A couple of eyebrow raising private equity deals in the shipping space were announced last week, just before the global markets took a beating. HNA Group, a Chinese conglomerate and parent of rapidly expanding shipping company Grand China Logistics has agreed to acquire Singapore based container leasing company GE SeaCo, together with Hong Kong based private equity and advisory firm Bravia Capital, for USD 1 billion.
GE SeaCo’s joint venture partners, GE and SeaCo Ltd, will receive approximately USD 500 million and USD 528 million each for their interests in the joint venture and their respective owned container fleets (net of certain seller transaction costs). And following the completion of the acquisition, GE SeaCo will operate as a core business within HNA’s existing logistics and finance businesses. The acquisition is being funded by a combination of equity and a committed debt facility, arranged through Deutsche Bank and ING. Deutsche Bank Securities served as sole M&A advisor to the sellers in this transaction.
Adam Tan, Executive Director of HNA, pointed out in a press release that the acquisition would fit precisely into the group’s strategic plans to quickly grow its logistics and transport business. HNA currently owns and operates China’s fourth largest port, a fleet of 30 container ships and a container ship finance arm. GE SeaCo began life in 1998 as a 50/50 joint venture between GE Capital and SeaCo Ltd, and has grown to become the fifth largest player in the global marine container leasing industry owning and managing over 870,000 20-foot equivalent units.
And it is not just about Asian private equity firms buying up Western companies. A group of private investors, comprising First Reserve, WL Ross, Fairfax Financial Holdings, Morgan Creek Capital Management, PPM America Capital Partners and sovereign-wealth fund China Investment Corp, have committed to invest over USD 600 million in equity in private shipping company Diamond S Shipping. Diamond will in turn make use of the funds to acquire 30 MR product tankers from privately held Korean shipping company, Cido Tanker. With the acquisition of the 30 tankers, Diamond will quadruple the size of its fleet to 40 ships with an average age of 1.75 years. Incidentally, energy industry-focused firm First Reserve Corp is also Diamond S Shipping’s founding investor.
Mayer Brown JSM acted for Cido on this transaction which has been structured as a sale of shares in various vessel-owning companies while Jones Day advised Diamond S Shipping. The balance of the purchase price will be financed by Nordea Bank Finland and DnB Nor Bank ASA. We note that Cido’s fleet had been up for sale for quite some time. In 2010, DnB NOR sold 5 MR tankers for Cido to Blue Lines, a Dubai based shipping company backed by Middle Eastern funds.
Written by:
rwong | Categories:
Asia,
Private Equity | August 11th, 2011 |
Add a Comment
It appears as if the equity in Horizon Lines will be turned over yet again – for the third time in as many years. Leading Jones Act container shipping and logistics company Horizon Lines has filed an S-1 with the U.S. SEC in its bid to raise up to $287.5 million through its initial public offering. The company is looking to be listed on the NYSE under the symbol HRZ. Joint bookrunning lead managers on the deal are Goldman, Sachs & Co. and UBS Investment Bank, while co-managers are Bear, Stearns & Co., Deutsche Bank Securities and JP Morgan. The deal comes as private equity firm Castle Harlan, which purchased Horizon Lines in July 2004, seeks to cash out on some of its massive $663.3 million investment while maintaining a controlling stake in the company, which is well-positioned strategically in all three of the non-contiguous U.S. Jones Act markets as well as Guam. Castle Harlan extracted about $80 million of its original investment in the company through the issuance of a zero coupon bond in late 2004, and this deal will likely represent a total return of invested equity.
A Little Something for Everyone
By way of review, the Carlyle Group of Washington, D.C. had bought Horizon from CSX Lines for around $375 million in 2002 before selling the company to Castle Harlan for over $650 million in 2004. While the trade press reported that Carlyle nearly double its money, that statistic refers to the enterprise value of the company and assumes the firm used its own money. In actual fact, assuming Carlyle put up 20% of the equity on the original deal, then the private equity firm would have turned its $75 million initial investment into $350 million, or a return of about 460% on its equity.
