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Deal of the Year – DP World and P&O Ports
No deal during 2006 generated more copy, more hot air or more political posturing than the DP World and P&O Ports transactions. We intend to continue the process by giving that deal from start to finish our Deal of the Year Award.
Not in fact because of all the hot air and political caterwauling, but because in its entirety it reflects value creation, strong management, investment banking skill, strategic investor confidence and perseverance. Taken as a whole this enormous deal broke new ground for which every participant and deserves recognition. Continue Reading
Dealmaker of the Year: Axel Eitzen
Since the day Camillo Eitzen (CECO) went public in Oslo in 2004 after its split from Tschudi & Eitzen, Axel Eitzen’s aspirations to be a consolidator were on the table. Raising just $40 million in its IPO, his multi-sector operator quickly began to use its shares as currency in the acquisitions of Naviera Quimica and a holding in Sigloo Gas. Not afraid to start small, Axel Eitzen has grown the company steadily over the past few years with a host of acquisitions as can be seen in Figure 1.
The company also did not strictly limit itself by sector, having listed with a bulk fleet Mr. Eitzen went on to acquire anything from gas and chemical tankers to an insurance broker. By 2006 he had built up a formidable operation and could afford to think bigger. In January he moved to acquire the remaining 50% of the Sigloo Gas KS for $100 million. Then he began to hone in on the chemical tanker segment, an important growth area in advance of the revisions to MARPOL Annex II and the IBC Code that would come into effect on January 1, 2007. Continue Reading
Editor’s Choice: Nakilat Brings Back Project Finance
In 1997, when the Government of Qatar established Qatar Gas Transport Corp. to coordinate all of the transportation requirements for Qatar Petroleum, it was clear that there was going to be a mother lode of financing and transactional activity associated with the project – about $68 billion’s worth between QP and its partners at ExxonMobil and ConocoPhillips as they sought to produce $15 billion per year in revenue by 2010 by developing a 77 MTA LNG supply chain. When QGTC then formed a 100% subsidiary called Nakilat to undertake the construction, ownership and operation of up to 27 state of the art newbuilding LNG vessels the deals were close at hand.
As the first step in this process, QG ordered a series of QMAX and QFLEX sized vessels to be built at Daewoo, Hyundai and Samsung and delivered between 2008 and 2010. Nakilat then entered into fixed priced, date certain shipbuilding contracts with these shipyards backed by refund guarantees provided by Korean Government supported banks KEXIM and KDB. Simultaneous with signing the construction contract, Nakilat entered into back-to-back 25- year timecharter contracts with the Qatargas LNG trains. Continue Reading
I can get it for you Wholesale – Award for Innovation
There is no limit to the creativity of people in this industry. From the time when bilaterals ruled to today’s emphasis on capital markets, there is seemingly an endless toolbox of financial structures to provide capital to the industry. It was therefore very difficult to choose a transaction that epitomized the concept of innovation or, by definition, a new idea, method or device. Nonetheless, our attention was drawn to Germany, which historically was able to deliver what appeared to be infinite amounts of equity to the KG system with or without tax benefits.
In the orderly world of Germany, competitive forces have wrought change in one of the most successful ship financing models extant. Pressed to compete effectively with the leasing companies or operating lessors such as Seaspan and Danaos, the KG market had to find a way to reduce the front-end sales costs that burdened their transactions. Even the low equity return requirement could not offset the impact of the higher capitalized cost on cash flow resulting in less attractive returns. To combat this problem, new asset classes, including reefers and OSVs, that were less price sensitive were considered. A focus on newbuildings helped by minimizing maintenance requirements in the early years. Utilizing unhedged yen financing for part of the debt also kept expenses down thereby allowing more cash to flow to investors. However, these were mere band-aids on the problem. The solution was to attract a new type of investor at a lower cost, hence the need for an innovative solution. Institutions were an obvious target, but there were barriers to their investment in this industry.
The Year of the Lease (Yes, Again)
In late 2005, we proclaimed that 2006 was going to be “The Year of the Lease” and, although it is not in our institutional character to be self-congratulatory, we will indulge ourselves a little and say two words – BINGO BABY!!!
