Tanker Sale & Purchase (S&P) Update

In an effort to be more efficient and focused, from now we will report on this blog only pertinent transactions per market segment and asset class for s&p (sale & purchase market) that have occurred in the last couple of weeks. Transactions and transaction details in shipping are never as transparent and clear-cut as many an analyst or an appraiser may wish to think; having the benefit of time-lapse and fact-checking, we believe that reporting more accurately sales vs reporting them prompter is of greater service to our readership. Also, our reporting will be more structured by market segment and asset class going forward. Transactions will be purely reported herewith; commentary on market conditions and trends, discussion on transactions and developments and their significance will be posted at our sistership blog, Shipping Finance by Karatzas Marine.

Please feel free to subscribe!

As always, shipbrokerage and shipping finance advisory is provide by our sponsor company, Karatzas Marine Advisors & Co.


Despite the softening of tanker freight rates in the last two weeks, one has to be humbly impressed by the performance of the tanker sector over the last twelve months, and accept that volatility in the shipping industry is hard to accurately model: VLCC spot rates (the group most volatile but with the easiest-models-to-build of the tanker market) have moved from $33,000 pd this time last year to above the $60,000 pd mark on several occasions in January, March and May this year, flirted teasingly with the $90,000 pd mark three weeks ago, and now have come full circle to appr. $34,000 pd. It has been a great market of sorts, definitely in comparative terms to dry bulk and containership markets, but still, some people have been worrying whether the structural recovery of the sector is still intact: the demolition pace has slowed down, newbuilding activity has increased, but still the time lapse of the deliveries (about a two-year-delay) does not seem to provide much comfort or confidence: tanker stock prices have not outperformed the broad market, to put it liberally, and most of the tanker stocks trade barely at or below NAV at the very best (the implied valuation of their tankers-on-the-water), while tanker IPO hopefuls waiting in the wings, and waiting… and tanker vessel prices really have not justified the buy-low-sell-high asset play strategy of many a shipowner.

The sale and purchase market has quieted down in the last two weeks, partially due to peak vacation season and also due to the chilling effect of a deflating tanker freight market. Besides the rather un-inspiring prices achieved, several of the sales have been controlled by financial investors, including private equity funds. The involvement of private equity funds with shipping has drawn much attention and we have written on the topic in the past; however, seeing York Capital, Wayzata Investments and Apollo, among others, selling vessels – and not shares at IPOs as per original game plan, and sales of vessels in a ‘hot’ market and at prices that do not seem to come remotely close to highly advertised double-digit expected returns of the private equity…but again, barely a week passes with funds folding due to poor performance because of commodities, currencies, emerging markets…at least, shipping has not sunk a fund yet, at least formally.

In the VLCC market, Tufton Oceanic has disposed of MT ‘Sasa’ (300,000 dwt, Hitachi Zosen, 2001) at $40.5 mil to Russian buyers, while Windsor Petroleum has sold to US-based Ridgebury Tankers four sistership vessels at a value-oriented price of $150 mil for the package: MT ‘British Purpose’, MT ‘Progress’, MT ‘Pride’ and MT ‘Pioneer’ (all ca. 305,000 dwt, Samsung Heavy Industries, 2000/2000/2000/1999).

