Karatzas marine assessing interest final oct2014

Karatzas Marine Advisors & Co. International Maritime Advisory

„Assessing Investor Interest in Shipping Opportunities”

Turkish Shipping, Investment and Finance Conference Tuesday 21 October, Intercontinental Hotel, Istanbul

‘Safe Harbor’ Statements

!  ‘And seas but join the regions they divide’

Alexander Pope

!   ‘In Sea affairs, nothing is impossible, and nothing is improbable’

Admiral Lord Nelson, writing from HMS Victory in 1804

!   ‘If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea’

Antoine de Saint-Exupéry

KARATZAS MARINE ADVISORS & Co. October 2014 Page 2

Agenda

!   Company Introduction

!   Shipping Funding Sources

!   Equity

!   Debt

!   Alternative Finance

!   Parting Thoughts


Company Introduction

!   Karatzas Marine Advisors & Co. is New York-based firm with worldwide footprint & strong, well-qualified management team

!   Active in shipping finance advisory, restructurings, maritime strategy, private placements, vessel valuations, ship brokerage and vessel management

!   Clients include: !   Financial institutions seeking shipping market expertise and advisory on shipping matters !   Financial institutions in need of origination of transactions in shipping !   Banks seeking to dispose of shipping assets and/or shipping loans !   Shipowners seeking advise to access the financial markets !   Shipowners seeking advisory and investors with existing ‘legacy’ concerns !   Shipowners seeking financial partners to benefit from present market trough

!   Dry bulk, tankers, containerships and offshore !   International flag business primarily, but also Jones Act expertise !   Proven track record of market outperformance and delivering value to clients


Professional Memberships !   American Bureau of Shipping (ABS), Member

!   BIMCO, Member

!   Propeller Club, New York / New Jersey Chapter,

Board Member (past)

!   Society of Naval Architects & Marine Engineers (SNAME), Associate Member

!  Royal Institution of Naval Architects (RINA), The

Associate Member

!   Piraeus Marine Club (Greece), Member

!   Connecticut Maritime Association (CMA), Member

!   Singapore Chamber of Maritime Arbitration (SCMA)

!   BALTIC EXCHANGE (Application pending) KARATZAS MARINE ADVISORS & Co. October 2014 Page 5

Agenda



!   Equity

!   Debt




Shipping Funding Sources

Equity

‘Private Equity’

‘Sweat Equity’

– Traditio

nal Shipow

ner

Co-investm

ents

Public Markets

Initial Public Offerin

gs (IPOs)

Secondary

Offerings /

Follow-ons

Debt

Shipping Banks

Syndications

First Preferred Ship Mortga

ges

Club deals

Capital Markets (Bonds)

Alternative Finance

Sale & Leaseb

ack Transac

tions

Mezzanine

Working

Capital

Preferred

Equity

Convertible


Agenda



!   Equity

!   Debt




Equity Investments

!   Equity Investments bear full market exposure, both upside potential and downside risk !   Depending on business model, timing is crucial !   Traditionally, independent shipowners had been providing ‘sweat equity’ (to be levered with debt

provided by shipping banks)

!   Independent shipowners cannot always commit required equity

!   Institutional Investors playing a great part in shipping !   Institutional Investors can have a more aggressive scenario due to their own unique investment parameters !   Can co-invest or sponsor management teams and companies !   Investment horizon of 5 – 7 years, usually !   According to Financial Times (December 8th, 2013), US-based PE funds command $789 BILLION unspent investor

pledges (‘dry powder’), PE funds globally command in excess of $1 TRILLION dry powder (for comparison: German GDP (2012) ≈$3.5 Billion, Greek GDP (2012): ≈$250 billion); tremendous liquidity does not translate to ‘free money’

LATEST DEVELOPMENTS: !   Institutional Equity Investors getting ‘deal fatigue’ !   Look for value-added opportunities as serious-with-shipping investors have already invested in

‘plain vanilla’ shipping projects


Shipping on the Radar!


