Is the Dry Bulk Tramp Shipping Industry at an Inflection Point?

As punishingly brutal as the shipping industry can be in bad times, it’s fulfillingly rewarding in good times. Who can forget the days from a decade ago when capesize bulkers were earning $250,000 per diem and the ships themselves were changing hands in excess of $150 million? We are a long way from those good old days but memories of and even hopes for prompt arrival of great times keep many a shipowner persevering in this business. It’s known that sweet memories and often hopes have on occasion been used to spruce up many “investment theses” in investment presentations.

The dry bulk tramp trade – whereby ships do not sail on a fixed schedule or published ports of call – has long been considered a textbook case of perfect competition in economics with its low barriers to entry and exit, minimal government and regulatory interference and taxation, an international market of price-takers for an un-differentiated product where no individual player – whether shipowner or charterer – has controlling influence on the market.

In such an individualistic market environment, fortunes have been made – and occasionally lost – when independent shipowners took timely risks and positioned their companies favorably on the dramatic upswing of the business cycle. Now that the dry bulk market is closer to the bottom than the peak of the cycle, there are calls to take risks for a market upswing.

Probably the timing is opportune for buying bulkers in expectations of an upswing in the market but one has to consider whether the dry bulk tramp market still is a market adhering to the rules of a perfectly competitive market. The last decade has seen many fundamental changes in the market that one has to wonder whether the old playbook is still working.

The greatest barrier to entry the shipping industry has been capital, given that this is a capital intensive industry. However, in past times shipping banks were providing generous financing in terms of financial gearing (leverage) and covenants, and even there have been cases of “name lending” and financing agreed on a handshake. Now that shipping banks have been departing the industry, and with the capital markets veering away from project finance and commodity shipping, private equity and other institutional investors have been depended upon to provide capital to shipping but at a much higher cost of capital, tighter terms and covenants and often for a share of the economics. The barriers to entry in terms of accessing capital have definitely been affecting the industry in an adverse way, in this respect.

In reference to government interference and regulation, for vessels having open registries (flags of convenience), the burden is still low in comparison to other onshore industries, but one can see the writing on the wall of higher regulation (and higher costs.) Emissions and the quality of bunker fuel have been making headline news in the last year resulting in both a higher financial component to the business and also technological and regulatory risk. Likewise for ballast water treatment plans, past the official deadlines, technology and approvals only now are getting sorted out. Likely, there will be higher risks for safety and security and ensuring that ships and the seaways supply chain are supported by hack-free systems (ransomware NotPetya have cost Maersk a few hundred million in losses in their last quarterly report, while the possibility of “hacked” ships became a prominent scenario in a recent wave of collisions involving US Navy ships in the Pacific.) And, while offshore registered vessels are taxed on the so-called “tonnage tax” system, many revenue-challenged jurisdictions and taxpayers have been taking a second look on the substantial differential in taxation in reference to domestically registered shipping companies and the potential loss of revenue. Taxation is a risk routinely mentioned in the prospectuses of all publicly listed companies in the US-capital markets and that the current favorable treatment by the IRS cannot always considered to be “a sure thing”. Thus, in an increasingly burdensome era of regulations (environment, safety, security, etc) and taxation, another of the legs of perfect competition seems challenged.

In theory, the “product” that dry bulk shipping companies “sell” is a “commodity” and “interchangeable” as all dry bulk shipping companies offer the service of transporting cargoes in bulk over the sea; as simple as that. And, although there are many charterers who only care for the basic good of cheap transport, an ever increasing number of quality charterers demand more than the “basic” service of transport: they demand quality ships and proper management systems and real time reporting and accountability, and also solid shipowners and managers free of financial risk of default. Thus, the “product” of the tramp dry bulk shipping slowly becomes less commoditized and more of a “service” whereby now ships and shipowners are not exactly interchangeable. Quality ships run by quality managers are preferred by charterers, but they still earn market price; and, in order to be profitable at market prices, critical mass of a fleet is required in order to access capital and also spread the overhead among a larger number of vessels. Thus, another tenet of the perfect competition model that dry bulk is a “commodity” good is slowly challenged.