MT PRINCIMAR AMERICAS 10

House-flag in the news… Karatzas Photographie Maritime

The Suezmax market has been more active in the last month, reflecting a more fragmented market but also a stronger freight market. The transaction that stood out was the sale of the Veritable fleet by Principal Maritime, which had been sponsored and funded by Apollo; one set of six sisterships built at Samsung Heavy Industries MT ‘Princimar Courage’, MT ‘Princimar Pride’, MT ‘Princimar Integrity’, MT ‘Princimar Grace’, MT ‘Princimar Hope’ and MT ‘Princimar Promise’ (158,000 dwt, Samsung H.I., 2013 / 2012 / 2012 / 2011 / 2011 / 2011, respectively), one set of two-chinese sisterships built in 2010, MT ‘Princimar Joy’ and MT ‘Princimar Strength’ (156,000, Rongsheng, 2010), one set of Japanese built sisterships MT ‘Princimar Confidence’ and MT ‘Princimar Loyalty’ (150,000 dwt, Universal, 2006) and two one-off Korean vessels, MT ‘Princimar Truth’ (160,000 dwt, Hyundai Samho, 2007) and MT ‘Princimar Faith’ (160,000, Daewoo (DSME), 2005) at $662 mil, with payment mostly in cash but also $50 mil in stock. There are several angles to see this transaction since it is estimated that the sellers realized more than $100 mil loss from the sale (estimated cost basis of ca. $770 mil), and also that the sale price was NOT the highest in this auction-like sale transaction. The company has attempted for an IPO late last year but there was not sufficient demand / pricing to proceed then, but it’s to be debated whether demand would had been enough for an IPO now in an allegedly much stronger market, at least as much as freight is concerned. Russian tanker company Sovcomflot has sold their 2003-built Suezmax tanker MT ‘SCF Valdai’ (159,000 dwt, Hyundai Heavy, 2003) to Greek buyers at $35.5 mil. Vintage Suezmax tanker MT ‘Front Glory’ (149,500 dwt, Mitsui Shipbuilding, 1995) was sold by the Fredrisken Group to Far East buyers at $16 mil, almost twice her present scrap value (21,733 ldt). Similarly aged Suezmax tankers (with shuttle-tanker conversion) MT ‘Mattea’ (127,000 dwt, Samsung Heavy, 1997) was sold at $11 mil to undisclosed buyers, rumored Greeks, and MT ‘Kometik’ (126,500 dwt, Samsung Heavy, 1997) was sold at $8 mil to Andromeda Shipping in Monaco. Sisterships MT ‘Cape Bata’ and MT ‘Cape Bowen’ (160,000 dwt, Samsung Heavy, 2003) were sold by KG-funds in Germany to Tufton Oceanic in the UK at appr. $33 mil, each.

MT CAPE BRASILIA 4

A calm tanker market… Karatzas Photographie Maritime.

The aframax tanker market has been rather subdued with the exception of a financial transaction for eight coated LR2 tankers by Navig8 to Chinese buyers at $300 mil; given that there is bareboat back for ten years to sellers / Navig8 little can be said for the below-market ‘sale price’ which can be attributed to the Chinese pedigree of the vessels or Navig8’s persisting rumors abut being able to fund their capex gap for their newbuilding program; vessels were: N/B CSSC Offshore Marine Guangzhou H-057 to H-061 and Hulls H-067 and H-068 (112,000 dwt, CSSC Offshore Marine Guangzhou, 2016/2017); vessels names are MT ‘Navig Gallantry’, MT ‘Navig8 Gauntlet’, MT ’Navig8 Goal’, MT ‘Navig8 Grace’, MT ‘Navig8 Gratitude’, MT ‘Navig8 Guard’, MT ‘Navig8 Guide’ and MT ‘Navig8 Gladiator’. Buyers / lessors are affiliated with the shipbuilding group.

In the MR2 tanker market, a couple of interesting transaction with sellers based in the landlocked Upper Midwest in the USA: Wayzata Investment Partners have sold two product tankers MT ‘Halstead Bay’ (51,000 dwt, SLS Shipbuilding, 2007) at $23 million and MT ‘Maxwell Bay’ (51,000, Guangzhou SY Intl, 2013) at $30 mil, to Torm in Denmark. CarVal Investors have sold sisterships MT ‘Harbour Star’ and MT ‘Super Star’ (51,000 dwt, STX SB (Jinhae), 2008) to Target Marine in Greece at $24.5 mil, each. Tankerska Next Generation has sold two 2015 resales at SPP at $38.5 mil, each to Cardiff Marine in Greece (SPP Hull 079/080, SPP, 2015). York Capital in the US has sold their interest in Hyundai Mipo Hull 2473 (51,000 dwt, HMD, 2015) at $37.5 mil to Scorpio Tankers. Finally, Eletson Corporation of Greece has sold vintage tankers MT ‘Kandilousa’ and MT ‘Serifos’ (46,700 dwt, HHI, 1995) at $8.5 mil.

Overall, the market has not been as busy as it seems with most of the transactions being of ‘corporate’ matters instead of the traditional s&p (sale & purchase). Whether there is no strong conviction from operating buyers to step up on buying or lack of capital constrain their buying appetite, financial players seem to be getting ever more obvious; not as much as with buying, but selling is welcome news as well.


