Opportunity
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Excellent
time to enter the highly cyclical shipping market at historical lows
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Second-hand
container ship prices are in the current trough well below
replacement value. This is providing a natural cap to the downside
of investments in this unique real asset class
-
Both
owners and financiers in distress, creating forced sales and
attractive opportunities for hands-on investment professionals
Strategy
& Outcome
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Direct
investment in vessels allows for control of all commercial and
operational decisions and provides full upside to investors
-
Initial
focus on a niche market where some owners are forced to exit by
their financiers and market conditions has left a buyers' vacuum
-
Focus
is on a segment where the earliest recovery is expected
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Potential
for later expansion into larger vessels and other sectors
-
Based
on our conservative assumptions for market recovery we expect to
generate an IRR in the 10%-20% range over a 5-year investment
horizon
Achieved
Through
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Low-priced
acquisition of distressed assets with partial financing and full
upside potential
-
Structured
ship deployment through the trough with quality liner companies
-
Mixture
of fixed yields on committed longer-term deals (with asset
appreciation upside) combined with a smaller portfolio of
shorter-term trading vessels to profit on freight market
fluctuations
Tribini
Provides
-
Industry
knowledge, experienced management, operational know-how, extensive
network and access to deals
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Strong
management team with over 60 years relevant industry experience
including work with AP Møller-Maersk, HSBC, John Fredriksen Group,
UBS, Scotiabank, JP Morgan Chase and Tiger Group
-
Diverse
management experiences ranging from start-ups to C-positions in +100
employees and US$ +1 billion revenue companies
-
MBAs
from London Business School and Cass Business School
The
current focus is on container feeders
Why Shipping -
The Perfect Storm!
Shipping
is a cyclical industry and currently most sectors are in a
significant trough.
Although
many different models have been successful in shipping at various
stages of the cycle and the world economy, some have also gone
terribly wrong. The safe recipe for industry success has been 1.)
acquiring tonnage at the low part of the cycle, 2.) having sufficient
funds to endure a potentially extended slump, and eventually 3.)
disposing of assets as a future peak approaches.
Due
to the slowdown in global trade and significant financing constraints
imposed by the banking sector, there has been a severe downward
pressure on asset prices and severe financial problems in all
shipping segments are leading to particularly attractive
opportunities in selected market segments for patient and experienced
buyers.
Why the
Container Sector?
The
distress situation is a consequence of the current slowdown in trade,
tight finance constraints, and cash-strapped owners and liner
companies, but we believe that recovery in the container sector could
be relatively swift and dramatic, driven by the under-ordering of new
tonnage and the serious delays and cancellations of current orders.
Despite
the current slowdown in volume, leading analysts have recently
upgraded their growth forecasts in global container traffic for 2017
to 4.5-5.5%, up from 2-3% at the beginning of the year. This growth
is somewhat below the historical average which has been close to 9%
annually over the last couple of decades but it is still encouraging
given the current overall state of the world economy, and it surely
lays the foundation for a return to double-digit growth once the
global economy returns to a more normal state. It is worth noting
that the forecast for the areas where our vessels are primarily
trading, owing to their type and size, is forecast to grow at 7-8%
p.a. this year.
The
financial constraints surrounding the industry has created some
excellent buying opportunities while laying the foundation for a
relatively swift recovery in the container sector due to heavy
restraints in new supply primarily driven by lack of traditional bank
finance.
Why focus on the
handy-size feeders segment (<3500teu) within the container sector?
The
largest traditional owners and contractors of new-buildings (German
tax investors), who alone controlled +70% of handysize feeder
segment, have been extremely hurt by the global financial crisis.
Their disappearance from the market has resulted in the orderbook for
the niche segment now being at a relative low level, at only 10% of
the existing capacity, with the overall orderbook standing at 15% of
the existing fleet being the lowest level since 2000.
The
handy-size vessels operate as feeders to mainline ships which are
getting bigger and bigger and call at fewer and fewer ports because
of their size. These ships will need more feeders to provide them
with containers in the future.
The
other main deployment of these handy size vessels is in regional
trades like intra-Asia, Africa and South America, all which are
significant growth areas, where poor local on-shore infrastructure
ensures the demand for ocean-going transport, but seldom on a scale
justifying the utilization of larger, mainline vessels.
Why are other
investment groups not doing this?
Our
target segment generally falls below the radar as the liner operators
focus their financial resources on the larger mainline vessels in
addition to the fact that the independent owners (who are often
financial deal driven) prefer better economies of scale by doing one
large ship rather than four smaller ones.
Furthermore,
most existing owners are today focused on sustaining their current
fleet and operations, consolidating rather than expanding into new
markets. Additionally, there is historically only a very limited
tradition of non-German investors operating in this segment at all.
Why do we think
this is the segment to invest in?
Only
a very limited number of non-German, non-liner companies have ever
been in this market, thus there are only a few traditional owners in
this segment. The rapid German exit and the limitation of funds
available to liner companies have restricted ship orders to the
large, strategic mainline vessels. This dynamic has left a vacuum and
therefore an opportunity we wish to exploit.
We
firmly believe that within the core market for this type of vessel,
namely feedering to larger vessels and regional trades in developing
areas, growth will be significantly higher than the container sector
overall. This trend combined with a limited global orderbook will
make the handy-size container vessels commercially attractive even
during the downturn.
The
current constraints in the financial sector will result in extremely
limited ordering of new tonnage in this segment, thus when market
demand eventually finds its feet again, there will be a serious
undersupply in this space.
Execution
Now
is the time to move. We are seeking capital commitments that will
allow us to continue our investments in highly attractive
opportunities similarly to the transactions we have executed
recently. With additional capital commitments, we can pursue our
discussions with banks in possession of ships and fleets, as well as
troubled owners. We will simultaneously intensify our on-going
dialogue with suitable charterers with a focus on longer-term charter
structures.
We
are seeking to raise additional equity which, combined with
appropriate debt financing, will allow us to invest in a combination
of low and medium leveraged second-hand handy-size container vessels,
but always structured in a way that will ensure we do not end up with
the same loan-to-value and repayment issues that affect so many of
the current owners. The tightening of available finance from
traditional shipping banks, aggravated by the new capital
requirements under Basel III, is expected to result in a considerable
market selling pressure in the forthcoming 6-12 months.
With
a strong equity base we will, therefore, be able to put together an
optimal investment portfolio, focused on distressed second-hand
vessel acquisitions, all bought during the current market downturn
and before the next peak. A conservative portfolio employment
strategy will be applied to secure steady and sufficient income while
still being flexible enough to benefit from appreciation in the
charter market and asset values.
Consequently,
we believe that it is important to be open-minded and flexible within
the concept of investing in the handy-size segment. There are
numerous distress opportunities presenting themselves, and by having
the financial commitment in place it will be possible to expand our
close working relationship with the financial institutions to take
advantage of these opportunities. Having said that, we do not think
distress opportunities will be the only ideal way of taking advantage
of this downturn and ventures with financial sellers, contracting of
new-buildings and acquisition of second-hand vessels could also form
part of our investment strategy.
Our
immediate priority is to find investors who share our vision and
provide the required funding to secure the growth of our business.
