Pareto World Wide Shipping AS

Transcription

1 Pareto World Wide Shipping AS 1st quarter report 2014 Link:

2 Executive Summary NAV NOK 129/share (as per ) Following the restructuring of PWWS during H2 13, the Fund owns 48.4% in Pareto Maritime Secondary Opportunity Fund (PMSOF), which contains the bulk of PWWS previous portfolio. In addition, PWWS has direct stakes in two other projects. As of , NAV per share was NOK 129. This is flat from the start of the year and up 4.5% from the inception of PWWS in 2006, adjusted for dividends. Market Development Offshore oil services demand has been robust so far this year. The much discussed slow down in oil major upstream spending has not had any visible impact so far and it would appear that we re dealing with a situation where growth is moderating rather than evaporating all together. We emphasize that oil majors only account for some 20% of global E&P spending, and the rest of the industry is maintaining a healthy growth rate in their upstream investments. Based on this, it seems that markets where the expected supply side growth is moderate will fare reasonably well in terms of asset utilization and pricing. Segments where newbuilding order books indicate a sharp rise in available supply in the coming years look more vulnerable, such as ultra deepwater rigs and high-end subsea vessels. For such assets, oil majors also represent the biggest client base. The Fund has no exposure to these segments and should therefore be in a good position. The shipping markets are brimming with optimism, but many are now voicing concerns over the longer term market balance. The fingers point towards the wave of speculative, financial money that s been pouring into shipping ventures and primarily to fund newbuilds. While the cyclical recovery argument for shipping continues to be credible and the development in day rates and newbuilding prices so far lend support, there may be a challenge to absorb a rising tide of new vessels in the next 2-3 years. projects and made three distributions to its investors. In addition to PMSOF, PWWS owns a direct stake in Singapore Tankers, which is in the process of being realized. The vessels will hopefully be sold during the summer, while the legal process against the previous buyer is likely to take some more time. The estimated value of this project has not changed significantly over the last quarter. PWWS also has a stake in Parbulk II IS, which consists of a claim towards a previous charterer and which is marked at zero value. As soon as the directly owned projects are realized, PWWS will focus purely on managing its ownership in PMSOF on behalf of its shareholders and will strive to pay out distributions from PMSOF to its shareholders as soon as practically possible. As a result of the realizations made in PWWS and PMSOF during Q4 13, PWWS made a distribution of NOK 20 per share to its shareholders in January Further distributions will depend on the level of realizations in PMSOF and the outcome of the process in Singapore Tankers. On the positive side, the newbuilding activity is still mostly focused on the larger headline segments, leaving many smaller niche segments still looking robust. Particularly those with an ageing fleet, where vessel scrapping will keep fleet growth in check. The fleet replacement need is also driven by new environmental regulations and the emergence of ecodesigns. Portfolio PMSOF made up 91% of PWWS portfolio as of Q1 14, and had an exposure weighted 77% to offshore oil services and 23% to shipping. The long term contract coverage is 62% with a weighted contract length of 2.4 years. PMSOF has not made further asset disposals so far in Since inception, PMSOF has sold two

3 Net Asset Value Development NAV has been flat during 2014, primarily as a result of a slight weakening in the NOK/USD exchange rate. The value of the PMSOF portfolio is slightly up (in USD) during the quarter while the valuations of the remaining two projects are unchanged. NAV development NAV as of was NOK 129 per share, flat from the previous NAV ( ), as adjusted for the NOK 20 per share distribution in January The next NAV will be reported in the Q2 14 report. NAV is up 4.5% since inception in 2006 (adjusted for repayments). This is partly due to a weakening USD, which has had an 5.7% drag on the total return. In USD, the total return since inception is 10%. It is important to bear this in mind, as about two thirds of PWWS investments have been in USD. This return is acceptable, and is owed to consistent, positive returns in our offshore oil service investments. The performance drag has come from the strong headwinds we have faced in the global shipping markets. markets are stable and healthy. PWWS is in the process of realizing the project Singapore Tankers (ST). The outcome of this process is highly uncertain. See the Portfolio News section for more details. Direct yield As of Q1 14, PWWS had paid out NOK 80 per share to its shareholders since inception, which equals 40% of par value. This does not include the NOK 490m that was paid out to exiting shareholders in connection with the restructuring of PWWS during H2 13. While there are still a few older shipping projects that are problematic, the recovery in the global shipping industry indicate better harvesting times ahead and we have already been able to exploit rising markets when making exits in PMSOF. Within offshore oil services, the YTD Last 9 mths Last 21 mths Since inception PWWS 0.0% 5.7% 10.1% 4.5% Oslo Stock Exchange 2.4% 16.8% 38.0% 55.0% Shipping Index * 0.0% 23.9% 80.3% 7.2% Offshore Index ** -4.7% -1.8% 9.2% 23.3% * Based on OSE Marine ** Based on OSE Energy Equipment & Service PWWS - NAV development NAV per share NAV per share (dividend adjusted) 0 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13

