Seaspan is taking a hard line with South Korea’s Hanjin Shipping over moves by the latter to cut its charter rates. But the course of talks with Hanjin remains a potential overhang on fully consolidating the Greater China Intermodal (GCI) fleet.
Speaking to analysts on the Vancouver-based company’s second quarter conference call, chief executive Gerry Wang says Hanjin has asked for a cut in charter rates over three and a half years for three containerships in return for Hanjin securities. But Seaspan continues to reject that deal and sees no way for Hanjin to back out of it charter agreements.
“We are not here to entertain a rate reduction,” Wang said. “We believe (any rate cut) is a violation of the contracts.”
Still, Hanjin remains in arrears on their current bill with Seaspan as the company noted some $11.6m in outstanding receivables from the company.
When asked whether any other boxship operator is behind on their bills, chief financial officer David Spivak said, “all other customers are current. As far as charterer receivables, Hanjin is it.”
Wang and Spivak sought to downplay the overall importance of Hanjin, which only charters three out of Seaspan’s fleet of 89 containerships and represents about 5% of revenue.
However, Hanjin also charters four ships from GCI, which is a joint venture of Seaspan and private equity firm Carlyle Group. In a note after the earnings, JP Morgan analyst Noah Parquette says GCI’s exposure to Hanjin remains an “obstacle to agreeing on a fair value for the entire fleet.”
The issue of fully consolidating the GCI fleet is of growing importance due to a step-up clause in one of the company’s recent preferred share issuances. The Series F preferred shares, which raised $140m in new capital, carry a 6.95% dividend which will be raised to 10.5% if the entire GCI fleet is not consolidated by the end of 2017.
Spivak says the terms of the Series F share might be “punitive, but not onerous” like the earlier preferred shares that were replaced. He adds that there are options such as redeeming the shares should the GCI deal not go through.
Seaspan executives did not comment on GCI’s Hanjin exposure. But CFO Spivak said “we’re happy we have just three ships (chartered to Hanjin) compared to seven. Seven would be more material.”
While providing third quarter charter revenue guidance, Spivak says the situation with Hanjin could still change.
“It is highly uncertain how the situation with Hanjin will evolve and this may impact whether the guidance we are providing is realised,” Spivak said.
