OSG Acquires Maritrans: A Question of Value

By Nora Huvane

In 2005 we presented to Overseas Shipholding Group (OSG) CEO Morten Arntzen our prestigious Dealmaker of the Year Award. As supporting deals, we cited the $1.3 billion, winter 2004-2005 acquisition of international product tanker specialist Stelmar, the $1 billion order of 10 US flag product tankers from Kvaerner Philadelphia Shipyard, the successful $581 million public markets spin-off of sale leaseback vehicle Double Hull Tankers, and the $900 million facility backing the OSG Nakilat LNG venture.

Then for the better part of 2006, OSG appeared to be taking some time off of strategic acquisitions and financial engineering to absorb all its activities from 2004-2005. Meanwhile we watched consolidation occur throughout the global product tanker sector and we watched US Shipping follow the Aker American deal’s lead as it contracted with NASSCO for Jones Act product tanker newbuildings. All along, however, OSG focused on three primary objectives which we cited in 2005 as 1) selling ships at high prices and leasing them back for medium periods to control asset intensity without increasing ownership; 2) growing OSG’s presence in the US flag sector and 3) diversifying OSG’s exposure to the crude tanker market. Continue Reading

The Beauty of a Public Life

By Nora Huvane

2005 was widely regarded in our industry as the Year of the Shipping IPO. Briefly, it seemed that the public markets in New York were open to anyone who could find a loan or a private equity sponsor – ships were optional. And taking out China COSCO Holding’s massive $1.2 billion Hong Kong IPO and BW Gas’ $650 million IPO in Oslo, 70% of the activity was occurred in New York alone.

This year the trend towards accessing the public equity markets has continued, but in many ways things couldn’t be more different. New York up through November had seen but three IPOs against last year’s 14: those of Omega Navigation in the spring and Ultrapetrol and Danaos this fall. Meanwhile equity markets for shipping have been blossoming around the world – Dubai saw its first major shipping IPO in the form of Gulf Navigation, while Singapore moved from just Courage Marine’s tiny $34 million IPO in 2005 to the much more substantial Pacific Shipping Trust and Berlian Laju Tankers IPOs in 2006. More recently, China Merchants Energy Shipping priced a massively successful $566 million IPO that saw its shares appreciate 80% in their first day of trading, while Aegean Marine and Teekay Offshore met with success in New York.

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Selling a Story in Dubai

By Nora Huvane

Marine Money is driven in its pursuit of the best source of cost effective capital for shipowners. Today as never in the past the world offers a panoply of options – and a community of shipowners ready, willing and able to explore them all.On a recent trip to Turkey I was impressed by the number of the times the Dubai exchange was mentioned as a potential future IPO venue. Then just think how much more convenient it would be for Greek owners to avoid the 12-hour flight to New York in their search for capital. Clearly the market is not yet at that stage now, but could it get there? Will the “Singapore of the Middle East” also look to turn itself into a global center for ship finance somewhere down the road?

While it was one thing to watch companies acquire ships with private equity backers and flip them to the public only months later in New York, or to sell 80s-built bulk carriers on the public markets in London, it is, in our view, altogether unprecedented for a company to sell a fleet to the public when nearly 80% by dwt is yet to exist.

Founded in 2001, Gulf Navigation has become what by all accounts is a first class shipping company with reputable management, but it accomplished something in Dubai that would not have been feasible in New York or London and that it would have been hard-pressed to achieve in Hong Kong or Singapore. Continue Reading

A World of Options

One of the most fascinating and sometimes exasperating things about the leasing market is its venue specificity. Inherent in the fact that lease structures are developed around particular legal regimes and tax codes is the fact that the variety of lease available differs with each country. Tax advantages played a key role in the initial success of the Norwegian KS system, yet the market that developed as a result survived the demise of the tax advantages nearly two decades ago and is still going strong. Players in the KG system hope the same will be true in Germany as tax incentives are diminished. Even as these traditionally important sources of lease finance for shipping adapt in a changing world, in Asia states such as Korea and Singapore are developing new incentives to lure lessees and encourage investors. Meanwhile evolutions are taking place in the options available in countries like England and Ireland that are worthy of note for the international shipowner.

In this section, then, we first take a look at the leasing model recently developed in Korea, which was first tested internationally by Top Tankers this past spring. We compare this briefly with typical KS and KG structures before revisiting the Pacific Shipping Trust IPO, which utilizes the model of a public equity-funded lessor as well as incentives recently put into place in Singapore to encourage the development of the maritime finance industry in the area. Finally, we take a look at what Ireland has to offer the shipping industry as well as how EU-harmonizing legislation will affect the British leasing market. Continue Reading

Springing Into Summer with Style

By Peder Bogen & Nora Huvane

It certainly has been a busy summer in the world of shipping and ship finance! Our first forum in Moscow proved to be a huge success, as did the succeeding events in Oslo and New York. For those of you who were not able to attend all three events, we thought it would be fun and informative to do a quick review, accompanied by some visuals… from the cocktail parties, not the presentations.

