Shipping is a cyclical business based on demand and supply; demand centred on levels of world trade and supply being the number of available vessels. Pre-financial crisis, and with a long up-tick, there were many in the industry arguing that the so called “shipping cycle” had been broken—they were wrong! Over-ordering of new tonnage in the mid-2000s, a drop in world trade volumes and the lack of available finance has led to the perfect storm in most sectors of the shipping industry (particularly, tankers, bulk carriers and container vessels). The generally held market view is that freight rates and asset values are approaching the bottom across all three main segments. The significant reductions in vessel values from the top of the market (as much as 60/70% in some instances) coupled with other crises affecting European banks over the last five years has resulted in significantly decreased lending activity by the banks and greater liquidity constraints among all market participants. Many traditional ship finance lenders are seeking to sell both performing and non-performing loan portfolios. Likewise, the stock price of many of the publiclylisted companies in the sector is at historical lows, and all shipowners are experiencing a degree of financial squeeze.
The belief that the market is at or near the bottom of the “shipping cycle”, depressed asset prices, scarcity of available finance and the sale of portfolios has attracted the interest of many private equity firms and hedge funds investing in more illiquid asset classes. Many funds had also raised money to deploy in the anticipated deleveraging of European banks’ assets. Whilst the ECB-extended financing options has meant that deals have been difficult to put together, there have been a number of high profile portfolio transactions in the last few months. Thus, money on the sidelines and an attractive entry point makes a good recipe for investment consideration.
Investment opportunities in shipping can take many forms. We have advised a wide range of alternative asset funds and private equity clients in recent times on:
- Joint ventures between shipowners and private equity firms;
- Launch of dedicated private equity funds to invest in shipping assets;
- Niche investment structures to pool investors’ monies in either equity or debt investments to shipowners;
- Opportunities in restructuring or refinancing transactions;
- Mezzanine finance structures;
- Purchasing distressed debt portfolios shipping assets.