Companies Change Stockholding and Board Members to Avoid China’s Port Fees

There had been reports that companies were considering restructuring steps in the face of the uncertainties created by the special port fee programs introduced by the U.S. and China. Several companies, based on recent stock exchange filings, have quietly taken several steps targeting their ownership profile and composition of their boards to reduce the risk of being deemed a “U.S.-controlled” company by the Chinese authorities.

Lawyers pointed to the ambiguities in the programs and the definitions of ownership. Both China and the United States included percentages of ownership that could cause a company to be deemed to be eligible for inclusion in the fee programs. Public companies have highlighted that much of their stock may be held in brokerage accounts where they have no knowledge of the beneficial owner. Only the large institutional investors can be readily identified.

One example of the steps companies are taking was revealed in a series of filings by Costamare, a larger owner/charterer of containerships, and its recently established sister company Costamare Bulkers, which spun off earlier this year to control the dry bulk portion of the fleet. Although both companies are majority owned by entities linked to Konstantinos Konstantakopoulos and headquartered in Monaco, they trade on the New York Stock Exchange.

In filings dated October 14, the two companies revealed they were selling new, non-economic shares to Konstantakopoulos. In the case of Costamare, they sold 1,200 shares for $1,200, and Costamare Bulkers sold 235 shares for $235. After these transactions, Konstantakopoulos’ voting rights rose to over 75 percent ownership of each company.

In the filings, the companies said the steps were being taken in connection with the announcement by China’s Ministry of Transport about U.S.-linked vessels being subject to the new port fees. While the companies said they did not believe they were exposed, they said it was not possible to ensure that U.S. persons did not control more than 25 percent of the voting power. The solution, increase Konstantakopoulos’ voting power.

The companies took a second step, announced in filings on October 21. Commonly known as a “poison pill,” they amended their stock rights programs to further protect against tripping the U.S. interests’ provision in the port fee program. Costamare Bulkers reports that it lowered the ownership threshold to 5 percent for a U.S. owner’s beneficial position to trigger the rights offering. They excluded current holders or passive investors below a 6.5 percent threshold currently, again saying it was due to the Chinese port fee program.

Several other publicly traded shipping companies have quietly moved to reformulate their boards. Okeanis Eco Tankers and Danaos, for example, accepted the resignations of American directors, saying it was not due to a dispute with the company.

These steps are examples of the measures companies are taking in response to the Chinese special port fees. Companies that can are also reported to be redeploying ships in their fleets, or in the case of cruise companies based in the United States, skipping scheduled port calls in China.

Costamare advised shareholders that it would review the changes to the right plan at the appropriate time. The U.S. has continued to say it expects a strong trade deal with China, but it is unclear if the port fees, which the U.S. started to reduce to counter China's dominance of the maritime trade and shipbuilding, could be included in the trade agreements.