At the end of the day, dry bulk shipowners in the tramp trade are “price takers” and will take what the market pays as there is little pricing power; again, a perfect competition characteristic. However, the case of just buying cheap ships and wait for the market to recovery will not necessarily hold true in this new market environment. One has to wonder whether the tramp dry bulk market, as a precursor to other asset classes – is slowly approaching an inflection point where “value added” services would be a differentiating factor.

“Hope is a good thing, maybe the best of things, and no good thing ever dies”, as the quote goes, but one may has to start thinking that just hope alone of a market recovery similar to recoveries in previous business cycles may not be the case.


Article was originally was published on The Maritime Executive under the title “Is The Dry Bulk Tramp Market at an Inflection Point?” on December 1st, 2017.


Dry bulk vessel about to go under a bridge. Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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Credit is due to Shipping Finance

The freight market has been disappointing recently, for dry bulk, tankers and containerships, while asset prices too have been on a softening trend, especially for tankers. As one would expect, traditionally the freight market gets most of the attention in shipping, for signs of strength with the hope that asset prices would be lifted too; however, we are of the opinion that shipping finance may be the key for successfully navigating the shipping markets going forward.

Having traveled extensively recently and having closed several S&P and structured, financial transactions, we can only be more convinced by the day that shipping finance is where the real battlefield lays for shipping nowadays. Access to finance, whether based on own funds or access to financing from third parties, is what sets shipowners apart in terms of survival and growth.

Shipping banks are done with traditional shipping and first preferred ship mortgages. Yes, we have seen a couple of occasions where European banks are still lending at 300 bps spread over Libor, but they are so selective and have such a limited capacity that effectively such lending activity only confirms the fact that shipping banks are not active for most practical purposes. Thus, cheap debt financing is no more.

Shipping credit funds have made lots of noise in the last year, and we estimate that they have deployed close to a billion dollars in the last eighteen months; still, they are too afar from financing the average shipowners, notwithstanding the temptation in this desperate market for debt financing. Credit funds typically look for 8% minimum yield before any fees, equity kickers and other incentives, which limits their applicability to only second hand vessels that are priced at a multiple of the collateral’s scrap value; financing the acquisition of a resale capesize vessel with excess $30 mil acquisition price and paying 8% yield, one may as well try their luck in Las Vegas and try to have a good time while they are at it. Thus, credit funds can have parodical application.

Private equity funds having made ill-timed “bets” in 2011-2014 in shipping (and we consciously use the term “bets”), now they stand licking their wounds and trying to devise ways to cut their losses short. Never mind grandiose plans for IPOs, market consolidation and bringing turn-around expertise and making a commitment to the industry; we have been the busiest we have seen with advisory, market intelligence, valuation, industry expertise services for disputes, arbitration and litigation between shipowners and financial investors. So much for hopes that private equity could feel the funding gap left in the wake of shipping banks leaving the industry.

True, there are still shipowners with deep pockets who have kept buying vessels well into 2017, despite the asset price bounce compared to all time lows in 2016 for the dry bulk market; however, there are few shipowners that indeed still have deep pockets. German owners may feel sick that they lose ships to other markets and especially to the Greek market, and this can be true to an extent, but on the other hand, few shipowners have been buying and can keep buying on a sustainable basis; most shipowners with ‘seed money’ are almost maxed out and looking for third-party money if they were to keep buying.

Shipping finance is really the battleground for modern shipping these days, the industry’s ‘soft underbelly’. While one can keep projecting on tonnage demand growth and developing trade patterns, shipping finance will be the field that will make or break shipowners. Shipping finance is getting to be ever more challenging and there is no realistically any reason that the picture will get brighter in the future. Yes, for few publicly listed shipping companies with critical mass, real business plans and solid corporate governance, capital markets can still be the way to go. But for most of the independent shipowners and several of the penny-stock listed shipping companies, shipping finance would be the critical link in their survival and / or success.

