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8 News, Trends, Analysis Report: CMA CGM could default as freight rates approach zero for Asia-Europe trade California to get $800 mil for infrastructure from CalPERS The state of California found out that $800 million has been earmarked for investments in its infrastructure over the next three years; thanks to the group that provides retirement and health benefits to 1.6 million public employees there. The world's third largest container-shipping group, France's CMA CGM, reportedly has a nine in 10 chance of defaulting on bonds and derivatives within the next five years amid news that freight rates in the Asia-Europe trade are close to zero, and on the heels of a penalty the company was hit with last month by the U.S. Department of Treasury for violating trade sanctions with Cuba, Iran and Sudan. According to Bloomberg Bond Trader data, the price of CMA CGM's $475 million worth of 8.5 percent notes that are due in 2017 has dropped to 47.25 cents on the dollar since there were sold on April 14 of this year. As a result, credit-default swap prices indicate a 90 percent probability of default on the notes within the next five years. According to Bloomberg's data, CMA CGM has approximately $4 billion in loans. In November, the Marseilles-based shipping line in the course of restructuring $5 billion of debt, received $500 million from Turkey's family- owned Yildirim in return for a 20 percent stake. Yildirim agreed to acquire 50 percent of Malta Freeport Terminals from CMA CGM for $280 million. Softening freight rates, impacted in part by high U.S. unemployment and Europe's financial troubles, have contributed to the shipping industry slump as rates are almost at zero in the Asia-Europe trade excluding fuel surcharges, according to Bloomberg. "A lot of companies run the risk of default if freight rates remain at such a low level," said Jacob Pedersen, an analyst at Denmark's Sydbank A/S. "Companies have been taken by surprise this quarter because just a few months ago they were all sure there would be a lack of capacity and that would be positive for freight rates," he said. While 2011 does not look to be anything like 2009's global economic meltdown when container-shipping owners and operators lost an estimated $20 billion, that sector could lose up to $3 billion this year, according Philip Damas, director of liner shipping and supply chains at Drewry Shipping Consultants. CMA CGM was also dealt a $374,400 settlement with the U.S. Department of Treasury's Office of Foreign Assets Control in August for allegedly violating U.S. trade sanctions by accepting payments for shipping services to Cuba, Iran and the Sudan between December 2004 and April 2008, although the shipping firm says there was no finding of fault. In one case, the CMA CGM Victoria was seized by the Israeli Navy where three containers were found to contain weapons that the shipper falsely listed as a cargo of lentils. The shipping group said recently that it plans to focus on emerging markets including Latin America and Russia as a means to find business growth. For the full Bloomberg story: www.bloomberg.com September 2011 www.cargobusinessnews.com The board of the California Public Employees' Retirement System (CalPERS), the largest public investment fund in the U.S. with $227 billion in market assets, announced the $800 million earmark would include investments in, but not limited to, Japanese auto manufacturers' post- tsunami reboot could be boon its shipping lines In the global container-and-dry-bulk- shipping markets of sagging freight rates, the ramped up auto production by Toyota Motor Corp. and Nissan Motor Co. in the wake of Japan's devastating March 11 earthquake and tsunami could reportedly help boost the car-carrying fortunes of firms like Nippon Yusen K.K. and Mitsui O.S.K. Lines Ltd., with a forecast of 3.8 Virginia state leadership shaking things up at its port authority On the heels of an almost complete overhaul of the board of the Virginia Port Authority in July, the state's Department of Transportation Secretary Sean Connaughton said nothing is "off the table at this point," with regard to continued shakeups at the major East Coast port, including possible changes to the long-entrenched management structure there. T