4 Portfolio News PWWS has 92% of its portfolio invested in PMSOF and the remainder in two directly own projects. This section provides an update on the quarter s most important newsflow related to the underlying investments and the portfolio. Pareto Maritime Secondary Opportunity Fund The value of PWWS 48.4% stake in the Fund s portfolio has increased by 0.6% in USD since Q4 13, adjusted for payments to and from portfolio investments. In NOK, the value is down by 1.3% during the period. PMSOF s portfolio consists of 25 projects with stakes in 66 units. The total NAV of the Fund was USD 156m as of Q1 14, including cash of USD 0.5m. At present, the contract coverage is 62% and has a gross nominal revenue value of USD 118m for the Fund. The average contract length is 2.4 years. The three largest counterparts constitute 67% of the total contract backlog, with the remaining spread across smaller counterparts. The overall exposure to different segments in the maritime industries is balanced. The shipping exposure is 23% and offshore oil services 77%. PMSOF has not made further project realizations in 2014, but is constantly monitoring opportunities to this end. A general positive trend in the markets for high end offshore support vessels has had a positive impact on the valuations of projects like Iceman, Norseman, NorthSea PSV and PSV Invest II. For smaller support vessels, fortunes have been mixed so far this year, with the valuation of two projects having been reduced. The seismic exposure has had mixed fortunes, with a new 3-year contract being started for one of the vessels in Master and Commander, while the vessel in Vestland Seismic is still idle following the collapse of its original charterer. Directly owned projects Parbulk II This project is still marked at zero value and consist only of a claim against the previous charterer of the vessel in this project. The claim is still being vigorously pursued, but it is highly uncertain whether any value will materialize. Singapore Tankers A transaction to sell all the 10 vessels in the project was agreed in the spring of However, the counterpart did not honour his obligations and the company has instead been forced to find other buyers of the ships. An agreement to sell six of the vessels to a new buyer has been entered into and is in the process of being executed, with three vessels delivered, two vessels being delivered to their new owner at time of writing and one to follow shortly. The remaining four vessels are expected to be sold during the summer of The valuation only includes a conservative amount of the claim for the shortfall relative to the previously agreed transaction, which is currently being pursued in the courts and could represent an upside. Payments from projects During Q1 14, PWWS received NOK 12m in proceeds from PMSOF. This formed part of the large distribution to shareholders in January New investments PWWS is now purely focused on realisation of its portfolio and will not make additional investments during its remaining life cycle, other than required follow-up investments in existing projects. There is some more firmness in the shipping markets, where the Fund s exposure continues to be in LPG transportation and chemical tankers. In general, the bareboat contracts continue as planned, with charterers paying hire punctually and counterparty risk appearing to be somewhat reduced owing to better markets.

