Buyout groups set course for record investment in shipping
Private equity-backed investment in shipping is set to hit record levels this year, having already surpassed $2.7bn, as buyout houses bet on a recovery of an industry hit hard by the economic downturn. The amount committed so far matches the previous record set in 2011. It is part of a recent trend that has seen more than $11bn in private equity-led investments in ships and shipowners since the start of the financial crisis, according to new data from Marine Money, a specialist consultancy. More ON THIS STORY Wave of PE money flows into shipping Shadow banks tap into distressed shipping General Maritime files for Chapter 11 Start-up lender steers toward smaller ship owners ON THIS TOPIC Private equity funds flunk Yale Riverstone Energy raises £760m in London listing Foreign investors chase Spanish ‘bad loans’ Blackstone rental bond rated triple A IN SHIPPING Gdansk historic shipyard bankruptcy alert Maersk calls bottom of trade cycle Chinese ship transits Northeast Passage Global Ports agrees $1.6bn deal for NCC Groups such as Carlyle, KKR and Oaktree Capital Management have waded in to shipping as the traditional leveraged buyout market has become more crowded. The groups, who are looking for ways to make more money, with interest rates at rock bottom levels, usually take a stake in ship owners or set up special purpose vehicles to order new ships. Buyout groups have been attracted by low asset valuations and demand for new sources of capital. Many traditional backers have shunned the sector after suffering heavy losses on loans extended to shipowners during the boom years before 2008. The move into shipping by private equity has been widely welcomed as a signal that the industry is emerging from the crisis. “This is smart money and it’s a sign that confidence is returning to the industry, and that we may finally be at the bottom of the cycle,” said Jim Lawrence, president of Marine Money. “It is really good that these players are coming into the market,” said Halvor Sveen, who has been involved in shipping finance since the mid-1980s and is in the process of setting up Maritime & Merchant, a boutique shipping bank in Norway, backed by more traditional industry players. But he said a recent rush of orders was a sign of concern in an industry that is renowned for its structural overcapacity. “I am a little bit worried about the recent order strength.” Set against the overall size of the market for new orders, the contribution from private equity is still relatively small compared to the current order book, which Clarksons, the shipping specialists, put at $280bn. Plagued by overcapacity, charter rates across the industry remain volatile, although there have been some signs in recent months of a sustained recovery in some sectors including dry bulk and tankers. Stephen Gordon, Clarksons’ head of research, said it was hard to judge whether the rebound in orders was coming too soon but pointed out that in recent years the new business won by shipyards was still running at between a third and a half of the levels seen in the boom years in the middle of the last decade. The order book represents only 15 per cent of the active fleet compared with one equivalent to half of the fleet at the peak in 2008 “We have had five years of difficult markets in shipping and there is a sense from some interests that we have reached historic lows,” he said.