Based on reports from a recent shipping conference in New York – which purposefully we did not attend, we have seen that “M&A” and “consolidation” were the buzzwords of the day. But again, in a market that is as dead in activity as a coffin floating after the sinking of the „Pequod” in Moby Dick, whether for IPOs, etc (even a SPAC sponsored by the blue blood Saverys’ shipping family has failed) or follow-ons, hopes for “M&A” and “consolidation” have to do. And, statements that shipping and commercial banks ought to be considering shipping again, given that the industry is “low volatility”, humored us for reminding us the proposed “Hamburg Formula” for vessel valuations  of almost ten years ago where the shipping industry was suggested to be an industry of low volatility and risk and the suggested cost of capital was a whole of 50 basis points over the T-bill, then.

Solving the shipping finance riddle is really a critical point for most of the shipowners to address going forward, the direction of the freight and asset pricing markets.


This article first appeared on Splash 24/7 on June 23rd, 2017, under the title “Credit is due to Shipping Finance”.


Manhattan, New York City: An ever more critical place for shipping finance. Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

Basil Karatzas to Speak at Caymans Shipping Conference

We are delighted to confirm just ten days before the event, due to outstanding business obligations, that Basil Karatzas will be presenting that the 5th Cayman Islands Shipping and Yachting Summit hosted by Mare Forum on May 1st, 2017. The conference is held during The Cayman Maritime Week in George Town, Grand Cayman, Cayman Islands. The presentation by Basil Karatzas is expected to cover the expected implications on the shipping and maritime industries by the Trump Administration.

Part of working in the shipping industry! No complaints! Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

Basil M Karatzas and Karatzas Marine Advisors Quoted in the News

We are delighted that Karatzas Marine Advisors & Co., and its founder Basil M Karatzas have become the contact to have for shipping market expertise; with prompt access to market information and a vast network and access to senior executives worldwide, in the shipping industry and several complimentary industries, the company has had a front row seat to today’s developments in the maritime industry and has been enjoying an active deal-flow and the trust of many in the shipping industry.

Five shipping and logistics influencers you should follow (Veconinter, March 13th, 2017)                                                                                                                            Basil Karatzas was named one of the shipping industry’s influencers by Veconinter, a Venezuela-based logistics company; tweets on shipping, and everything about it, by Basil Karatzas can be followed at @KaratzasMarine and @BasilKaratzas

Πήρε «φωτιά» η αγορά πλοίων μεσαίου τύπου για ξηρό φορτίο (Ναυτεμπορικἠ, March 14th, 2017)

ZIM Shipping Names New CEO in Face of Possible Sale (The Wall Street Journal, March 10th, 2017)

Gibraltar Shipping Interview: Basil Karatzas Talks Alternative Bunkers, S&P Markets, Vessel Financing, and Trump by Gibraltar Shipping (March 10th, 2016)

Ναυπηγήσεις – διαλύσεις, διπλή πρόκληση για τα bulk carriers (Ναυτεμπορικἠ, March 6th, 2017)

Still at sea Shipping’s blues: The many barriers to scrapping cargo ships (The Economist, March 2nd, 2017)

Σε «bad bank» το 5% του παγκόσμιου στόλου των containerships (Ναυτεμπορικἠ, February 15th, 2017)

Sinking Feeling: Shipping Is Latest European Banking Worry (The Wall Street Journal, February 10th, 2017)

From the crossroads to the world… Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

2017 03MAR07 N Ναυπηγησεις-διαλυσεις, διπλη προκληση για τα bulker carriers

The World Is Not Flat, Anymore

Only a few years ago, it seemed that our world, despite its spherical shape, was stretching to fit into a two-dimensional level playing field. The internet softly, almost hesitantly, started disrupting industries since the dot.com era, and technological innovations have been aggressively destroying market inefficiencies and rent-seeking industries ever since. During the last two decades, it had been easy to access information, to make decisions, to trade; it was easy for people to travel and for goods to be traded and shipped around. A few well-timed events (such as China’s accession to the WTO in 2001) only helped catalyze and amplify the impact of technology.

However, in the last couple of years, it seems that our world, especially when it comes to trade and shipping, sails against the winds. Clouds have been gathering slowly – politics and the outcome of elections are just a symptom for now, and trade volumes have been declining.