To Russia with Love & Back!

In late May, Moscow became for a few days the center of the international ship finance industry. First was Sovcomflot’s annual banker meeting on May 19, gathering over 80 international and domestic ship finance bankers. Then on May 20, Marine Money’s inaugural Russian ship finance forum attracted over 160 delegates. In addition to this, Norway’s energy minister visited the Kremlin and the U.S. Minister of Energy visited Russia in an effort to explore the opportunities of the country’s promising energy industry.

Following Sovcomflot’s banker meeting and cultural session, Marine Money and Sovcomflot hosted a joint dinner for over 100 speakers and bankers at the new Gorki restaurant. Music lover and CEO of Sovcomflot Mr. Sergey Frank organized the music entertainment, which featured a live performance from one of Russia’s most popular groups, setting the stage for a great night filled with Russian food and vodka. Continue Reading

Springing Into Summer with Style

By Peder Bogen & Nora Huvane

Photography by Michelle Sandmæl Bogen

It certainly has been a busy summer in the world of shipping and ship finance! Our first forum in Moscow proved to be a huge success, as did the succeeding events in Oslo and New York. For those of you who were not able to attend all three events, we thought it would be fun and informative to do a quick review, accompanied by some visuals… from the cocktail parties, not the presentations.

To Russia with Love & Back!

In late May, Moscow became for a few days the center of the international ship finance industry. First was Sovcomflot’s annual banker meeting on May 19, gathering over 80 international and domestic ship finance bankers. Then on May 20, Marine Money’s inaugural Russian ship finance forum attracted over 160 delegates. In addition to this, Norway’s energy minister visited the Kremlin and the U.S. Minister of Energy visited Russia in an effort to explore the opportunities of the country’s promising energy industry.

Following Sovcomflot’s banker meeting and cultural session, Marine Money and Sovcomflot hosted a joint dinner for over 100 speakers and bankers at the new Gorki restaurant. Music lover and CEO of Sovcomflot Mr. Sergey Frank organized the music entertainment, which featured a live performance from one of Russia’s most popular groups, setting the stage for a great night filled with Russian food and vodka. Continue Reading

Russian Shipping: A Primer For Investors & lenders

By Nora Huvane

The really great thing about ships is that they are fungible. Whether a ship is owned in the U.S., Greece, Norway, China or Russia, that ship has a certain inherent value in the international marketplace. That value can of course be reduced by direct measures such as a legal environment that is hostile to owners or investors or an excessive taxation regime that cuts into the earnings potential of a vessel; just ask bankers who work with U.S. flag vessels. Even so, that value can be regained to a large extent by a simple sale or change of domicile.

The important thing is that the applicability of tax and legal regimes is dictated by flag state considerably more than by the owner’s domicile, which is good considering that the flag state of a vessel is a considerably less fixed variable than is the owner’s domicile.

So, while the thought of Russia for many investors may conjure up impressions of a formerly closed, centralized economy, albeit one that has been rapidly evolving over the past 15 or even 25 years, it is not just the evolution of the Russian business environment that is important. It is also important to distill the impact of this environment on Russian shipping companies from that on Russian ships, simply because many Russian companies own many ships that are not Russian. Continue Reading

Shipping Banker Survey

By Nora Huvane

It can be a treacherous thing to be a shipping banker during good times.

After all, ship finance is a much more complex science than shipowning. In shipowning, when the market is strong, owners make money and when the market is weak, many of them blow up. It is life in the food chain in its simplest form.

At least anecdotally, ship finance is influenced by a unique set of fundamentals. When the shipping markets are strong for a prolonged period, shipowners don’t need their bankers. When this is coupled with the fact that all kinds of new money is floods into the industry at a high point in the cycle, loan margins go down and covenants loosen – all at a time when cash flows are at or near peaking, asset values are inflated and the risk is higher. Just like the high interest rates charged to companies in default, it seems the cost of debt is lowest when borrowers are in the best position to pay. Continue Reading

Best Practices Part I: Portfolio Profile

By Nora Huvane

What are the characteristics that allow a shipping bank to achieve an enviable 17% or higher return on equity – a return that doubles the value of money in less than six years? Is it just dumb luck that cannot be replicated year after year? Does it require fee-based investment banking services? Do you need to take unreasonable risk of principal in defiance of risk and return models? Do you need to overwork and underpay your people?

Or are there recognizable patterns that could be followed and potentially improved upon?

Based on the premise that there is some method to achieving these kinds of returns, we broke down candidates by their return on equity achievement in 2004. The number of those that missed their target is so low that they have been put into one group collectively, labeled “missed.” Some of the results may confirm your expectations, others may interest you, and some will probably surprise you. Continue Reading