EUROMED MANAGEMENT MARITIME FORUM 2009

Transcription

1 EUROMED MANAGEMENT MARITIME FORUM 2009 Is private equity the real alternative for ship investments? What are the owners requirements? FABRIZIO VETTOSI Marseille 15 September 2009

2 Private Equity activities

3 PRIVATE EQUITY ROLE Even if the Private Equity represents a very small proportion of the overall financing markets, there is no doubt that this form of investment can be a solution to drive Europe s s economic recovery Reasons to choose Private Equity* Source: CMBOR / EVCA research

4 HOW MANY ARE THE WORLD FUNDS RAISED BY P.E.? Billion $ Total 2007: 624,6 Bn $ -11,3% Total 2008: 553,8 Bn $ Even if in 2008 the Private Equity global raising decreased of 11,3%, the global total amount available for investments is about 1.014,8 Billion $ Source: AIFI 2009

5 EUROPEAN FUNDS RAISED Billion CAGR ( ) 2008) = 15,3% During the past years the European fund raised grew up of 15,3% reaching in the 2008 approximately 20% of global amount raised

6 EUROPE AN PRIVATE EQUITY INVESTMENTS European deals In the last year, the lack of financing, generated by credit crunch, reduced the number of private equity deals Due to actual investments reduction, in the next years Private Equity will have more funds available to invest even if with less support by the Banks Source: AIFI 2009

7 FUNDS RAISED BY TYPE OF INVESTOR In 2008 Family Offices increased their commitment in the Private Equity business, reaching 4,2% of total funds raised. Banks reduced their involvement in Private Equity while Pension funds and Funds of Funds confirmed their interest. Source: EVCA ( European Private Equity and Venture Capital Association) on PEREP Analytics

8 INVESTMENT BY SECTOR FOCUS IN 2008 Even if Funds committed in transportation segment are a small part of overall investments, we believe that cooperation between Shipping / Logistic sector and Private Equity could be a solution to overcame the current economic crisis. Source: EVCA ( European Private Equity and Venture Capital Association) on PEREP Analytics

9 WHAT IS CHANGED IN PRIVATE EQUITY ACTIVITIES? Equity < 30 % High multiples = low Returns? Debt financial instrument: high use of lending ( low cost debt) and huge availability Target investments: large corporate especially privatization operations Geographic areas: focus on USA and Europe Investment period: 2 Years Market of sellers Equity > 40 % Low multiples = High Returns? Debt financial instrument: more use of Mezzanine Target investments: small, mid and family Companies Geographic areas: focus on Europe and Emerging markets Investment period: 4-6 Years Market of Buyers

10 Impact of Financial Crisis on the Credit Market

11 SYNDICATED LOAN MARKET HAS CONSIDERABLY SLOW DOWN World syndicated shipping loan market 5,600 Banks prefer to manage the exiting portfolio and core clients and strictly select new deals in order to minimize the risk. Many Banks are trying to reduce shipping portfolio via repayments and reduction / cancellation of commitments or selling their shipping loan to other banks. In the first half of 2009 the volume and number of deals dramatically plummeted, considering that $1,6 bn of total came in 2 deals for Royal Caribbean Cruise. Source: Reuters Loan Connector and Dealogic

12 SPREADS BACK UP FROM YEAR END 2007 LEVELS Shipping spreads for Public Companies Shipowners, further lack of funds availability, must face the high costs of financing. The decrease of base rates, decided by BCE to reduce the impact of financial crisis, was covered by the increase of banking spreads. Source: Nordea Research on Reuters Loan Pricing Corporation / DealScan

13 TOTAL FUNDS REQUIRED BY SHIPPINH COMPANIES Billion $ Total amount required for ordebook Tanker Bulk Container Estimated cost of orderbook 2009 Cancellation Estimated cost of orderbook after cancellation EQUITY ~ 110 DEBT ~ 166 Further lack of banking lendings, nowadays the orderbook financing could be difficult because during the last years the huge cash flows were often distributed as dividends The tables shows that Private Equity could be a strategic partner for shipowners. Source: EFIGESTIONI estimate based on Clarksons data