Basil M Karatzas had recently published an article in the Cayman Financial Review (Winter Edition) on the subject, mostly evaluating the topic from the shipowner’s point of view. The original article as posted online can be accessed by clicking here. A pdf version of the article from the print version / magazine can be be accessed by clicking on the image below.

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It seems flat… Click on the picture to access the pdf article. Image credit: Karatzas Images


© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

2017-02feb01-cfr-trade-and-shipping_the-world-is-not-flat-anymore

Sailing Winds on Wall Street

Shipping is an industry full of surprises. And, volatility. While until February this year the surprise mainly had been about the really terrible state of the freight market, the last few months have shown a tendency for the market to surprise on the positive side. Freight rates for the dry bulk market have moved to cash-flow positive levels in the last few months and tanker freight rates have been fair despite some relative weakness.

It’s a long way from saying that the market has recovered, no doubt. Many shipowners still remain in financial distress and several of the options available to shipping banks can only have adversarial impact on shipowners. But again, when shipping has been in a miserable stage for the last eight years, there are no overnight cures – short of a major macro or geopolitical event.

Besides freight rates, the overall mood for the market seems to be improving; we do not mean only shipowners, who by nature are always an optimistic bunch and they seem pre-conditioned to be looking to buy more ships – always. The capital market seem to have gotten a sense of euphoria too after the presidential elections in the US, whether on a sense of a perceived catalyst of definitely a new approach to governing or on the hopes of an infrastructure investment spree. The fact that capital markets didn’t melt after the results of the Italian elections last week is a further sign of pervasive optimism.

And, we are glad to see that market optimism getting tangible for shipping companies, especially for publicly listed companies. After several years of a bone-dry draught for IPOs and secondary offerings, the last month, just in time for the holidays, brought several successful fund raisings. Most recently, Seanergy of Greece (ticker: SHIP) raised $15 mil in a secondary offering and Safe Bulkers still of Greece (ticker: SB) raised $14 million the week prior; both companies are active in the dry bulk market and intend to finance vessel acquisitions with the proceeds. A couple of weeks ago, Costamare of Greece (ticker: CMRE) raised $72 mil in the containership markets and Höegh LNG of Norway (ticker HMLP) raised $106 mil in the LNG tanker market. A month ago, Saverys in Belgium raised $100 mil in the US for a blank check (SPAC) to acquire dry bulk vessels via their Hunter Maritime Acquisition Corp (ticker: HUNTU) investment vehicle.

The amounts involved are a small fraction of the golden days of the capital markets for shipping companies a decade ago; however, until recently it has been a very quiet market in the capital markets for IPOs and secondary offerings for all types of companies. However, this is a positive development under any light seen. All the offerings mentioned above took some serious effort and / or a serious management team and sponsor behind the companies to raise the money; and still, some of the raisings took place at a discount to the market. Thus, not all news is as rosy and sunny as they appear. However, again, we want to take the view that a successful raising today for shipping is a major accomplishment irrespective of the circumstances. These are five successful attempts for different amounts of money and circumstances and in three different industry segments, two of which (dry bulk and containerships) were left for dead four months ago. It shows in our opinion the resilience of the capital markets and the investor appetite for shipping overall. To that extent, we tend to take the view that the news is just fantastic!

Hopefully the momentum will continue and there will be more offerings in the new year. And, hopefully, any fund raisings will be utilized to build solid shipping companies or strengthen balance sheets of shipping companies and the capital markets will not serve as a fodder for speculative newbuilding orders as it happened a couple of years ago, a course of action that has been detrimental for both the instigators and innocent bystanders whereby the freight market crashed under the burden of huge tonnage oversupply. Hopefully there is a lesson to be learned here.

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Smooth seas… Image credit: Karatzas Images.