5 Portfolio PMSOF Project / company Contract Charterparty Charterer Proportion of NAV Neptune Subsea IS Feb-17 Bareboat Reef Subsea 14.0 % Asian Offshore III IS Spot/Asset play 12.6 % Asian Offshore IS Spot/Asset play 9.7 % B-Gas Ltd Dec-14 Timecharter Total / Vitol / Statoil 8.7 % Master and Commander IS Aug-18 Bareboat CGG/Fairfield Nodal 8.9 % Offshore Accommodation IS Dec-21 Bareboat African Offshore Services 5.3 % Parbarge IS Jul-23 Bareboat African Offshore Services 4.3 % PSV Invest II IS May-14 Spot/Asset play Maersk Oil 3.3 % ParChem IS Nov-18 Bareboat Heung-A Shipping Ltd. 3.1 % Iceman IS Spot/Asset play 3.0 % Berthea IS Spot/Asset play 2.6 % Far East Offshore IS Feb-17 Bareboat Sanko Steamship Ltd 2.6 % Brøvig Stainless II DIS Nov-16 Bareboat Stolt Tankers B.V 2.6 % Partankers VI IS Spot/Asset play STX Europe 2.4 % Norseman Offshore IS Dec-20 Bareboat Viking Supply Ships AS 2.1 % River Cruise KS Mar-16 Bareboat Viking River Cruises S.A. 1.9 % NorthSea PSV IS Nov-17 Timecharter Wintershall 1.7 % Bukit Timah Offshore DIS Jul-20 Bareboat Swiber Offshore Marine Pte. 1.7 % Vestland Seismic IS Spot/Asset play 1.3 % NorthSea PSV Shareholder Loan May-18 Timecharter 1.5 % 3B Offshore IS Nov-17 Bareboat Bourbon 1.5 % PSV Invest II Shareholder Loan Apr-14 Spot/Asset play 1.2 % Carlisle Subsea IS Oct-15 Bareboat Hallin Marine Subsea 1.0 % Atlantic Gas II IS Oct-16 Bareboat Geogas Maritime SAS 1.0 % UBT AS Spot/Asset play 0.8 % Atlantica Tender Drilling Aug-15 Timecharter Petrobras 0.7 % Asian Offshore Shareholder Loan Spot/Asset play 0.4 % Key portfolio charts for PMSOF (based on NAV) Segment Distribution Charterparty Distribution Rig 1% AHTS (Europe) 5% Subsea 14% Seismic 10% Accommodation 9% Bareboat 50 % LPG 9% AHTS (Asia) 27% Chemical 11% Product tanker 4% PSV (Europe) 9% Cruise 2% Timecharter 16 % Spot/Asset Play 34 %

6 Second Hand Market and Liquidity As of PWWS had 3,951,965 shares outstanding. Pareto Project Finance AS ( PPF ) strives to facilitate an active second hand market for shares. The last trading price at time of writing was NOK 90 per share ( ). Second hand market Despite the fact that all shareholders were given the opportunity to sell their shares at a price of NOK (+9.16 estimated value of Singapore Tankers at the time of the transaction), the trading price following the restructuring has been far below this level. The traded volumes have however not been substantial. Many of the traded share prices displayed in the graph below (red dots) have been calculated on the basis of implicit feeder trades, adjusted for the merger exchange ratio. The transactions related to the restructuring in Oct 13 have not been included in the graph below. Date Share price No. of shares Volume (NOK) 28/03/ ,850 03/04/ ,636 28/04/ , ,500 19/05/ ,260 19/05/ ,500 Number of trades since startup: 1,644 Volume traded since startup (NOK): 353,152,496 Average volume per trade (NOK): 214, ,000 Volume traded NAV per share 9, NAV per share (dividend adjusted) Second hand price per share 8, ,000 Price per share ,000 5,000 4,000 3,000 Volume (Thousand NOK) 50 2,000 1,000 0 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 0 Date

7 The offshore oil services market The activity growth in the oil services markets continued last year, albeit with some slowness emerging in the seismic markets towards the end of the year. In the absence of a rising oil price, the oil industry is trimming its upstream investment plans to be able to preserve shareholder dividends, which is resulting in a slower growth outlook near term. The longer term, however, looks promising. The oil and gas markets Recent data also suggest a weakness in Chinese demand, with official statistics suggesting that the y-oy growth has been negative for four months in a row. This may be additional anecdotal evidence of the perceived weakning of Chinese economic growth. The oil imports to China have, however, been record high in recent months, with a meaningful build-up in product investors and strategic investories of crude. One may caution against the reliability of these data, but one comforting factor at least is the fact that the oil price does not seem to have tracked the rise in imports, but rather seem to discount the apparently sluggish demand figures. The seismic market under scrutiny With the much publicised slowdown in spending by the oil majors, many observers have pointed to the seismic market as the obvious loser. Firstly, because oil majors are big buyers of seismic data, and secondly because seismic is normally the first segment to feel the pinch when spending budgets are trimmed. Source: Pareto Securities Data suggests that the seismic markets already corrected during 2013, where seismic spend was flat while overall E&P spending was up 8%. Based on the seismic contractors backlogs and tendering activity, the seismic market is expected to post moderate growth in 2014 and possibly also for 2015, although the first quarter of the year was quite weak for the listed seismic companies. Promising outlook for North Sea AHTS The North Sea AHTS market posted a solid end to 2013 and activity so far this year has been strong during the seasonally weak winter months. The market balance looks set to change in the favour of the owners this year. Demand is set to rise owing to a 10% increase in the righ fleet. The available capacity looks set to decrease as ten or more ships are contracted outside of the North Sea, while the inflow of newbuilds will be limited. Source: Pareto Securities With very few North Sea spec vessels being built, it is expected that this situation will persist or even strengthen during 2015, making large AHTS one of the real bright spots in offshore oil services.

