Shipping industry faces shake up as private equity unwinds bets
03/03/2015 21:00
By Keith Wallis
SINGAPORE, March 4 (Reuters) - As global shipping grapples
with its worst downturn in 30 years, private equity firms are
unwinding massive bets made on the sector in a move set to
accelerate a restructuring of the shipping industry.
Private equity invested tens of billions in global shipping
after the 2008 financial crisis, but weaker Chinese demand and
an oversupply of ships has driven down freight rates and caused
firms to idle vessels and in some cases file for bankruptcy.
At least five private-equity backed shipping firms are
seeking share listings, though it's unclear whether they will be
able to price them to make a profit.
Industry sources also expect mergers and acquisitions to
drive more consolidation in one of the world's most fragmented
industries. According to shipping services firm Clarkson, 70
percent of the sector's thousands of firms own fewer than 51
vessels.
"People who invested in dry bulk are likely losing their
shirts. Those that invested in container ships probably feel
disappointed," said Jim Furnivall, managing partner of Alterna
Capital Partners.
The New York-based private equity firm had generated "great
but not spectacular" gains in its investments in clean tankers,
vessels that carry refined products, he said.
Private equity invested $32 billion in shipping from January
2012 to January 2014, maritime fund management firm Tufton
Oceanic estimates. This is equivalent to 22 percent of the total
value of the world merchant fleet, including ships on order.
Harold Malone, managing director of maritime investment
banking at investment bank Jefferies, said private equity exits
were likely to "accelerate into 2015 and 2016" after it appeared
a number of "potentially terrible" investments had been made,
though he said crude tanker investments may turn out better due
to a revival in rates last year.
Principal Maritime Tankers Corp PMAR.N , backed by Apollo
Global Management APO.N , is seeking to raise up to $100
million and containership operator Costamare Partners LP
CMRP.N , supported by York Capital Management, is also hoping
to raise $100 million.
Singapore's Miclyn Express Offshore, owned by Australia's
Champ Private Equity and Hong Kong's Headland Capital Partners,
is eyeing an initial public offering in the next three years.
Asked about their investments, Champ and Apollo declined to
comment, while Headland Capital Partners and York Capital did
not immediately respond to requests.
ICON Capital, another private equity house, said it was
planning to list one of its shipping funds in coming months.
New York, as well as Oslo and Singapore, both important
shipping centres, would be among the favoured listing locations,
financiers said.
MERGERS
Underlining the pressure the global industry is under,
China's Winland Ocean Shipping Corp WLOL.PK filed for Chapter
11 bankruptcy protection in the United States on Feb. 12, the
third known bulk shipper bankruptcy this month. ID:nL4N0VM41R
"Private equity is forcing and supporting mergers and
acquisition deals to do (fleet) roll-ups or listing as a way to
exit their positions," said Randee Day, president and chief
executive of Day and Partners, a maritime consulting and
advisory firm, adding that many investors would sell at a loss.
Day is also interim president of private equity-backed
Eagle Bulk Shipping EGLE.O .
Recent mergers have included Excel Maritime Carriers selling
a fleet of 34 ships to Star Bulk Carriers SBLK.O . Oaktree
Capital Management OAKCP.UL was the major shareholder in both
companies.
Supertanker owner DHT Holdings DHT.N , whose major
shareholders are private equity funds, also acquired Singapore
tanker owner Samco Shipholding last September.
SHIP ORDERING SPREE
Ship owners embarked on a massive ordering spree, partly
fuelled by private equity, from 2008 which created a glut of
tanker, container ship and dry bulk shipping capacity.
A balance between the fleet and cargo demand growth in the
dry bulk sector expected last year failed to materialise, amid
an uncertain global economic outlook and slower growth in China,
the world's biggest dry bulk market.
This has put more pressure on cargo and ship prices.
The Baltic dry index .BADI - the industry benchmark for
freight rates - has plunged to an all-time low.
The value of a new tanker or dry cargo vessel is 13 percent
lower than 10 years ago, said Ralph Leszczynski, head of
research at ship broker Banchero Costa.
Five-year old secondhand ships are around 35 percent
cheaper, and average daily freight rates for tankers and dry
cargo ships are also below 2010 levels, he said.
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GRAPHIC: The shipping sector and the Baltic Dry Index
http://link.reuters.com/nys24w
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(Additional reporting by Byron Kaye in Sydney; Editing by
Henning Gloystein and Ed Davies)
((keith.wallis@thomsonreuters.com)(+65 6870 3803)(Reuters
Messaging:keith.wallis.thomsonreuters.com@reuters.net))
Keywords: SHIPPING INVESTMENT/