 

© 2013-2015 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

 

Dry Bulk Sale & Purchase (S&P) Update

In an effort to be more efficient and focused, from now we will report on this blog only pertinent transactions per market segment and asset class for s&p (sale & purchase market) that have occurred in the last couple of weeks. Transactions and transaction details in shipping are never as transparent and clear-cut as many an analyst or an appraiser may wish to think; having the benefit of time-lapse and fact-checking, we believe that reporting more accurately sales vs reporting them prompter is of greater service to our readership. Also, our reporting will be more structured by market segment and asset class going forward. Transactions will be purely reported herewith; commentary on market conditions and trends, discussion on transactions and developments and their significance will be posted at our sistership blog, Shipping Finance by Karatzas Marine. Please feel free to subscribe!

As always, shipbrokerage and shipping finance advisory is provide by our sponsor company, Karatzas Marine Advisors & Co.

Despite the summer seasonality in the sale & purchase market, the market overall has been active; in the dry bulk market, there is no humongous volume of vessel sales, but the freight market has been improving ever so slowly since late spring, and many buyers (or at least interested parties) are trying to call the bottom of the market. There is increased buying interest and activity in terms of inquiries and vessel inspections – which does not always translate to transactions; interest nevertheless remains respectable. There have been concerns that some ‘hot’ buyers are outbidding the competition by a few hundred thousand dollars, but overall the market remains very disciplined. There is strong focus on modern and high quality tonnage, and always within certain price discipline; older- or lower- quality tonnage keeps receiving high opportunistic and sporadic attention only.

MV WASABORG 10

May the seas always be calm… (Image credit: Karatzas Photographie Maritime)

In the capesize market, MV ‘Churchill Bulker’ (179,000 dwt, Hyundai Heavy, 2011) was reported sold by Denmark’s Lauritzen Bulkers to Greece’s Marmaras Navigation at region $34 million. A week or so earlier, sistership MV ‘Corona Bulker’ (179,000 dwt, Hyundai Heavy, 2011) was reported sold at same terms from same sellers to same buyers. Lauritzen Bulkers had mentioned in the last year that they would be looking to divesting of their dry bulk assets, and thus they are carrying through with these transactions; on the other hand, Marmaras Navigation had mostly been pre-occupied with their tanker fleet, but since earlier this year they have been buying into the dry bulk downcycle. They have a very good name for timing correctly the market in the past, thus it will be interesting to see whether the recent build-up of their dry bulk fleet would add onto their reputation. Similarly-aged capesize vessel MV ‘Houheng 2’ (179,000 dwt, HHIC-Phil at Subic SY/Philippines, 2011) has been sold at less than $31 mil from her Chinese owners (Henghou Industries (H.K.) Ltd.) to undisclosed European owners; the marked down on pricing is clear compared to the Lauritzen sales, as buyers are extremely preferential for quality tonnage; it’s further understood that despite her age, MV ‘Houheng 2’ had to undergo extensive engine repairs last year, confirming buyers pre-occupation with tonnage with unblemished pedigree. Also similarly aged capesize vessel MV ‘Blue Cho Oyu’ (180,000 dwt, Daehan, 2011) was sold by S. Korean interests to Mano Maritime Ltd. (Israel) at $33.5 million, a strong pricing given the vessel’s pedigree. Resale newbuilding MV ‘Glory Max’ (Hull No Shanghai Waigaoqiao 1335, 180,000 dwt at Shanghai Waigaoqiao with 2016 delivery) was sold by Gleamray Maritime to clients of Coberfelt in Belgium at $44 million. Older sistership capesize tonnage MV ‘Raiju’ and MV ‘Kohju’ (173,000 dwt, NKK SB, 2000/2001, respectively) were sold from the Mitui keiretsu to clients of SwissMarine and Winning Shipping, respectively, at appr. $9.7 million, each; prices achieved represent a precipitous drop from sale prices achieved just nine months ago, and it will be interesting to see how these two last transactions will play out for the buyers, given that pricing are just a premium to scrap but vessels have at least seven more years remaining economic life each.

In the panamax asset class, the post-panamax bulker MV ‘Umberto d’Amato’ (93,000 dwt, Jiangsu Newyangzi/China, 2011) was sold to German interests at just below $15 million. Sistership vessels MV ‘WelHero’ and MV ‘WelSuccess’ (93,500 dwt, Jiangsu, 2010) were sold en bloc by South Far Ocean Group Ltd. to European interests at $28 mil collectively.