On the surface, the deal looked reasonably priced even from Castle Harlan’s perspective at 7.3x. However, significant deductions for drydocking expenditures brought the multiple to 11-13x, placing the purchase at the upper end of the reasonable range, but still not shocking considering how sacrosanct the Jones Act is. But then, using the metrics behind the $140 million price Kvaerner Philadelphia newbuildings fetched from Matson with a 40-year amortization period, Horizon Lines’ vessels can be valued at about $35 million each, reasonably closer to what Castle Harlan paid for them before even considering the steady stream of earnings the vessels bring. Less than a year later, Castle Harlan has already extracted $80 million from Horizon through a bond offering and stands ready to issue almost $290 million worth of shares.
Horizon –a Cash Cow for Goldman Sachs
But when you look at risk adjusted returns, the sure winner is the investment bank that has been involved every step of the way, Goldman Sachs. Horizon has been a true cash-cow for the firm as they bought the company for Carlyle, then sold the company to Castle, then did two bond offerings for the company for Castle and are now bookrunner on the equity offering.
What’s Left?
Like most deals, there are “pros and cons” to the Horizon transaction. The “pros” are that the company has a privileged position in a U.S. Jones Act trade, which limits competition to companies that have U.S. built ships that are owned at least 75% by Americans, fly the U.S. flag and have U.S. crews. Horizon is one of only two providers of its services in the Hawaii and Guam markets and the largest such provider in Guam – two stable and growing, albeit slowly, markets.
And then there are the “cons”, Horizon has been bounced between two private equity firms who have extracted a lot of equity over the last three years and have not replaced any of the company’s 28-year-old vessels. The proceeds of this deal will pay back the founders and reduce debt, which will theoretically create buying power assuming they can arrange like kind debt facilities, but at some point there will be some major capital expenditures to be made even though the company states that each of its ships has a 45-year useful life.
The story is not exciting, but it is solid. So long as the sacrosanct U.S. Jones Act is not altered and the maintenance and replacement of the company’s fleet does not prove to be a problem. And it certainly makes sense for Castle Harlan, who has no particular need to maintain much more than a controlling stake in the company, and who also can hardly hope to follow in the footsteps of Carlyle and watch the company double in value once again over the next two years.
Written by:
carisk | Categories:
Equity,
Freshly Minted | March 10th, 2005 |
Add a Comment
Marine Money’s 4th Annual German Ship
Finance Forum
Marine Money’s 4th Annual German Ship Finance Forum got off to a smooth start on Thursday with a very brief welcome from organizers Mr. Torsten Temp of HypoVereinsbank and Marine Money’s Peder Bogen. Chairman Dr. Henning Winter of Deutsche Schiffsbank’s board gave an overview of the topics to be addressed during the conference.
Dr. Martin Hüfner, also of HypoVereinsbank, then opened his macroeconomic discussion with an anecdote comparing the links between illness, diet and nationality. He concluded: “Eat what you like! It’s the English that kills you.” As for the global economy, Dr. Hüfner projects growth rates of 3% in 2005 and 2006, down from 4% in 2004, but he describes this change as “back to normality,” noting that 3% is, in fact, as healthy, sustainable growth rate. This idea of a fall back to normality would emerge as a theme throughout the conference, not only regarding the global economy, but more relevantly across the shipping markets.
Dr. Hüfner also noted that a soft landing in China is both important and likely, and that the EMU’s relative position in the global economy is improving. He anticipates a flattening of commodity price increases by 2006 and looks for oil prices to stay in the realm of $40-$45. Finally, Dr. Hüfner explained that the equilibrium interest rate dictated by economic models (in the 5.5-6% range for the US) is substantially higher than what currently exists. He thus expects interest rates to rise, advising shipowners “if you want to have long term money, you should take it today.”
Next up was a discussion moderated by Mr. Nigel Gardiner of Drewry Shipping Consultants, with Mr. Gardiner asking the question of how long this “unprecedented time” would last. Mr. Jarle Hammer of Fearnleys began his speech by noting that he remembered 1973, which was “even better for tankers.” He also remembered, somewhat less fondly, what happened in the shipping markets just after 1973. He discussed how 2001 vessels were going for 26% more than newbuildings while 10-year-old vessels were at times costing only 4% less due to “the value of being here and now.” Mr. Hammer did note that timecharter rates, like global economic growth, are expected to decrease, but to stay at healthy levels.
