COMMENTAR Y
Shipping Investments Making decisions in a typically opaque industry
ADRIAN ECONOMAKIS, STRATEGY DIRECTOR,
VESSELSVALUE.COM T
he global bulk shipping industry is currently undergoing a fundamental change. It has been, and still mostly is, dominated by
principal-led, family-owned companies, funded mainly by commercial banking. However, following the financial crisis and the extended downturn in charter rates, vessel values and traditional bank lending, alternative sources of finance – particularly private equity and hedge funds – have become increasingly prevalent in the sector.
The new money has been particularly attracted to the distressed nature of many shipping companies, loans and assets. Values for most cargo vessels reached historical lows in 2013 from the market highs reached in 2008. Values rebounded after improvements in earnings in late 2013, but ships remain keenly priced. A new VLCC (Very Large Crude Carrier, the largest type of oil tanker) can be bought today for around $100 million, compared to $200 million in summer 2008 and $75 million in summer 2013.
Leading the way are the US investment firms which last year invested in over 75 vessels, partnered with a number of private shipping companies, purchased significant amounts of debt from traditional shipping banks and participated in the five US shipping-related IPOs. Most insiders agree that
2014 will see even more activity from investment firms. This sentiment was voiced at many shipping conferences last year:
“There have been billions of dollars in equity flowing into the industry, and the scary thing is that the reported number is not all of it. A lot of private placements don’t show up on anyone’s league table.” - Chris Weyers, head of maritime investment banking at Stifel Financial
“There is every indication that [investments] this year will be higher than that.” - Jeffrey Pribor, global head of shipping investment banking at Jefferies
The capital inflows (see Fig.2) from organisations without long-standing shipping experience combined with other developments, such as the rise of online applications and “Big Data”, have driven the need for analytics, reporting and transparency that were previously lacking in an industry not noted for its ease of access to outsiders. We will look at some of the new tools that are now available.
Values, ownership, transactions Traditionally the estimated market values of vessels were provided by sale and purchase (S&P)
Fig.1A Market values for the major types of 5-year-old dry bulk vessels Source:
VesselsValue.com
200 180 160 140 120 100 80 60 40 20 0
Capesize - 180,000 DWT Panamax - 80,000 DWT Supramax - 55,000 DWT Handy bulkers - 30,000 DWT
shipbrokers, usually by comparison with historical sales of similar vessels and adjusting for changes in freight earnings. This was a laborious exercise to do accurately, especially for entire company fleets, and was necessarily subjective: two different brokers would typically form two different views about the value of a given vessel. However, this decade has seen a shift from traditional broker valuations to data-driven and model-based methodologies, with which valuations can be provided instantly online with supporting data and analytics. These services have found favour with many of the industry’s leading banks, investors, owners, insurers, and other participants due to their convenience, ease of access, transparency and independence.
Automated valuations employ sophisticated mathematical algorithms to take into account the factors that influence a ship’s value, including:
• Sector (dry bulk, oil and refined products, containers, gas, etc.);
• Age (traditionally linear but in reality highly non- linear and reactive to market conditions);
• Cargo capacity; • Freight market dynamics (including spot earnings, long charters and freight derivatives);
• Vessel specification, features and equipment.
Fig.1B Market values for the major types of 5-year-old container vessels Source:
VesselsValue.com
160 140 120 100 80 60 40 20 0
Post-Panamax - 7,000 TEU Panamax - 4,250 TEU Handy - 1,400 TEU
Fig.1C Market values for the major types of 5-year-old tanker vessels Source:
VesselsValue.com
200 180 160 140 120 100 80 60 40 20 0
VLCC - 310,000 DWT Suezmax - 160,000 DWT Aframax - 110,000 DWT MR Tanker - 50,000 DWT
Fig.1D Market values for the major types of 5-year-old gas vessels Source:
VesselsValue.com 250 200 150 100 50 0
VLGC - 82,000 CBM LGC LPG - 60,000 CBM Large LNG - 160,000 CBM
60
VALUE $m 2007 2008 2008 2009 2010 2011 2012 2013 VALUE $m 2007 2008 2008 2009 2010 2011 2012 2013 2007 2008 2008 2009 2010 2011 2012 2013 2007 2008 2008 2009 2010 2011 2012 2013 VALUE $m
VALUE $m
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