Finance and Private Equity in Shipping

Finance and Private Equity in Shipping Ronan Nash, Tufton Oceanic Marine Money Gulf Ship Finance Conference Dubai, 6 March 2014 Changing Pattern of ...
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Finance and Private Equity in Shipping Ronan Nash, Tufton Oceanic Marine Money Gulf Ship Finance Conference Dubai, 6 March 2014

Changing Pattern of Capital Raised

Source: Marine Money

Fleet and Orderbook Values and Funding Sources Sources Unfunded Orderbook: US$ 115bn

Uses Government: US$ 137bn Bonds: US$ 94bn

9%

Dry: US$ 281bn

Offshore: US$ 528bn

11% 22%

7%

Private Equity: US$ 278bn

42%

22% 15%

Public Equity: US$ 190bn

21% Wet: US$ 266bn

36% 5%

Bank Debt: US$ 455bn

General Cargo: US$ 65bn

10%

Container: US$ 130bn Source: Tufton Research

World Fleet & Orderbook Value: US$ 1,269 billion

Traditional Shipping Banks under Pressure Stress Tests

RWA Limit

Exposure Limits

New Entrants

Basel III

Long Term Funding

Shipping Bank

Write Downs

Regulations

Capital Buffer

2013 - Active Year in the Shipping Equity Capital Markets

 Over US$ 8 billion raised

 Market reopened for IPOs  New York and Oslo markets  Investors looking for  Quality management team

Source: Pareto Securities

 Modern vessels / eco-design  Targeted strategy / growth story  Defined use of proceeds

 Scale and liquidity  Trading on key markets Source: Industry News

HY Yield Bonds – An Attractive Alternative Funding Source

 Active global HY market in 2012-13

 Norwegian market continues to be an efficient financing platform  Light documentation and easy process  International issuers and investor base

 Unsecured, secured and convertible  Bulk of shipping bonds are to large listed players on unsecured basis  Majority of secured deals are in offshore  Cash flows available to service payments as market rates improve Source: Stamdata and DNB Markets

So how will the Unfunded Orderbook be funded? 140

120

100

80

US$ Billion

115

60

40

20

0 Unfunded Orderbook

So how will the Unfunded Orderbook be funded? 140

120

100

40

80

US$ Billion

115

60

40

20

0 Unfunded Orderbook

Bonds

So how will the Unfunded Orderbook be funded? 140

120

100

40

80

US$ Billion

115

25

60

40

20

0 Unfunded Orderbook

Bonds

Public Equity

So how will the Unfunded Orderbook be funded? 140

120

100

40

80

US$ Billion

115

60

25

22

Public Equity

Bank Debt

40

20

0 Unfunded Orderbook

Bonds

So how will the Unfunded Orderbook be funded? 140

120

100

40

80

US$ Billion

115

25

60

USD 72 22

72

40

20

0 Unfunded Orderbook

Bonds

Public Equity

Bank Debt

Remainder

Looking to Private Equity…. Banks disposing noncore portfolios

Cyclical market – valuations at historic lows

PE Interest growing Charter rates improving – valuations to rebound

Global Industry – world economy improving

 Asset cycle opportunity - increased ordering by shipping companies funded by financial investors  Investor interest spans traditional PE, distressed investors, banks and structured equity  Cash rich funds accumulating shipping debt off-loaded by banks

Issues to Consider  Industry issues  Inherent risks and corporate responsibility

 Shipowner / strategic investor  Technical and commercial management of the fleet

 Corporate governance  Management team  Conflicts of interest

 Asset selection  Sector outlook and supply / demand drivers

 Exit strategy  Capital markets  Fleet disposal  Corporate disposal

Estimates of Private Equity in Shipping  Wilbur Ross, Marine Money New York, July 2013: US$ 7 billion  Dagfinn Lunde (then of DVB), Tradewinds, October 2013: US$ 3-4 billion annually  Moore Stephens, Private Equity in Shipping, October 2013: US$ 7 billion, and this amount could double before the end of 2014

 Marine Money (magazine) January 2014: US$ 4.4 billion January to November 2013

So how will the Unfunded Orderbook be funded? 140

120

100

40

80

US$ Billion

115

25

60

22

USD 72 20

…estimates for PE

52

…other nonpublic / non gov’t/

40

20

0 Unfunded Orderbook

Bonds

Public Equity

Bank Debt

Remainder

Regional Institutional Interest in Shipping / Oil Services Sector  Publicly announced regional shipping / offshore service transactions in 2013 include : Borrower

Lender

APSF

Riyad Bank (Club led by Standard Chartered Bank)

US$ 125.0m

GMS

Abu Dhabi Islamic Bank

US$ 350.0m

Stanford Marine

Standard Chartered Bank / Noor Islamic

US$ 300.0m

Topaz

Barwa Bank

US$ 125.0m

 Involvement of Islamic institutions alongside the regional conventional lenders  No longer constrained by pricing, tenor and shipping market knowledge  Balance sheets of Islamic institutions are robust  A variety of Shariah compliant transaction structures adopted as appropriate

Disclaimer Tufton Oceanic Limited is authorised and regulated by the Financial Conduct Authority. Tufton Oceanic’s various Investment Management companies are licensed by the Isle of Man Financial Supervision Commission to conduct Investment Business, and Tufton Oceanic (Middle East) Limited (TOME) is regulated by the Dubai Financial Services Authority.

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