Ship Finance: Traditional and Modern Methods in an Era of Change
By John Nikolaou
The shipping industry seems to have weathered its worst crisis in 25 years. Limited liquidity and the tendency of banks to limit their exposure forced shipowners to find new methods of financing their investments. Traditional lenders such as Germany’s Commerzbank and HSH Nordbank and the UK’s Lloyds and RBS are either exiting the market or trying to reduce exposure.
It is worth noting that during 2013 shipping companies raised more than $8 billion from stock exchanges in Oslo and New York. But public offerings remain a small part of the overall picture because traditional debt financing provides about $250 billion annually while during 2008 this figure was closer to $500 billion!
Private Equity to the Rescue
Today, institutional investors such as private equity and hedge funds have emerged and play a key role in the shipping industry. From 2010 to 2013 nearly $15.6 billion in private equity funds were invested, while $5 billion of shipping loans changed hands during the latest year.
Michael Dell, founder of the Dell computer company, has invested $33 million in acquiring 9.8 percent of StealthGas as the LPG shipping sector records strong demand and a small orderbook. "We are extremely excited and proud that one of the United States' major billionaires is investing with us," said Harry Vafias, founder of StealthGas. Other examples of private equity investments include Oaktree Capital Management, which took a large stake in Floatel Maritime, and York Capital Management, which formed a joint venture with Greece’s Costamare Inc. to buy five containerships for more than $190 million.
Most analysts believe that these investors have targeted attractive sectors of the market, especially product tankers, LPG and LNG. They also mention that the main difference between traditional shipowners and private equity funds is that while the first tend to hold their vessels for 25 years, the second aim to quickly profit by listing companies or selling their vessels when ship valuations and charter rates recover.
A lingering concern is that the problem of oversupply may once again rear its ugly head because fleet growth in 2016 is scheduled to accelerate as current prices for newbuildings are low and the prospects for future freight rates appear positive. We’ll see. – MarEx
John Nikolaou is based in Athens. He is a Financial Analyst with Coca Cola HBC and blogs about the maritime industry.