Shipping: navigating the way to calmer waters April 2014 www.pwc.co.uk

www.pwc.co.uk
April 2014
Shipping: navigating the way
to calmer waters
Brian Lochead
Antonia Robertson
Partner
+44 (0)113 289 4888
[email protected]
Senior Manager
+44 (0)20 7212 2789
[email protected]
In recent years conditions in the shipping market have
been difficult because of depressed demand and structural
over-supply. Asset values are at all-time lows: up to 70% below
2007/08 peak market levels, significantly impacting loan-tovalues.
The sector is undergoing significant change. The discovery
and extraction of shale oil in the US, China shifting from
production to consumption, changes in environmental
regulation and the growth of alliances in container shipping
are all impacting the competitive position of owners
and operators.
While market dynamics are improving, these structural
changes will produce winners and losers depending on the
types of vessels and routes operated. Renewed over-ordering
of vessels also remains a key risk to recovery across the sector.
Forecast change in utilisation
(Ppt. change 13-18)
Change in utilisation by vessel type, 2007 – 2017
30%
25%
20%
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Post / Panamax
15%
5%
0%
(35%)
Clean Tankers
Handy /
Handymax
10%
Cape / VLOC
Containers
Dirty Tankers
(30%)
(25%)
(20%)
(15%)
(10%)
(5%)
0%
Historical change in utilisation (Ppt. change 07-13)
Containers
Dry Bulk
Tankers
Bubble size = 2018 capacity
Sources: Drewry, Government of Australia, Broker reports, PwC Analysis
1 Lloyd’s List, 16.12.13
2 Bunge Limited media release, 17.10.13
5%
Lenders remain concerned about the ability of shipping
companies to service their debt and have been looking to exit
underperforming assets, including looking at new and more
varied options for divestment. The pressure to reduce their
exposures is heightened by the impact on capital and liquidity
ratios of holding long-term debt and the European Central
Bank’s focus on shipping as part of its new Comprehensive
Assessments (see chart opposite).
Based on our involvement in a number of recent cases, there is
no quick and easy solution. Businesses operating in the sector
have inherent complexity and volatility, coupled with a
diverse stakeholder base, which, necessarily, has meant that it
has been challenging to achieve any sort of consensus.
Nevertheless, innovative lender solutions have emerged,
including Navios Europe’s acquisition of ten vessels from the
debtors of HSH Nordbank. In Germany, where loans tend to be
structured as KG companies against specific assets, there have
been a number of consolidations in loans and assets
by lenders looking to maximise efficiencies.
There has also been an increasing amount of activity
in the debt and equity markets in the sector. In recent
months distressed funds have made portfolio purchases
(e.g. Commerzbank’s portfolio sale to Oaktree Capital
Management1) and operator and equity partnerships
have been launched (e.g. the joint venture between
Augustea Atlantica, Bunge Limited, and York
Capital Management2).
However, we question whether the influx of new investors, in
itself, will help resolve or exacerbate some of the wider
industry issues.
Low asset and debt prices make investing in the shipping
sector attractive and potentially lucrative if the right type
of vessel or operator is chosen. The key challenge is whether
longer-term returns will satisfy new investors, and what
solutions exist for lenders if not.
Enforce and sell asset
• Likely to be at a discount (particularly
given current asset values)
• Off the books and no exposure to
possible future downside
• Selling at possible low point in the
market
• Distressed discount would further
impact value
u it y
Lender
options
Take equity
e eq
e
Enfo
sell rce
as
s
Ta k
e q u it y
and e
i m p r o ve
per f
or m a n ce
Ta
k
tiv
A te r n a ns
l
s o l u ti o
• Combining
non-performing
assets
• Strategic
alliances with
operators
ebt
ll d
d
an t
e
Alernative
solutions
Se
Sell debt
• Retain access to
future upside
• May not have
knowledge of
running
shipping
operations
Take equity and drive improvement in financial performance
• Retain access to future upside
• Could maxmise short term cash through operational improvements
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