As certain banks in Europe lick their wounds, certain investors are licking their lips.
Richard Haines, a shipbroker at Howe Robinson, sees activity picking up: “Banks are still in the game, but they want quality. A first-division company with a good track record could still expect to get 60 percent financing on new builds. But there are increasing amounts of private equity coming in. And the Greek owners are making a conspicuous return.” Haines sees seasoned investors— many of whom accumulated cash in the boom and sold vessels as prices fell—buying back into the market and gaining a head start on newcomers.
Paul Slater, meanwhile, sees “outsider” private equity activity talked about a lot, but seen only occasionally: “Traditional private equity looks for an exit before it invests. Where is the return from shipping in three years, or five years? Families, by contrast, can play the long game, and use industry insight to their advantage.”
Despite words of caution from industry veterans, however, activity is picking up. To a certain type of investor, perhaps struggling to find yield in less troubled markets or looking for portfolio diversification, the sector is starting to look well-priced in the right circumstances. Howe Robinson describes the market as being “at five minutes to midnight.” So a sharp uplift out of recession in the West, better-than-expected growth figures from China or further positive employment news from the United States might be enough to help advance the end of the drought for shipping.
Besides Oaktree Capital’s partial TORM acquisition and further interests, there has been some notable activity: Costamare formed a joint venture with York Capital Management for investing in further box-ships; Delos Shipping and Tennenbaum Capital picked up majority control of German KG König & Cie; CHAMP and Headland Capital Partners have expanded their positions in Miclyn Express Offshore and Allianz and 3i are looking for a secondary exit on Scandlines, their ferry operation. PE bidders are reportedly lined up.
Views are mixed as to whether shipping is attractive to the wide variety of funding sources in both the capital and US private placement markets. Doubters point to yield deficiencies and risk aversion; believers point to the desirability of portfolio diversification and the opportunity, in the right circumstances, to satisfy yield and risk requirements. White & Case partner Christopher Frampton, who leads the Firm’s Global Asset Finance Practice, explains: “Portfolio composition is evolving, and certain investors may be prepared to consider opportunities in shipping and related marine industries. This process could be accelerated if investors are presented with financing structures and creditor protection enhancements used in other transport sectors.”
A bright spot for the equity markets is liquefied natural gas. Predictions are that investor interest will continue to grow, and that further IPOs look likely. Previous flotations— including Golar LNG Partners, Teekay LNG and GasLog— have seen stock prices perform well in the past 12 months, and certain competitors are thought to be considering public offerings.
As for those banks that remain committed to the sector, new loans are being written, many of which are innovative and structured:
- Greek tanker owner Aegean Marine Petroleum Network has secured US$800 million of loans to grow its business. Eight banks, led by ABN AMRO and BNP Paribas, are involved in the tranched, multi-currency revolving credit deal.
- DryShips took on a US$1.35 billion syndicated term loan facility for new builds, and an IPO in February 2013 raised US$123 million.
- Tradewinds reported in October 2012 that Credit Suisse, in a strategic counter-cyclical move, recently wrote US$2 billion of new marine loans.
- CMB signed a US$300 million senior secured reducing revolving credit facility with a group of banks led by DNB and Nordea.
Industry specialists talk of a “flight to quality.” Banks are working closely with their long-term clients to find mutually acceptable terms that will help both sides back to growth.
The world of marine financing could look radically different in the coming years. Certain banks and owners no doubt face tense negotiations in the period ahead, and it seems inevitable that there will be further failures and high-profile exits from the market. But the industry will recover. In the meantime, investors looking afresh at the sector are likely to find opportunities, whether in the near term in particular circumstances or as economic growth returns and maritime businesses are restored to health.
Marine industry strategies in Asia
Developments in China in the next few years could represent the most significant catalyst for change in the marine industries. The country has as rich a maritime history as any other, and global trade wove its dynastic past. China’s shipping credentials were lost for a handful of generations, but not forgotten. Its mastery of the modern shipping market may well be completed in the next five years. It is already the biggest shipbuilder, as well as the world’s biggest exporter. And while China has only made tentative steps towards financing the marine sector beyond its own borders, the country’s cash reserves and boundless ambitions mean it may become banker as well as builder for a significant portion of the industry. However, neighboring Japan and Korea will not yield their advantage in shipping unopposed: They have been looking to convince the market of their technical superiority in shipbuilding, while putting government weight behind the industry and its sources of finance. This globally dominant competitive region is likely to result in continually improving vessel quality and keen pricing for those looking for new builds.