Clarification

Last week, we had the privilege to discuss with KAMCO about its shipping funds and here is an update for our readers.

To recap quickly, the KAMCO fund structure resembles the Korean Ship Investment Company scheme that is incidentally modeled after Germany’s KG fund and Norway’s KS fund. Firstly, a ship investment company (“SIC”) is established with equity financing from KAMCO funds, pension funds, insurance companies, investment companies and individuals looking for tax benefits. Depending on each shipping fund, KAMCO’s own restructuring fund along with other investors (if any) will provide 40% junior loans to the SIC set up to own the vessel. Financial investors including Hana Bank and Korea Exchange Bank will provide senior loans of up to 20% of the ship’s market value to the SPC.

With the funds from the SIC and financial investors, the SPC will next execute a sale and bareboat charterback with the shipping company, in most cases BBCHP (Bareboat Charter Hire Purchase) for a minimum of 5 years. The BBCHP model allows rates to be set so that owners can continue to operate ships reasonably in the current environment. Typically, only interest payments are to be made over the life of the loans with a balloon payment at the end. The investors will be exposed to minimal residual and equity risks under the BBCHP structure as the shipping company will be obligated to purchase the vessel at the end of the charter. KAMCO can accommodate bareboat charters in the structure as well, depending on the preference of the shipping company.

This is only an excerpt of Clarification

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