Mr. Nick Hubbard of Howe Robinson Ship Brokers opened his discussion of the container market in an interesting way, noting that his colleague who normally would have spoken was instead working on a charitable project in Nepal, demonstrating that “there are more important things than ships and boxes.” As for box ships, Mr. Hubbard lauded double-digit growth across all segments of the market in the past year. However, going forward he drew a firm distinction between the North/South and feeder trades, which he expects to remain under supplied, and the East/West trades, which he expects to creep into over supply. He again asserted that freight rates would and should fall, but that they are still very profitable.
Ms. Eva-Maria Busch of Drewry Shipping Consultants then discussed port congestion in a very different light than shipping analysts tend to see. Instead of the decrease in effective supply, and thus improving fundamentals, she saw the long term problems that could be expected to stem from the constant frustration, delays, and extra costs borne by those hiring ships. She expects that costs will be passed more and more on to shippers, while also causing those in need of transportation to consider alternatives to shipping. Importantly, Ms. Busch wants governments to recognize the need for bigger ports and for ports themselves to invest in better technology and more skilled employees.
After a brief coffee break, Mr. Didier Chaleat of Bureau Veritas discussed technical risk. He argued that Class in many cases has to act on behalf of flag states and went through the gist of new classification rules introduced by Bureau Veritas. Mr. Chaleat also noted the need for more intervention and earlier involvement on behalf of classification societies, and stated that his organization’s primary goals are to reduce risk to a minimum and improve the efficiency and long term quality of assets.
Dr. Albrecht Gundermann of LISCR (Deutschland) GmBH then discussed the burdening cost to shipowners of regulatory compliance – or, more accurately, non-compliance. He noted that in 2004 only 0.5% of standard VLCC operating expenditures go to direct costs associated with a flag state, whatever the state. By contrast, the costs of delays caused if, for example, the flag state cannot provide certain documents immediately can be quite high. He ended with the query to shipowners “what has your flag state done lately for you?”
The morning closed with a briefing by Peder Bogen on the state of the banking markets, drawing the conclusion that spreads are just too low and a lively panel discussion featuring Mr. Ingmar Loges, Mr. Hans Petter Aas, Mr. Jean-Yves Gueritaud, Mr. Tjark Woydt and Mr. Han Verschoor. The panelists discussed the fact that during times of low spreads, they must choose loans to make based on quality in order to protect downside risk.
After a soothing lunch, the crowd was reinvigorated for a review of the equity markets by Craig Fuehrer, now of Deutsche Bank Securities. Mr. Fuehrer said that he felt his prediction from Marine Money Week in June still held true: “Big deals and consolidation will continue!”
Glen Oxton of Heally & Baillie LLP then discussed International Shipping Enterprises and the whole idea of a “blank check” company. While the format used by ISE for their offering is usually reserved for “penny stock” offerings of under $5 million – contrasted to ISE’s $180 million plus – Mr. Oxton was able to explain the protection mechanisms for shareholders in the company in a way that made the deal sound much more reasonable than it first appeared, though he did note that ISE “probably have a business plan, they just haven’t disclosed it yet.” He also attributed their success to the strong demand for shipping issues and the credibility of the company’s management.
Bote de Vries of Navigation Finance Corp. then gave a discussion on Islamic Finance, explaining rules like the prohibition of interest, as well as how these deals can still be worked in a way that can be very attractive to those involved. He noted that Sharia’h compliant deals can be very competitive as they have ROE requirements less than the 15-20% typically required of Anglo-Saxon funds while the fees are marginal compared to a German KG alternative.
