Private Equity Considers Ship Investmen Amid $30 Billion Funding Shortfall

Private-equity companies may help fill a forecast $30 billion shortfall in funding for the shipping industry over the next three years as banks restrain lending, two financiers said.

Banks have about $50 billion a year to lend, while shipping firms need $60 billion for new or used vessels, Paul Packard, head of maritime industries at Bank of Ireland Plc, said at a conference in London. Vessel owners have already been “trekking to New York” to talk to private investors, said Peter S. Shaerf, a managing director at AMA Capital Partners, which runs shipping funds and advises on debt and equity.

The world economic crisis, which began with the collapse of U.S. real estate in 2007, triggered more than $2 trillion of writedowns and credit losses at financial institutions, curbing their ability to lend to businesses. It also caused a shipping slump, with returns for owners of supertankers plunging more than 90 percent since the middle of 2008 and secondhand prices for the carriers, each bigger than the Chrysler Building, dropping about 49 percent over the period.

“There’s a sense in the coming six to nine months it’s time to buy assets,” Shaerf said at the conference. “We are seeing a lot of people now more than just circling the wagons, they’re loading up their arrows.”

Vessel prices will collapse within a year or two, John Fredriksen, the billionaire chairman of Frontline Ltd., the world’s biggest supertanker operator, said in an interview in Oslo last month. He plans to “buy up what’s there” once that happens, the 67-year-old said.

Secondhand Capesize

The cost of a five-year-old supertanker has fallen to $82 million from as much as $162 million in 2008, according to the London-based Baltic Exchange, which publishes daily rates for more than 50 maritime routes. A secondhand capesize ship, a typical hauler of coal and iron ore, slumped to almost $44 million from about $154 million in 2008, the data show.

Rates have tumbled as fleets expand more quickly than demand. Vessels ordered in 2007 and 2008, when freight costs were peaking, are still leaving shipyards.

U.S. private-equity firms lent a combined $3 billion to the industry in 2009 and 2010, seeking returns in excess of 20 percent, according to Shaerf, who is also chairman of the New York Maritime Association. The cruise-line industry got $1 billion of the total, he said.

The 25 biggest bank lenders to the industry had about $333 billion of outstanding loans in 2009, of which $49.3 billion was held by Hamburg-based HSH Nordbank AG, according to a presentation at the conference from ship-finance consultant Eurofin International.

Banks aren’t lending to owners controlling fewer than 10 vessels that are more than 10 years old, said Alan McCarthy, a consultant at Athens-based Eurofin. Such companies make up about 90 percent of the global fleet, he estimated.

“The banking market is pretty much nonexistent for people like that, and that’s a cause of serious concern,” he said. “That vacuum will be filled by alternative lending.”

Source:  Bloomberg


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