Another lesson to be learned too, hopefully, by the recent developments is that the capital markets, especially the US capital markets, are deep and substantial and can be depended upon for shipowners to keep raising money; as long as they have solid management teams and transparent corporate governance and decent business plans. All the companies mentioned above successfully check almost all of these points. Taking a broader historical view of the capital markets and shipping, there has been a wide and diverse populace of shipping companies that opportunistically went public in the last decade and now a few of them ended as penny-stocks or and others soon will be delisted. One cannot blame the market for some of these companies falling into hard times, but there is plenty of blame to go around seeing the management of these companies aggrandizing for themselves by exorbitant executive compensation packages, usurious vessel management agreements and plain old-fashioned self-dealing. Hopefully the present success of shipping companies raising money will be a painful reminder to some of the ailing companies that greed is not always good as it can kill the goose that lays the golden eggs.

We long have taken the position – and have advised our firm’s clients accordingly, that shipping finance is facing structural changes; the old model of committing to lending in shipping based on a hand-shake is extinct. Raising money from shipping banks is and will be getting tougher and more expensive. Capital will be coming to shipping in different ways (capital markets, etc) whereby only few owners will be able to benefit from. The work for shipowners adjusting to the new market circumstances is not done yet.

As we said earlier, we are a long way from a market recovery.


Disclaimer: Karatzas Marine Advisors & Co. has advised or otherwise has been involved with some of the market transactions referenced above. This article is strictly intended for information purposes.


The article was originally appeared on the Maritime Executive under the title “Setting Sail (Again) on Wall Street on December 13, 2016.


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Where the winds are strong… Image credit: Karatzas Images

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

Basil M Karatzas and Karatzas Marine Advisors Quoted in the News

The shipping industry has been maintaining a very active profile in the mainstream international business press. Major bankruptcies, reorganizations, merges, vessel arrests and auctions are daily routine these days. Shipping banks, shipping loans actively and non performing loans (NPL) along with provisions are of concern or interest to many.  And, the  freight market that keeps surprising in terms of volatility.

We are delighted that Karatzas Marine Advisors & Co., and its founder Basil M Karatzas have become the contact to have for shipping market expertise; with prompt access to market information and a vast network and access to senior executives worldwide, in the shipping industry and several complimentary industries, the company has had a front row seat to today’s developments in the maritime industry and has been enjoying an active deal-flow and the trust of many in the shipping industry.

Dry-Bulk Shipping Owners Get Reprieve as Rates Rebound
(Wall Street Journal, November 24, 2016)

What Will Save the Shipping Industry? Eight Industry Thoughts Leaders Weigh In   (LLoyd’s List, November 17, 2016)

Taiwan Approves $1.9 Billion Aid Package to Troubled Shipping Companies
(Wall Street Journal, November 16, 2016)

Varsler shippinghavari (translated as ‘Warning Signs for Shipping’)
Dagens Næringsliv, (November 11, 2016 – In Norwegian)

Τα απόνερα από την εκλογή Τραμπ
(Η Ναυτεμπορικἠ, November 10, 2016 – In Greek)

Israel’s Zim Looking to Sell Most Global Shipping Operations
(Wall Street Journal, November 4, 2016)

Japan’s Largest Shipping Firms to Merge Container Operations
(Wall Street Journal, October 31, 2016)

Offen Group Selling Two MR Tankers
(Lloyd’s List, October 25, 2016)

Pressure on German shipping lenders unlikely to ease
(The Financial Times, September 21, 2016)

Guest Voices: Shipping Banks Face Sinking Prospects as They Postpone Reckoning
(Wall Street Journal, September 19, 2016)

It’s not over – Shipping industry adapting to difficult times
(Wärtsilä, September 12, 2016)

Shipping industry not buoyed by low fuel costs
(The Cayman Islands Journal, June 1, 2016)

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Aptly named containership vessel MV ‘King Basil’ departing the port of Piraeus. Image credit: Karatzas Images

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

2016-11nov10-naftemporiki-%cf%84%ce%b1-%ce%b1%cf%80%ce%bf%ce%bd%ce%b5%cf%81%ce%b1-%ce%b1%cf%80%ce%bf-%cf%84%ce%b7%ce%bd-%ce%b5%ce%ba%ce%bb%ce%bf%ce%b3%ce%b7-%cf%84%cf%81%ce%b1%ce%bc