The last briefing was by Mr. Stephen Hackett of Global Capital Finance who discussed the incredible array of leasing options available. Two final panels closed out the afternoon. The first, moderated by Dr. Winter and composed of Mr. Tobias König, Dr. Axel Schroeder, Mr. Chiristian Freiherr von Olderhausen, Dr. Torsten Teichert and Mr. Axel Steffen, discussed how to cope with high asset prices and a strong euro. A key theme was that asset prices had to be looked at in the context of the lifelong earning prospects of a vessel. In other words, a lucrative 5-year charter does not necessarily justify an overpriced vessel.
This was followed by a lively discussion among Dr. Klaus Meves, Mr. Günther Casjens, Mr. Bertram Rickmers, Mr. Claus-Peter Offen, and Dr. Bernd Kortüm. The three looked at the current high market, and were in relative agreement about some things, like the idea that “just-in-time” service by liners is no longer really feasible. However, they disagreed heartily about the near term future of the container market. Several of the panelists were optimistic that rates would fall softly to profitable levels, while Mr. Rickmers in particular was adamant that prospects for containerships over the next few years are not very good.
Dr. Winter and Mr. Bogen then closed a fascinating day for ship finance. Afterwards, attendees moved into the next room with great windows overlooking the port in Hamburg to enjoy some well-deserved cocktails and some good German beer.
Marine Money’s 4th Annual German Ship Finance Forum got off to a smooth start on Thursday with a very brief welcome from organizers Mr. Torsten Temp of HypoVereinsbank and Marine Money’s Peder Bogen. Chairman Dr. Henning Winter of Deutsche Schiffsbank’s board gave an overview of the topics to be addressed during the conference.
Dr. Martin Hüfner, also of HypoVereinsbank, then opened his macroeconomic discussion with an anecdote comparing the links between illness, diet and nationality. He concluded: “Eat what you like! It’s the English that kills you.” As for the global economy, Dr. Hüfner projects growth rates of 3% in 2005 and 2006, down from 4% in 2004, but he describes this change as “back to normality,” noting that 3% is, in fact, as healthy, sustainable growth rate. This idea of a fall back to normality would emerge as a theme throughout the conference, not only regarding the global economy, but more relevantly across the shipping markets.
Dr. Hüfner also noted that a soft landing in China is both important and likely, and that the EMU’s relative position in the global economy is improving. He anticipates a flattening of commodity price increases by 2006 and looks for oil prices to stay in the realm of $40-$45. Finally, Dr. Hüfner explained that the equilibrium interest rate dictated by economic models (in the 5.5-6% range for the US) is substantially higher than what currently exists. He thus expects interest rates to rise, advising shipowners “if you want to have long term money, you should take it today.”
Next up was a discussion moderated by Mr. Nigel Gardiner of Drewry Shipping Consultants, with Mr. Gardiner asking the question of how long this “unprecedented time” would last. Mr. Jarle Hammer of Fearnleys began his speech by noting that he remembered 1973, which was “even better for tankers.” He also remembered, somewhat less fondly, what happened in the shipping markets just after 1973. He discussed how 2001 vessels were going for 26% more than newbuildings while 10-year-old vessels were at times costing only 4% less due to “the value of being here and now.” Mr. Hammer did note that timecharter rates, like global economic growth, are expected to decrease, but to stay at healthy levels.
Mr. Nick Hubbard of Howe Robinson Ship Brokers opened his discussion of the container market in an interesting way, noting that his colleague who normally would have spoken was instead working on a charitable project in Nepal, demonstrating that “there are more important things than ships and boxes.” As for box ships, Mr. Hubbard lauded double-digit growth across all segments of the market in the past year. However, going forward he drew a firm distinction between the North/South and feeder trades, which he expects to remain under supplied, and the East/West trades, which he expects to creep into over supply. He again asserted that freight rates would and should fall, but that they are still very profitable.
Ms. Eva-Maria Busch of Drewry Shipping Consultants then discussed port congestion in a very different light than shipping analysts tend to see. Instead of the decrease in effective supply, and thus improving fundamentals, she saw the long term problems that could be expected to stem from the constant frustration, delays, and extra costs borne by those hiring ships. She expects that costs will be passed more and more on to shippers, while also causing those in need of transportation to consider alternatives to shipping. Importantly, Ms. Busch wants governments to recognize the need for bigger ports and for ports themselves to invest in better technology and more skilled employees.