PE and Shipping


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

2008 2009 2010 2011 2012 2013

Equ

ity

Inve

stm

ents

in U

S$ b

illio

n

Equity Investments in Shipping by PE funds

Data source: Karatzas Marine Advisors & Co

Agenda



!   Equity

!   Debt




Debt Financing

!  Banks have to live with with more intense regulation (Basel III, etc) !  Shipping not the most attractive industry for lenders, especially traditional ship

mortgages !  Brand-new landscape that likely will remain for the foreseeable future

!  Challenging environment, especially for traditional shipowners !  Traditional shipowners will have to adapt to new reality !  Operate larger fleets more efficiently !  Consolidated financial statements and documentation !  Corporate lending !  Focus on public markets / bonds

LATEST DEVELOPMENTS:

!  No news really in the traditional shipping lending markets !  Low interest rates make issuing of bonds attractive, but not all can qualify !  Low expectations for positive drastic developments in near future !  Independent, traditional shipowners will have to ‘think outside the box’


Shipping Loans


$0

$20

$40

$60

$80

$100

$120

$140

SHIPPING LOANS (US$ bil)

SHIPPING LOANS (US$ bil)

Linear (SHIPPING LOANS (US$ bil))

Agenda



!   Equity

!   Debt




Alternative Financing !  More flexibility in structuring than ‘pure equity’ investments !  Suitable for ‘legacy transactions’ (restructurings) but also for financing new projects !  There are many more Institutional Investors for Alternative Financing rather than pure

equity investments !  Typical transactions:

!   Sale & Leaseback transactions to monetize on existing assets !  Provide new loans with junior position but upside potential (convertible) !  Provide new financing with lower security than a bank’s loan (ship mortgage) but with minimum return

(preferred) !  Restructurings of existing shipping loans, access working capital to run vessels, acquisition of new assets

LATEST DEVELOPMENTS: !  Funds providing Alternative Finance have been more active than usual !  Likely to be meaningful source of capital for shipping until shipping finance markets

normalize !  Low interest rate environment allows such funds to be more aggressive and flexible on

their structuring KARATZAS MARINE ADVISORS & Co. October 2014 Page 16

Agenda



!   Equity

!   Debt




Shipping Funding Sources

Equity

‘Private Equity’

‘Sweat Equity

’ – Traditi

onal Shipowner

Co-investments

Public Markets

Initial Public Offerings

(IPOs)

Secondary

Offerings /

Follow-ons

Debt

Shipping Banks

Syndications

First Preferr

ed Ship

Mortgages

Club deals

Capital

Markets

(Bonds)

Alternative Finance

Sale & Leaseback

Transactions

Mezzanine

Working

Capital

Preferred

Equity

Convertible


LEG

EN

D

POSITIVE

NEUTRAL

NEGATIVE

Parting Thoughts !   Changing seascape in the shipping industry forces a new reality !   Shipowners will have to have critical mass and ‘proper’ corporate structures !   Status quo of traditional debt financing will remain elusive !   Shipowners will have to be experts in obtaining financing in this capital-intense industry when financing

conditions are getting tighter

!   More flexibility will be required from shipowners as partnerships, join-ventures and participations may be the new ways of growing the business

THE GOOD NEWS: !   The Shipping Industry is never going to be phased-out or become obsolete, even in our technology

dominated world; just the opposite!

AND, THE GREAT NEWS: !  There are still institutional investors looking to invest in shipping! They are a

diverse group and they are looking for diverse opportunities both for existing vessels / projects but also to finance growing business!


Thank you for your

Attention!

Karatzas Marine Advisors & Co. International Maritime Advisory

One World Financial Center, 30th Fl 200 Liberty Street New York, NY 10821 USA !   Switchboard: +1 212 380 3700 !   Mobile (US): +1 713 545 5990 !   Mobile (D): +49 0 1523 7361 205 !   Email: [email protected] !   Web: www.Karatzas.com

Contact Details

KARATZAS MARINE ADVISORS & Co. May 2014

Business

Karatzas marine assessing interest final oct2014