Private equity firms eye shipping goldmine

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Tony Gray - Friday 7 November 2008

MOMENTUM is building for private equity firms to expand their presence in the shipping industry and mop up cheap assets in the wake of weaker freight markets, particularly in dry bulk. 
Fortis head of transportation Gust Biesbroeck said the timing was “perfect” for private equity. 
AMA Capital Partners’ managing director Peter Shaerf said private equity was “still viable but comes with a lot of caveats”, especially the demand for higher returns. 
And PCP Capital Partners has disclosed it is working with Middle East investors who are eyeing opportunities in shipping. 
A strengthening of private equity interest in shipping comes at a time when the industry needs to exploit non-traditional sources of capital as bank debt finance is becoming scarcer as aresult of the turmoil in financial markets. 
PCP Capital Partners senior director Amanda Stavely told the Financial Times that the shipping market presented an opportunity for investors. 
“The dry bulk market has just fallen away massively,” she said. 
“For PCP, we feel there is a real opportunity. In that area, there will be a few key survivors who will do extremely well and that will add immense strategic benefit.” 
PCP Capital Partners arranged Sheikh Mansour Bin Zayed Al Nahyan’s recent acquisition of a 16% stake in Barclays, the UK bank. 
Mr Shaerf said shipping was “quite attractive” to private equity but firms have raised the return hurdles. 
Funds, which had been seeking returns of 15-20%, were now expecting a base return of 25%-30%, he told the Lloyd’s Shipping Economist Ship Finance & Investment Conference in London. 
Mr Shaerf also said the funds would require greater control, probably with a majority shareholding and major presence on the board, with an ability to influence strategy. 
“People who are used to running their own private companies are suddenly going to find a whole diffrent game once they engage private equity.” 
Barry Wingate, a director of HSBC Bank in the UK, said the reduction in ship prices meant that private equity would “focus on asset play rather than leveraging up cash-flows.” 
Fortis Nederland runs its own equity fund, which Mr Biesbroeck said not only broadened the bank’s product offering to clients but also represented an opportunity to benefit from the downturn in the shipping market. 
“Its high on our wish list to go into mezzanine positions and pure equity to increase yields,” he said. “The timing is perfect and it makes sense.”

 

As adapted from Lloyds List