Bulk Insight: Looking for Treasure Ships in China

In a really attention-grabbing latest transaction within the dry bulk market, Sea Traders of Greece has acquired at public sale in China eight trendy dry bulk vessels, three kamsarmaxes and 5 supramaxes, for about US$ 68 mil in whole, or at roughly $8 mil per vessel – wholesale value – for vessels with barely decrease five-year common age.

The vessels have been:

Sisterships MV “LAN HAI ZHAO YANG”, MV “LAN HAI XU RI” and MV “LAN HAI YANG GUANG” (79,600 DWT/Built 2011 at Wujiazui Shipyard), every with RMB 60 mil. (ca. US$9.4 mil) reserve value;
Sisterships MV “LAN HAI YING XIN”, MV “LAN HAI LIAN HE”, MV “LAN HAI QIAN JIN” (57,000 DWT/Built 2011 at Yangfang Shipyard – Cranes 4/30 tons), every with RMB 55 mil (ca. US$8.6 mil) reserve value;
Sisterships MV “LAN HAI YANG FAN” and MV “LAN HAI DONG FENG” (57,000 DWT/Built 2010 at Yangfan Shipyard – GEARLESS), every with RMB 45 mil (ca. US$ 7.0 mil) reserve value.

The transaction is attention-grabbing on a number of ranges: first, the worth itself is eye-catching, as even in at this time’s depressed dry bulk market with asset costs in free fall, these vessels have been priced at 60% under market, because the Baltic Exchange lists 5yr previous panamaxes at $17.34 mil and 5yr previous supramaxes at $15.35 mil. The vessels have been bought by public sale through the Guangzhou Shipping Exchange, and there was precisely one bidder who provided at precisely the reserve value.

The purchaser was Sea Traders of Greece, the lesser identified dry bulk arm of George Procopiou (principally identified by Dynacom within the tanker markets and Dynagas within the LNG tanker enterprise). The principals at Sea Traders are identified for gutsy market calls, and this transaction suits their funding profile; dry bulk is totally out of favor at current, and the acquisition value is considerably at low cost to the market; extra curiously, the acquisition value is roughly twice the scrap value of the vessels, not a foul benchmark, particularly given that every of the vessels on common has twenty years remaining design life. The ‘bet’ is pretty uneven in favor of the customer, paying 2x scrap to purchase ships with 20yrs life remaining.

The vessels got here to the market because of the 2013-collapse of Guangdong Lanhai Shipping Co. of China, and have been provided twice on the market at public sale final yr, every time with a botched end result; sometimes, the calisthenics concerned bidding at Chinese auctions is a tad an excessive amount of for the liking of most overseas bidders, together with forms and phrases, delays and postponements, ‘hurry up and wait’ developments, conflicting data and a daisy-chain of brokers from Shanghai to New York who fake to have the ‘inside’ and entry to the homeowners / process / course of. This time the sale happened by the Guangzhou Shipping Exchange, an bold Chinese effort to shift the middle of gravity in delivery to their area.

It’s attention-grabbing that no monetary patrons, particularly from the US, bid for the vessels. There are extra distressed funds with curiosity in investing in delivery than we care to rely, and all complain that there aren’t any distressed offers in delivery; if this transaction at 60% under market and at 2x scrap for five-year-old ships doesn’t qualify as misery, then, what does? Is that the dry bulk market at current is a lot out of favor and plenty of funds misplaced shiploads of cash in delivery that no-one desires to listen to concerning the sector any extra? If that is the case, and market contributors are ready to ‘throw in the towel’, then that is really nice information since most often signifies the underside of the market. Was it that no monetary patrons appreciated the ‘distressed’ nature of the transaction as a result of some say that funds actually have no idea a lot about pricing in delivery and appreciating ‘full price’ from ‘value’ or ‘distress’? Was it that many funds prior to now purchased low cost Chinese ships as a result of they have been simply ‘cheap’ (low cost in value, low cost in high quality) they usually ended up spending a fortune to convey them to high quality requirements and that these vessels would by no means get to understand in value given their awful pedigree?

It’s attention-grabbing to notice that these vessels on this transaction usually are not of the sexiest, shipshape-ly buildings ever to drift on the water: they have been constructed by universally unknown ‘greenfield’ shipyards that constructed these vessels for their very own account (roughly) with no unbiased third-part supervision (extra of much less). The vessels are China Class, which doesn’t provide the best diploma of consolation to some patrons. Besides their un-impressive pedigree, the vessels have been at heat lay-up for greater than a yr now, and idling vessels, even with crew onboard, ‘aren’t getting any prettier’ with time: marine life retains accumulating under the waterline and rust from sea-water retains chipping above the waterline (vessels have been below arrest for a distressed proprietor, and one has to suppose with how a lot enthusiasm the crew was taking care of the vessel). Also, the final set of sisterships, are gearless supramaxes, a fairly restricted asset class with restricted buying and selling capabilities. All in all, by way of pedigree, repute and high quality, the vessels, regardless of their trendy classic, weren’t exuberantly spectacular, and for the patrons, it can require some funding and working delivery experience and TLC to make ships out of them.

Again, for a gutsy working shipowner the transaction is sensible: shopping for ships soiled low cost when the market is totally out of favor; It will take a while and funding to improve the vessels, however on an un-levered foundation, they’re anticipated to be money move optimistic of their buying and selling lives with such low price foundation; in such respect, this can be a ‘neutral carry’ place, and if/when the dry bulk market pops in 5 years, if we are saying, these vessels would have delivered a double digit return. If the market goes to hell, as everyone expects now, the completely worst case situation is that the customer has misplaced $3 mil per vessel: the draw back is proscribed, the upside can trip the market to the highest, the chance is larger that the market shall be larger fairly than decrease in 5 years, and thus, a reasonably favorable ‘asymmetric bet’.

There has been the extra reputational profit for the patrons buying eight vessels en bloc at a Chinese public sale for US$68 mil; not many transactions of this nature happen and never many patrons have efficiently executed that. Given that that is an public sale sale that requires speedy full cost, there aren’t any many shipowners within the current dry bulk market who can afford US$68 mil public sale acquisitions, in an abysmally low dry bulk freight market. At a time when rumors fly on which shipowner is subsequent in line submitting for defense, this transaction has sure reputational cache. Again, the rumors for dry bulk firms probably getting ready to file for defense encompasses very properly revered and large names, virtually as large and good because the patrons of comparable ships.

At a time when dry bulk freight charges dial up losses and the ache available in the market, there are attention-grabbing transactions right here and there; there may be at all times cash to be made in these ships, however watching who was ‘waving the flag’ and who was not, at all times informative. As the lately departed Yogi Bera as soon as mentioned: “You can observe a lot by watching”.

Basil Karatzas is the founder and CEO of Karatzas Marine Advisors & Co. a delivery finance advisory and ship brokerage agency primarily based in Manhattan, New York. He may be reached at , or through LinkedIn.