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Thursday, September 03, 2009

Funds target distressed shipping acquisitions

Thursday, 03 September 2009

With ship values staying near their lows in many years, shipping funds are popping like mushrooms on a cloudy day. As we had reported just one month ago, the latest private equity fund called Financier Investment Group (FIG) was created by ship owner Spyros Lemos and a group of other investors bearing an available investment capital of approximately $700 million, reserved for distressed shipping acquisitions. Already, according to shipbroker Weberseas’ latest weekly report, the fund has made its first moves into the market, by agreeing to acquire two panamax dry bulk carriers. The price tag of CIDO’s two ships is reportedly around the $77 million mark, with “Fortune Princess”, a 76,635-dwt, built in Japanese shipyards in 2007, costing an estimated $39 million, while “Fortune Ocean” (76,801-dwt, built in 2006) was bought for $38 million. But “Fortune Ocean” had also been earlier (end of July) reported as an acquisition product of Chinese interests (estimated price of $37.5 million) by G.Moundreas shipbrokers’ weekly report, so things are still a bit confusing. Still, it could mean that the Chinese resold the vessel.
FIG’s primary goal was exactly that; focus into the second hand bulker market, targeting panamaxes in particular built from 2004 onwards. According to market reports, the minimum fleet should comprise at least 5-7 modern vessels. Besides shipping, the fund is also expected to make investments in the areas of insurance and health. Spyros Lemos is coming from one of the most traditional shipping families of Hellas. His father, Panagos Lemos is the owner of LPL Shipping, which had been acting as agent in the Hellenic market, on behalf of leading shipping management company V Ships.
As observed by the latest news stories, funds are flocking around the shipping industry. Just this Tuesday, QInvest and Fortis Bank Nederland announced that they were  in advanced stages of launching a Sharia'a compliant mezzanine Fund targeting financing opportunities in the marine transportation industry. The proposed Fund aims to raise $200 million and will target mezzanine investment opportunities in deep sea vessels. The Fund has an average life of 5 years and seeks to benefit from the down cycle of the shipping industry through an extended investment period of around 18 months. The Fund targets to pay an attractive running cash yield and is structured to benefit from the potential asset appreciation on vessels through an equity kicker.
The new Fund aims to capitalise on the significant dislocation the shipping industry has witnessed over the last 12 months.  Fortis Bank Nederland is at the forefront of the ship financing industry and ranks amongst the most reputable in the market with more than $7 billion of shipping assets under management.
The previous are just the icing in the cake. It is thought that more than $1.5 billion in funds is currently searching opportunities in the Hellenic market. Morgan Stanley for instance was the story of the days in Piraeus in the beginning of summer, 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.
Also, 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.
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 May 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. JP Morgan is currently in fund-raising mode for the strategy, seeking some $500 million to $750 million initially.