Transcript SHIPPING FINANCE - Laboratory for Maritime Transport

SHIPPING FINANCE
PRESENTATION TO: NATIONAL TECHNICAL
UNIVERSITY OF ATHENS
NIKOS VERAROS
DATE: 12/5/2003
INDUSTRY FINANCIAL OUTLOOK
 Highly cyclical industry
 Highly leveraged asset
 Timing critical for investment success
 Active second hand market for the
assets
 Average Return on Asset of 10%
 Average Return on Equity can be
significantly improved through financial
leverage & good timing
VESSEL VALUES vs FREIGHT RATES
Vessel values follow freight rates
fluctuations with a time lag
Panamax freight rates vs. vessel prices
Freight rates
Vessel price
Mar 2002
Oct 2001
May 200
Dec 200
Jul 2000
Feb 2000
Sep 199
Apr 1999
Nov 1998
Jun 1998
Jan 1998
Aug 199
Mar 1997
Oct 1996
May 199
Dec 199
Jul 1995
Feb 1995
Sep 199
Apr 1994
Nov 1993
160
140
120
100
80
60
40
20
0
DEMAND IN PRINCIPLE …
 Shipping trade demand growth


Long-run: related to World Economy
Short-run: fluctuations trigger shipping cycle surges & dips
DEMAND GROWTH
long-run growth
Qty
surge
dip
short-run
fluctuations
time

Relatively inelastic to changes in freight prices because:
1.
Transportation cost is only a small portion of overall product cost
2.
Transportation comes at the very end of the production process
SUPPLY IN PRINCIPLE …
EXPECTED FLEET GROWTH (measured in deadweight tons)
Current fleet size
Plus: Vessels under construction
Minus: Vessels to be scrapped
Change in avg
fleet age
 Relatively elastic to freight price changes
 Usually operators overreact to changes in
demand
SHIPPING CYCLES IN PRINCIPLE …
A
Flat
B
Upturn
C
Decline
A
Flat
… SHIPPING CYCLES IN FIGURES
TIMING IS WHAT COUNTS
 When to enter?
 When
market is flat
 When to exit?
 Quickly, when market conditions
improve
 When investment timing proves wrong, we
should hold until the storm passes
FINANCING OF SHIPPING
 Bank mortgage loans is by far the main
method of financing
 Capital markets (equity & bond issues)
have only marginal contributions
Bank Financing to Greek Shipping
(USD mn)
19500
18,912
19000
Ferries,
9%
18500
18000
17500
17000
16,715
16500
16000
15500
2000
Source: XRTC
2001
Ocean
going,
91%
Bank Financing to Greek Shipping
(USD mn)
Country
Participation
Greece
21%
Germany
29%
France
9%
US
7%
UK
19%
Netherlands
8%
Switzerland
4%
Norway
3%
Other
1%
Source: XRTC
Economics of Shipping Loan
Total Firm Value = Debt + Equity
Time
Firm
Debt
Equity
Leverage
RoA
0
100
80
20
80%
1a
130
80
50
62%
30% 150%
1b
90
80
10
89%
-10% -50%
1c
75
80
?
?
-25%
-
RoE
-
?
Process of Granting a Shipping Loan
1. Submit proposal to the Bank
2. The Bank offers Indication Letter
3. Negotiate terms
4. The Bank obtains Credit Approval and issues
Commitment Letter
5. Sign Commitment Letter
6. Lawyers take charge and draft Loan Document
7. Sign Loan Document
8. Money Drawdown
VESSEL PARTICULARS
RELEVANT TO FINANCING
Vessel
Type
Dwt
Built
Lwt
Flag
SS Due
Niki
MT
60,000
1982
8,500
MALT
Dec 03
Newbuilding Financing
 Instalment payments to the yard
 Signing
 Keel
laying
 Launching
 Delivery
 Refund Guarantee
 Bank pre-delivery financing
Lease transactions
 Concept of Depreciation
 Structures to benefit from depreciation
charges
Stock Exchange
 Only Ferry companies so far in the Athens
Stock Exchange

Attica Enterprises, Minoan, Anek, Strintzis,
Nel, Dane
 Legal framework under review for ocean
going companies
 Major listings in New York include:


Tankers: Stelmar, TEN
Bulkers: Angelikousis