8 The shipping market Day rates with a sharp bounce The Clarksea Index (an average of earnings across all vessel types) surged in H2 13 and almost reached 20- year average levels during January, before dropping back again. This has been primarily driven by dry bulk vessels, crude oil tankers and LPG tankers. The container vessel market continues to slowly improve, but without the volatility of the three aforesaid segments. The overall development follows a seasonal pattern, so the recent decline is by no means dampening the market optimism. Source: Clarksons Newbuilding activity on the rise The optimism has reflected itself in a surge in newbuilding orders. World wide vessel contracting reached 15m CGT during Q4 13, the highest level since Q2 08 (the peak of the last cycle). At the moment, the attention is on large LPG tankers, where the volume of orders in the past 12 months is 2.5 times higher than the preceding 12 months. Values ticking up The rise in newbuilding contracting has resulted in an 8% increase in the average newbuild prices during the past year. As there appears to be no slowing down in vessel contracting, we expect yard prices to continue upwards as shipyards gain confidence through building a longer backlog. Source: Clarksons Newbuilding prices act as the anchor for secondhand prices. These are also impacted by near term earnings and hence tend to react more quickly to changes in vessel earnings. Average second hand prices are up nearly 14% in the past year. What s in store for the next few years? As mentioned earlier in the report, a growing number of industry players are voicing concern about the level of contracting, worrying that it will lead to a surge in available vessel capacity in the coming 2-3 years, which will ultimately bring vessel utilization and day rates down again. We generally share these concerns and think the wave of newbuilding activity is too much too soon. Source: Clarksons The counterargument is of course that vessel demand is rather brisk, riding a positive trend of economic recovery post the 2008 financial crisis. This argument is not without its pitfalls, however, as evidenced by the growing concern about the Chinese economy the allimportant driver for global freight markets. There is also much emphasis on vessel scrapping potential, but while new regulations will certainly have a positive impact, one shouldn t forget that better earnings always reduces scrapping.

9 Fund Management Team Richard Jansen Patrick Kartevoll Head of Fund Management Fund Manager Shipping/Offshore Shipping/Offshroe Phone: Phone: E- richard.jansen@pareto.no patrick@pareto.no Dronning Mauds Gate 3, P.O. Box 1396 Vika, NO-0114 Oslo, Norway, Tlf: ,

10 Disclaimer This Quarterly Report has been prepared in order to provide information about Pareto World Wide Shipping AS ( PWWS or the Company ) and must not be considered an offer to trade in the shares of the Company. actual events to differ materially from any anticipated development. All investors must verify these assumptions themselves. The company cannot give any assurance as to the correctness of such information and statements. Information contained in this Quarterly Report is obtained by Pareto Project Finance AS ( Pareto Project Finance, Pareto, or PPF ). Information is presented to the best of our efforts and knowledge, but Pareto Project Finance AS cannot guarantee that the information is correct or all inclusive. Pareto Project Finance AS takes no responsibility for any loss caused by information given being misleading, wrongful or incomplete nor for any other loss suffered as a consequence of investments made in the Company. Historic returns and return forecasts do not constitute any guarantee for future returns. Returns may vary as a consequence of fluctuations in currency exchange rates. Investors should be aware that there is significant uncertainty related to valuations in the current volatile market. The valuation process is described in PPF s market report as per April Risks and costs are further described in the prospectus (information memorandum) produced in relation to share issues in the Company. This Quarterly Report includes and is based on, among other things, forward-looking information and statements. Such forward-looking information and statements are based on the current expectations, estimates and projection of the company or assumptions based on information available to the company and Pareto Project Finance AS. Such forwardlooking information and statements reflect current views with respect to future events and are subject to risks, uncertainties and assumptions that may cause The contents of this presentation are not to be construed as legal, business, investment or tax advice. Each recipient should consult with its legal-, business-, investment-, and tax advisors as to legal, business, investment and tax advice. Specifically, Pareto Project Finance AS has been engaged as the company s financial advisor and does not render and shall not be deemed to render any advice or recommendations as to a transaction.