After a brief coffee break, Mr. Didier Chaleat of Bureau Veritas discussed technical risk. He argued that Class in many cases has to act on behalf of flag states and went through the gist of new classification rules introduced by Bureau Veritas. Mr. Chaleat also noted the need for more intervention and earlier involvement on behalf of classification societies, and stated that his organization’s primary goals are to reduce risk to a minimum and improve the efficiency and long term quality of assets.
Dr. Albrecht Gundermann of LISCR (Deutschland) GmBH then discussed the burdening cost to shipowners of regulatory compliance – or, more accurately, non-compliance. He noted that in 2004 only 0.5% of standard VLCC operating expenditures go to direct costs associated with a flag state, whatever the state. By contrast, the costs of delays caused if, for example, the flag state cannot provide certain documents immediately can be quite high. He ended with the query to shipowners “what has your flag state done lately for you?”
The morning closed with a briefing by Peder Bogen on the state of the banking markets, drawing the conclusion that spreads are just too low and a lively panel discussion featuring Mr. Ingmar Loges, Mr. Hans Petter Aas, Mr. Jean-Yves Gueritaud, Mr. Tjark Woydt and Mr. Han Verschoor. The panelists discussed the fact that during times of low spreads, they must choose loans to make based on quality in order to protect downside risk.
After a soothing lunch, the crowd was reinvigorated for a review of the equity markets by Craig Fuehrer, now of Deutsche Bank Securities. Mr. Fuehrer said that he felt his prediction from Marine Money Week in June still held true: “Big deals and consolidation will continue!”
Glen Oxton of Heally & Baillie LLP then discussed International Shipping Enterprises and the whole idea of a “blank check” company. While the format used by ISE for their offering is usually reserved for “penny stock” offerings of under $5 million – contrasted to ISE’s $180 million plus – Mr. Oxton was able to explain the protection mechanisms for shareholders in the company in a way that made the deal sound much more reasonable than it first appeared, though he did note that ISE “probably have a business plan, they just haven’t disclosed it yet.” He also attributed their success to the strong demand for shipping issues and the credibility of the company’s management.
Bote de Vries of Navigation Finance Corp. then gave a discussion on Islamic Finance, explaining rules like the prohibition of interest, as well as how these deals can still be worked in a way that can be very attractive to those involved. He noted that Sharia’h compliant deals can be very competitive as they have ROE requirements less than the 15-20% typically required of Anglo-Saxon funds while the fees are marginal compared to a German KG alternative.
The last briefing was by Mr. Stephen Hackett of Global Capital Finance who discussed the incredible array of leasing options available. Two final panels closed out the afternoon. The first, moderated by Dr. Winter and composed of Mr. Tobias König, Dr. Axel Schroeder, Mr. Christian Freiherr von Olderhausen, Dr. Torsten Teichert and Mr. Axel Steffen, discussed how to cope with high asset prices and a strong euro. A key theme was that asset prices had to be looked at in the context of the lifelong earning prospects of a vessel. In other words, a lucrative 5-year charter does not necessarily justify an overpriced vessel.
This was followed by a lively discussion among Dr. Klaus Meves, Mr. Günther Casjens, Mr. Bertram Rickmers, Mr. Claus-Peter Offen, and Dr. Bernd Kortüm. The three looked at the current high market, and were in relative agreement about some things, like the idea that “just-in-time” service by liners is no longer really feasible. However, they disagreed heartily about the near term future of the container market. Several of the panelists were optimistic that rates would fall softly to profitable levels, while Mr. Rickmers in particular was adamant that prospects for containerships over the next few years are not very good.
Dr. Winter and Mr. Bogen then closed a fascinating day for ship finance. Afterwards, attendees moved into the next room with great windows overlooking the port in Hamburg to enjoy some well-deserved cocktails and some good German beer.
Written by:
carisk | Categories:
Forums,
Freshly Minted,
German Focus | February 24th, 2005 |
Add a Comment
