Monday, May 11, 2009
Investment funds turn to shipping, Piraeus in the spotlight
Lured by the huge drop of ship values, together with a better freight rate environment, investment schemes around the world are converging into Piraeus lately, seeking to reach lucrative deals with distressed ship owners or even acquire shipping loan portfolios. It is estimated that more than $1.5 billion in funds is currently searching the Hellenic market opportunities, where the world’s leading maritime community is based. Morgan Stanley was the story of the days in Piraeus, with the emergence of the company’s intentions to set up an opportunity fund to take advantage of the global downturn in shipping by investing up to $400m in dry bulk and container ships. The bank is working with two Hellenic shipping organizations (either banks or even ship owners) to create the debt fund which will target distressed investments in shipping. The fund is aiming to invest in shipping debt that could be sold off for as much as a 60pc discount. The Morgan Stanley fund is expected to target investing in up to 40 of these ships, mainly through buying up debt.
But, Morgan Stanley isn’t the only one looking in Piraeus. According to Hellenic Shipping News’ sources, a big and traditional ship broker is closely advising both Merill Lynch and US fund Alterna, on ship acquisitions. Similarly, Hellenic investors are also looking to set up a shipping fund, in cooperation with a banking group.
Cyprus-based SFS Group Public Co Ltd and Kuwait Finance House Labuan (KFHL) will also jointly establish a Shariah compliant shipping fund with a target fund size of US$150mil by year-end. SFS Group and KFHL, a wholly owned subsidiary of Kuwait Finance House (M) Bhd have signed a joint venture agreement to set-up the fund via a limited partnership in the Cayman Islands. The companies said in a joint statement on Tuesday that the fund would be managed by an equally-owned company acting as the general partner based there. The shipping fund’s objective will be to invest directly in shipping assets and primarily in vessels to be chartered out on a long-term basis to top league charterers. The term of the fund will be seven years from first closing with up to three additional one-year extensions.
Another US investment group, JP Morgan Asset Management is launching a maritime strategy this year which will invest in the distressed shipping market, a senior manager at the firm said on Thursday. "The shipping business is in worse shape than real estate," said Joe Azelby, chief executive officer of JP Morgan Asset Management's $50 billion global real assets group. "In some cases ship values are down between 60 and 80 percent." JP Morgan is currently in fund-raising mode for the strategy, seeking some $500 million to $750 million initially. The shipping industry uses financing extensively, and Azelby said that a handful of banks have tended to dominate. "But many of these banks are now de facto government-owned in some shape or form." This means shipping owners are in need of third party funding at a time when pricing is at an historic low. Azelby sees continued downward pressure on pricing over the next 12 to 24 months and an opportunity to capitalise on this gap.
Although the market for large ships has stagnated in recent months, with buyers demanding far bigger discounts than sellers are prepared to offer, distressed sellers are expected to come to the market shortly under pressure from their lenders.
Industry analysts estimate there is up to $600bn of debt attached to ships and the shipping industry, much of it originated from specialist German banks, although UK banks including RBS have been active in this area.
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