Shipping Industry Faces Shake Up as Private Equity Unwinds Bets

By Keith Wallis

SINGAPORE, March 4 (Reuters) – As world transport grapples with its worst downturn in 30 years, personal fairness companies are unwinding huge bets made on the sector in a transfer set to speed up a restructuring of the transport trade.

Private fairness invested tens of billions in world transport after the 2008 monetary disaster, however weaker Chinese demand and an oversupply of ships has pushed down freight charges and brought about companies to idle vessels and in some circumstances file for chapter.

At least 5 private-equity backed transport companies are in search of share listings, although it’s unclear whether or not they may have the ability to value them to make a revenue.

Industry sources additionally count on mergers and acquisitions to drive extra consolidation in one of many world’s most fragmented industries. According to transport companies agency Clarkson, 70 p.c of the sector’s hundreds of companies personal fewer than 51 vessels.

“People who invested in dry bulk are likely losing their shirts. Those that invested in container ships probably feel disappointed,” mentioned Jim Furnivall, managing accomplice of Alterna Capital Partners.

The New York-based personal fairness agency had generated “great but not spectacular” beneficial properties in its investments in clear tankers, vessels that carry refined merchandise, he mentioned.

Private fairness invested $32 billion in transport from January 2012 to January 2014, maritime fund administration agency Tufton Oceanic estimates. This is equal to 22 p.c of the entire worth of the world service provider fleet, together with ships on order.

Harold Malone, managing director of maritime funding banking at funding financial institution Jefferies, mentioned personal fairness exits had been prone to “accelerate into 2015 and 2016” after it appeared quite a lot of “potentially terrible” investments had been made, although he mentioned crude tanker investments could prove higher as a consequence of a revival in charges final yr.

Principal Maritime Tankers Corp, backed by Apollo Global Management, is in search of to lift as much as $100 million and containership operator Costamare Partners LP , supported by York Capital Management, can also be hoping to lift $100 million.

Singapore’s Miclyn Express Offshore, owned by Australia’s Champ Private Equity and Hong Kong’s Headland Capital Partners, is eyeing an preliminary public providing within the subsequent three years.

Asked about their investments, Champ and Apollo declined to remark, whereas Headland Capital Partners and York Capital didn’t instantly reply to requests.

ICON Capital, one other personal fairness home, mentioned it was planning to record one in all its transport funds in coming months.

New York, in addition to Oslo and Singapore, each vital transport centres, could be among the many favoured itemizing places, financiers mentioned.

MERGERS

Underlining the strain the worldwide trade is below, China’s Winland Ocean Shipping Corp filed for Chapter 11 chapter safety within the United States on Feb. 12, the third identified bulk shipper chapter this month.

“Private equity is forcing and supporting mergers and acquisition deals to do (fleet) roll-ups or listing as a way to exit their positions,” mentioned Randee Day, president and chief government of Day and Partners, a maritime consulting and advisory agency, including that many buyers would promote at a loss.

Day can also be interim president of personal equity-backed Eagle Bulk Shipping.

Recent mergers have included Excel Maritime Carriers promoting a fleet of 34 ships to Star Bulk Carriers. Oaktree Capital Management was the main shareholder in each firms.

Supertanker proprietor DHT Holdings, whose main shareholders are personal fairness funds, additionally acquired Singapore tanker proprietor Samco Shipholding final September.

SHIP ORDERING SPREE

Ship house owners launched into an enormous ordering spree, partly fuelled by personal fairness, from 2008 which created a glut of tanker, container ship and dry bulk transport capability.

A steadiness between the fleet and cargo demand development within the dry bulk sector anticipated final yr did not materialise, amid an unsure world financial outlook and slower development in China, the world’s greatest dry bulk market.

This has put extra strain on cargo and ship costs.

The Baltic dry index – the trade benchmark for freight charges – has plunged to an all-time low.

The worth of a brand new tanker or dry cargo vessel is 13 p.c decrease than 10 years in the past, mentioned Ralph Leszczynski, head of analysis at ship dealer Banchero Costa.

Five-year outdated secondhand ships are round 35 p.c cheaper, and common every day freight charges for tankers and dry cargo ships are additionally under 2010 ranges, he mentioned.