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
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
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