Waking Up With Private Equity

Private equity can be a tantalizingly beautiful concept to an aspiring ship owner. It promises the opportunity to use other people’s money to fund the entirety of a volatile deal. If the market goes the right way, the owner can retire rich and early. If it goes the wrong way, he can still make a lot of management fees before walking away, financially unscathed, knowing that a few year later, once memories have faded and young fund managers have changed jobs, he could likely return to the capital markets for another try.

The reality of the situation, of course, is much more complex, with fund managers demanding owner capital contributions as high as 25%, preferred 10% returns, and frequently restrictions on commissions, management fees, or related party transactions.

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Welcome to the Class of 2005

You stand on the cusp of greatness. In 2006 you will complete a full year as new public companies and stand ready to join the ranks of great shipping enterprises from around the world. You have watched and learned from those who have gone before. You will be expected to stand shoulder to shoulder with long-established companies, some of whose heritages date back to before your management was born. Yet the world will cut you no slack in their relentless search for value and returns.

At Marine Money we stand by slightly choked with pride at your accomplishments to date, confident that you will not whither under the intense scrutiny of critics and analysts. Beware we say to those who might criticize, for youth will have its day.

It’s graduation season the world over. A time when young minds will step out into the real world or kindergarten or high school or college and begin their own next journeys of development. Each new IPO or capital market transaction feels a bit
like one of our own and we have the belly to prove it, but the simple fact is that the class of 2005 does represent the birth
of a new generation, as it were, ready to use all the tools to compete in a truly global industry where every $1,000 is significant and demand and regulations flatten the competitive arena.

The list of 18 new listings dating from 2005, which we could not include in this years universe of the Ranked because they did not have a full year of financial results with which we could do fair comparisons are in essence blank slates. Their stories are yet to be written. Who will be the next Teekay? Who will be the next Nortankers (heaven forbid!)? Continue Reading

A Look Behind the Metrics

We made the decision this year to focus the Rankings on a core universe of commodity and offshore shipping. We dropped the offshore rig and construction companies and the occasional shipyard so that we could better have an apples to apples universe. Particularly in light of the astronomic rise in oil prices, we felt that the inclusion of companies whose revenues are based on such non-shipping factors would have the effect of obscuring the overall data. In addition to this, we have lost some companies to merger and acquisition activity (P&O, CP Ships and Seabulk) and added the IPO class of 2004. All told the universe now comprises 66 companies, down from 74 last year but growing very rapidly. Continue Reading

Getting Granular with Individual Rankings

By Matt McCleery

Behind each of the hundreds of thousands of numbers that appear in this book, there is a story. Of course, the machinations of the elusive “market” play a major factor in the standings, but the formulae is much more complex than that.

In these pages, in these numbers, is the story of ships – designed, ordered, built, launched, traded, bought, operated and sold. There is the story of money – the $100 billion of public and private equity and debt financing conceived, structured, marketed and closed.

But more than steel or money, the numbers that appear in this number-intensive book tell the story of people; of men and women spending their lives at sea, of management and Boards of Directors designing and implementing commercial, operational and financial strategies with the aim of increasing shareholder value. Sometimes these strategies work, sometimes they don’t – and often a strong or weak market comes along to make some people look smart and others less so. Continue Reading

Through the Looking Glass

Consistent all-around performance is what defines a winner in a decathlon. In this instance, it enabled Grindrod to repeat as the number one company in the rankings. Here is what they did right.

Grindrod: Managing Growth

Of the six metrics measured as part of our overall performance algorithm, Grindrod placed in the top seven in five categories. It’s only failing was in profit margin, where it placed near the bottom. This is easily explained, however, by the company’s low margin bulk trading activity, which grew substantially in 2005, and the fact that a substantial portion of their fleet is chartered-in where the spreads tend to be less, particularly as the market declines. Their efficient use of assets as measured by the turnover ratio of 1.50 times led to their 24% ROA. Even with a conservative 44% debt to capitalization and the low profit margin, the company’s ROE was an astounding 62%. Continue Reading

Time to Celebrate Results

We had household names, companies involved in megamergers, giant liners, branded cruise lines, and diversified conglomerates all striving to achieve the best possible returns for their shareholders and themselves.

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Dealmaker of the Year: Morten Arntzen

“So what’s going on these days?” your humble correspondent asks Morten Arntzen as we sit down for lunch a few weeks ago at his favorite local place, Hatsuhana, tucked into an alcove on Park Avenue.The restaurant is almost precisely equidistant from OSG’s new and former locations, the 200 Park Avenue base of AMA Capital Partners and Morten’s old office at Chase Manhattan Bank, and I wonder briefly if he has perhaps directed the better part of his professional life in order to remain close to his favorite raw fish restaurant.

The thought is broken when Morten raises his index finger as the waitress approaches, politely telling me to hold the thought while he orders, and then rattles off a sushi selection with the same confidence with which he buys and sells companies and ships.

“I am incredibly excited,” he says to your correspondent as he sips green tea. “Big deal?” I asked eagerly. “No, it’s a full moon tonight and I’m going to go cross country skiing on the golf course with my son. It will be like Norway.” “Sounds great.” “And besides, under Reg FD I couldn’t tell you anything anyway about a deal.” Continue Reading

Contribution to Ship Finance: Minding the Window – Even When it’s Closed

“But why do you stay open in the winter if you can’t make any money?” I remember innocently asking my father as we watched the ice move across Stony Creek Harbor in Eastern Connecticut one February day.During the summer months, there was a line of boats waiting for gas and a line of customers waiting for just about anything; the only line I remember that day was the one that my father spoke a few seconds later. “Because people need us in the winter.”

That he uttered the words as a pair of local contractors threw a few coins into a metal tackle box in exchange for a cup of coffee, lifting the day’s revenue to about $5, made it all the more memorable.

I’m not sure if the fact that my father used to run a marina makes me a second-generation shipowner, but it certainly was good training for a career in shipping and the capital markets. Continue Reading

Editor’s Choice:DnB NOR and Enskilda for Aker American Shipping ASA

To the contrary, the Aker American Shipping ASA (AKAS) deal is an example of how bankers and companies can work together to use their skills, contacts and creativity to solve a jigsaw puzzle. The deal is also an excellent example of how the sometimes chunky fees that bankers earn somehow pale in comparison to the value they create – value measured not just in dollars, but in employment, patriotism and support of wounded industry. Continue Reading

A Remarkable Triple Play in the Leasing Market

“Leasing doesn’t make any sense for the shipping industry.” At least that’s what one banker told me when I started working for Marine Money ten years ago.He also said that shipowners will never do deals where they are restricted from selling the asset at an opportune time in the cycle because, “they lose all the optionality – and that’s where the juice is.” Moreover, although there are some exceptions, “most shipowners operate in tax neutral offshore jurisdictions so there isn’t much appeal to depreciation benefits.”

Although my banker friend’s observation was historically accurate, in the last few years the market for vessel leasing has been on the rise around the world. As we look over our data in the waning days of 2005, there appear to be several reasons for the increase in leasing activity. Following are some of the trends we saw in the ship leasing business last year:

1. Since the freight market began its dizzying climb in late 2002, asset prices have risen to never before seen levels, and the most significant factor driving the increase in vessel leasing is that it is a structure that offers 100% financing. Although the cash flows were often there to justify the high prices, the reality is that asset prices have been so high that owners have used leasing as a way to raise equity or unlock the equity embedded in highly valued assets that they still wish to control – at least for the term of the lease. Moreover, as the tanker industry consolidates and becomes more corporate, the way the liner industry did years ago, companies are now more willing to commit to assets for a longer period of time. Continue Reading