Who would have thought vessel leasing would ever be so fascinating? But it is. What began in 2003 as a way for opportunistic shipowners to extract maximum valuation from yield-starved investors has ended up transforming leasing from an irrelevant conference topic into probably the most interesting method to isolate and price different layers of risk in the capital structure of a vessel. Continue Reading
Money, Money Everywhere – The Award for Private Equity
There was no shortage of great deals this year. The difficulty was in categorizing them and nowhere was that more apparent than in the private equity category. The classic private equity deal in shipping was the Carlyle acquisition of Horizon Lines. It clearly met the parameters of buying a non-public business, fixing it up and exiting profitably. However, private equity’s money is omnipresent while deals are few and far between. And, as we know, money moves to wherever the deals are. So, how do you, for example, treat Morgan Stanley’s strategic acquisition of Heidmar no less the Ontario Teacher’s Pension Plan’s purchase of OOIL’s US ports? With the blending of categories are these more M&A than PE? Is it PE because these are financial buyers rather than strategic buyers? And where does a long-term hold view versus flipping fit in? Contributing to this vagueness was a dearth of pure private deals as a consequence of strong shipping markets and even higher valuations. This was no time to buy-in on asset plays. There are no clear answers but more on this later.
The editors have taken the strictly conservative view and awarded the private equity award to Cantor Fitzgerald, CRT Capital Group and Oppenheimer for Paragon Shipping Inc. in what may have been the only time last year a private company issued equity in a private placement. More than just fitting expected parameters, it is a structural gem taking the best from a Chinese menu of alternative structures. Continue Reading
Follow-ons Find a Following
At the end of 2006, Clarkson identified 169 public shipowning companies with a combined market capitalization of $207 billion and a fleet of 7,288 ships. While this might be considered over-inclusive, the reality is that 22 of those were merchant shipping companies that went public in 2005 while another 17 went public during 2006. The combination of the growing number of existing public shipping companies and the growth in annual IPOs has led us to distinguish the awards given out for the act of going public initially from what companies use their publicly-listed status to accomplish in the equity markets once they arrive.
To do this we have introduced a new award for the best followon offering of the year. We have used the term follow-on offering as a catchall to include any offering of shares after a company’s initial public offering. This includes the sale of new shares to the public to raise funds as well as secondary offerings, where a selling shareholder registers to sell a large block of its securities. Private placements where new shares in an existing public company are placed in a private offering to institutional investors then subsequently listed on the appropriate exchange would also qualify for these purposes as follow-on offerings. Continue Reading
Market Commentary – 03/01/2007
Shanghai Market Sneezes and the World Says “Bless You”
As the images above demonstrate there was a day’s worth of panic in financial markets this week following the Shanghai correction. We don’t claim to be Chinese stock market experts but we know some who are. The following is a somewhat tongue in cheek, slightly cynical and slightly edited for polite publication response from an informed and opinionated expert we think most highly of…to our question: What went on in Shanghai? Predicted correction or start of a run?
“Are you the last person on the face of the earth to understand that you work for the Shanghai-ese? The stock investors in Shanghai are calling all the shots. When they sniffle, CT will get Avian Flu. They have a full ten years of investing in stock markets and until a year ago, not one person had a profit on investing in their stock market, but hey, after a run of being up 100% they truly understand everything. Continue Reading
Shipping IPOs Forge into New Territory
The volume of shipping equity raised from the public markets in 2006 represents a drop from the amount raised in 2005, but it could hardly have been any other way. What is amazing, really, is high how the volume remained, with nearly $5.8 billion of new public equity brought into shipping. Between vessel values and the overall size of the ship finance market remaining fairly stable and the cumulative effect of the public equity raised over the past few years in the bull market, the trend toward public ownership of the global merchant fleet is definitely growing.
Worth noting is that nearly half of all equity raised in 2006 was done so through non-initial offerings, whether through new share issues, sponsor sell-offs, or private placements for public entities. In other words over the past year growing public investment in shipping has been split between enlarging existing public companies, shrinking sponsor holdings, and taking new companies public. Continue Reading
The Official Guide To Marine Finance Providers
Shipping Index