14 TOTAL FUNDS REQUIRED: Sensitivity analisys The previous table analysis are based on a estimated leverage of 60% and 20% of orderbook cancellations. Making different hypothesis, total funds required by shipping companies could be different According to ABS projection, the cancellations in the next 4 years will be about 11% in the tanker sector and 33% in dry-bulk sector Sensitivity analysis on total amount required for orderbook SSY Cancellation (end June 2009) Leverage Tanker Billion $ Cancellation 10% 20% 30% 40% 50% 55% 60% 65% 70% Number: 26 DWT: Dry- Bulk Number: 216 DWT: % Source: EFIGESTIONI estimate based on Clarksons data

15 Which conditions must shipping companies have?

16 CONDITIONS TO INVEST FOR SHIPPING COMPANIES Strategic view for value growth THE KEY ELEMENTS to be an industrial partner of a Private Equity fund Advanced Company structure Efficient shipping activities Suboptimal financial structure

17 STRATEGIC VIEW Certain and long term strategy Flexibility to modify strategic approach according to market changes Visibility on the trade flows

18 COMPANY STRUCTURE Well-frame structure and corporate governance Excellent Management Skills Investments in training Reporting more efficient and faster

19 SHIPPING ACTIVITY Charter out with good and reliable industrial customers Market hedging Orderbook with reasonable prices Conservative cash flows profile

20 BULK SECTOR: IRR ANALYSIS OF SUPRAMAX VESSEL INPUT DATA SUPRAMAX VESSEL Asset price = $ TC 2009 = $ TC 2010 = $ TC 2011 = $ Debt= 5,20% (IRS 20Y + C.S.) Running Cost = $ Fleet Utilization = 360 Days Exit date = Amortizing (20Years) TC 3Y 31July 2009 $ TIME CHARTER LEVERAGE 50% 60% 70% 80% 90% Even if leverage conditions require more Equity, the vessels investments remain interesting for Private Equity

21 TANKER SECTOR: IRR ANALYSIS OF MR VESSELS INPUT DATA MR VESSEL Asset price = $ TC 2009 = $ TC 2010 = $ TC 2011 = $ Debt= 5,20% (IRS 20Y + C.S.) Running Cost = $ Fleet Utilization = 355 Days Exit date = Amortizing (20Years) TC 3Y 31July 2009 $ TIME CHARTER LEVERAGE 50% 60% 70% 80% 90% Even if leverage conditions require more Equity, the vessels investments remain interesting for Private Equity

22 Private Equity: Winners and Losers?

23 PRIVATE EQUITY WINNERS AND LOSERS Know how the vessel is To know how can manage it Industrial approach Focus on technical characteristic of vessel Deep knowledge of the commodities market Professionals experienced and skilled in shipping and transporting industries TURIST Investors with a speculative approach Treat the vessel as any other type of asset Lack of transparent dialogue with shipowners

24 SPECIALIST S vs GENERALISTS FUNDS Shipping Private Equity types Size Low High Lions P.E. with aggressive investment strategy, which have many funds to invest but without a specific target. Snails P.E.without expertise and funds, which unsuccessfully try to catch market opportunities. Bridges P.E. which can support the shipping industry filling the funding gap in the orderbook and investments. Life-vests Small and specialized funds which are the best partner for medium and asset-based deals. Low Specialization High Shipping industry needs the support of The Bridges private equity funds to overcame the economic and financial crisis but it s more usual finding Lifevests private equity funds.

25 FUNDS MUST HAVE A STRUCTURED APPROACH TO INVEST The identity of the sponsor; The appropriate private investors; Good balance between financial and industrial investors. Excellent study of market, the target company, competitive environment; Business plan based on reliable and plausibly hypothesis; Develop the best deal structure. Continuos dialogue with shipowners; Analysis of benchmark; Change market strategy, if necessary. Constant monitoring of all new market opportunities and build up approach; Choose the right buyer to keep on guaranteeing the company growth.

26 Shipping & Private Equity: Is the cooperation possible?

27 DESPITE A SCEPTICAL VIEW OF MANY OPERATORS Shipping sector is very interesting for Private Equity During this economic cycle, Private Equity could be an active player in the value creation process Private Equity is NOT a cyclical player because it USUALLY INVEST also in recession period Shipping companies have to develop a new business culture to cooperate with a financial partner

28 Thanks for your kind attention