Oslo, told TradeWinds: “We will see more activity. There will be more issues of shipping bonds in 2024 than in 2023. But it won’t necessarily be in the first quarter but later.
“There is an investor interest for more shipping bonds. It’s rigged for that. And it would be a welcomed addition to the current market.”
Eitzen sees two factors affecting the level of issuance: the investment level of the shipping companies and the general interest rate development.
“The low activity has primarily been about the supply side. There’s generally a good demand from bond investors,” he explained.
In previous years, shipping companies have made a lot of cash while refraining from investing in a rate-hiking environment.
“It's a matter of capex. How much the shipping companies invest in newbuilds will affect the bond issuance. Newbuilds must be financed,” Eitzen said.
DNB forecasts another positive year for the Nordic high-yield market after a strong performance in 2023.
“Overall, we think bond returns will still be very good (8%-10%), with most investors seeing returns being driven by coupon payments rather than changes in bond prices,” Kjennerud wrote in a report.
He advises shipping issuers to plan ahead.
“I recommend companies to be well prepared. Issuers must have several legs of financing — equity, bank loans and bonds,” he told TradeWinds.
“It’s good for the issuer in terms of reducing refinancing risks and the creditors will reward issuers with a highly diversified funding base.”
DNB said a broader range of shipping companies will come to the market in 2024, including single B issuers. Household names such as Stolt-Nielsen and Wallenius Wilhelmsen issued bonds in the second half of last year.
“There is a good demand for shipping bonds from investors and funds,” Kjennerud said.
“Portfolio managers have a need to invest, with cash buffers being relatively high and many most likely being unvoluntary underweight the sector due to limited supply. There is a chance for scarcity issue.”
Stolt-Nielsen carried out a NOK 325m tap issue in its five-year senior unsecured bond last month. The bonds priced at 100% of par and had a floating rate coupon of three-month Nibor plus 3.15%. The tap issue was initiated by reversed enquiries from investors.
“There are good funding conditions for the shipping companies. It has rarely been as beneficial as now for shipping companies to raise capital in the bond market,” Kjennerud said.
