Asia Shipping Industry Pain May Be Investors’ Gain


Singapore. US private equity and investment funds are betting Asia’s shipping industry, hit by a restructuring wave that has already swept Europe and the United States, is the best spot to ride a recovery from the industry’s worst downturn in three decades.

Sturdy commodity demand growth and slower new ship deliveries will help balance fleet and cargo demand for the first time since 2004, analysts say, boosting freight rates by next year and into 2015.

For private equity looking to buy into the upturn, Asian shipping firms undergoing restructuring like South Korea’s STX Pan Ocean Co Ltd and Indonesia’s Berlian Laju Tanker offer opportunities. The ships investors are looking for are also being built in the region’s yards.

More than $3.5 billion has been invested in ships and shipping containers so far this year, according to figures compiled by Marine Money, compared with $2.7 billion in 2012 and $4.2 billion in 2011.

“My guess is that unless the public markets open quickly there will be at least twice as much private equity commitment to the industry by the end of 2014,” billionaire private equity investor Wilbur Ross said at a ship finance conference in New York in June.

Joseph Swanson, managing director of US-based investment bank and restructuring firm Houlihan Lokey, said his company is advising on everything from ship acquisitions to complex restructurings of fleet operators. Some of the projects are in Asia but he declined to give further details, citing client confidentiality.

The shipping industry splurged on new ships in 2007-08 that were delivered just as demand slumped, particularly on once-lucrative oil export routes between the Middle East and Asia.

The spree sent charter rates down as much as 90 percent and halved the value of vessels bought at the top of the market, according to data from maritime consultancy Clarkson Research Services. The list of Asian shipping firms seeking rescue is lengthening.

STX Pan Ocean, which got court approval to restructure on June 17, is the biggest shipping failure in Asia. It had total debt of $4.94 billion as of the first quarter of 2013, its main creditor has said.

“Anybody who owned a ship for three or four years and still owns it is a candidate for restructuring,” said Paul Leand Jr., chief executive of AMA Capital Partners, a New York-based maritime merchant bank.

“People are running out of money to pay operating costs and interest.”

With European banks facing stricter capital requirements at home, traditional ship financing is harder than ever to obtain, further boosting the allure of private equity investment.

Bank lending to the shipping industry via syndicated loans at $52 billion last year was nearly half the $91.8 billion in 2008, just before the financial crisis, according to figures from Dealogic and Marine Money.


Raft of deals

The interest from private equity is being driven by expectations that the shipping industry will finally pull out of a prolonged slump.

Barclays Bank estimated in a June report that the volume of seaborne dry cargo will start to outpace fleet growth by next year, increasing by 6.3 percent against a 3.8 percent uptick in vessel supply.

The price of new dry bulk and container ships has risen by up to 2.5 percent in the last three months, according to Clarkson data, after falling since 2010. Over the same three month period, prices for secondhand dry cargo ships have climbed by up to 18 percent.

“Lots of funds are running around and ordering new ships or at least trying to,” said Tim Huxley, chief executive of Hong Kong-based shipowner Wah Kwong Maritime Transport.

“It will need patience as there won’t be an overnight bounce back, but its got plenty of potential if you partner up with the right people.”

US private equity firm Alterna Capital Partners ordered four tankers costing a total of $130 million in June from South Korea’s Hyundai Mipo Dockyard ship brokers in a continuing investment in the tanker sector. Managing partner Jim Furnivall declined to comment.

In May, US investment group York Capital Management struck up a joint venture with Greek-owned container ship operator Costamere to spend $500 million acquiring ships.

Other deals include New York-based Oaktree Capital Management teaming up with German shipowner Rickmers to order up to 16 container ships. The vessels will be built at an undisclosed Asian shipyard for delivery by mid-2015.

Alvarez & Marsal is conducting due diligence on behalf of several private equity funds looking at investments in Asia, according to Ray Dombrowski, a managing director at the corporate advisory firm in New York.

The funds are looking at as many as 20 ships in the dry bulk and tanker sector that have been ordered but are not yet under construction at shipyards in China, South Korea and Japan, he added.

“They believe the ships that are being built are more economic, with more efficient engines, so the cost of operating them will be significantly lower,” Dombrowski said.

“They are large US-based but global funds who want to be well-positioned when the recovery in the shipping market picks up in earnest.”







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