Modern panamax bulker tonnage has seen increased buying interest with a series of transactions to report: MV ‘Asita Sun’ (82,000 dwt, Daewoo (DSME), 2012) at $20 mil to Greek buyers (Golden Union or Chandris) via bank sale; MV ‘Orion Pride’ (81,500 dwt, Hyundai Samho, 2011) at $19.7 million by Golden Bridge in S. Korea to undisclosed buyers (reported Golden Union in Greece); Golden Union has also been reported to be the buyer of a similar unit, MV ‘Bergen Trader’ (81,500 dwt, Sundong, 2011) by Nisshin Shpg.Co.Ltd. at appr. $19 mil; MV ‘Rainbow Ace’ (81,500 dwt, Guangzhou, 2012) at $16 million to Norwegian interests (Golden Ocean).

There have been sufficient sales of ‘traditionally’ size panamax dry bulk vessels as well: MV ‘Luyang Rising’ (76,500 dwt, Yangfan, 2012) was sold to German buyers at a relatively soft price of $15.5 mil (but with intermediate survey promptly due). MV ‘Rondeau’ (77,000 dwt, Namura, 2006) was sold to Omicron Ship Management in Greece at $13.8 million. MV ‘Kanishka’ (76,000 dwt, Tsuneishi, 2005) was sold at auction in S. Korea at a low price of $11.5 mil to Greek buyers (Sun Enterprises); the vessel has been at lay-up for some time now, and buyers will have to spend some money to bring the vessel back to a trading condition, which reflects the softness in pricing. By comparison, similar vessel MV ‘Grace Future’ (75,500 dwt, Universal, 2006) was sold to Greek buyers (A.M. Nomikos) at a very respectable $13.3 mil. Moving on to older tonnage, MV ‘Mahitis’ (75,000 dwt, Hyundai, 2001) was sold to Korean buyers (KLC) at a reported price of $8 mil., while 1998-built in Japan MV ‘Star Natalie’ (76,000 dwt, Sumitomo, 1998) achieved scrap-related pricing at ca. $4.2 mil.

MV HARLEQUIN 10

A flower-y market? (Image credit: Karatzas Photographie Maritime)

On to the ultramax / supramax asset class, an interesting sale for M/V ‘Yangzhou Dayang DY216’ (63,500 dwt, Dayang/China, 2015) by Crown Ship Ltd. at ca. $22.5 mil to an institutional investor in the U.S. (Raven Capital); after many funds were burned, there have been no sales to institutional buyers in a long while, thus the transaction stands out; it also stands out for the institutional investors’ preference buying ‘cheap ships cheap’, which it has not been of great investment success strategy, at least so far. MV ‘KT Condor’ (58,5000 dwt, Tsuneishi Zhoushan, 2011) was sold by Kambara Kisen at ca. $14.5 mil to Greek buyers (Kondinave). Similarly aged MV ‘Daxia (57,000 dwt, 2011) was sold at auction in Malta at $11.5 mil (understand that the vessel has been at lay-up for several months now, thus, besides the auction discount, there is also the costs associated with bringing the vessel back to trading condition.) Marmaras Navigation has also been active in the supramax market with the acquisition of two sisterships MV ‘Hanjin Albany’ and MV ‘Hanjin Rostock’ (55,700 dwt, Hyundai-Vinashin/Vietnam, 2011) at a lowly $13 mil each. MV ‘Nord Reliable’ (58,500 dwt, Tsuneishi Cebu, 2008) by P&F Marine achieved $13.8 mil to clients of Sea Globe.

For older tonnage in the sector, MV ‘Medi Osaka’ (53,000 dwt, Oshima, 2003) was sold by Nisshin Shpg.Co.Ltd. at $7.8 mil., while the also Japanese-built supramax MV ‘Olympias’ (53,000 dwt, Onomichi, 2001) was sold at a bank-driven-transaction at $7.2 mil. by Petrofin to other Greek buyers. Similarly, MV ‘Speedwell’ (50,500 dwt, Kawasaki, 2003) was sold by Misuga Kaiun Co. Ltd to Greek buyers (DND) at ca. $7.8 mil.

The transactions reported above have taken place within the month of July, and it seems to be a rather decent volume of business. However, one has to take into consideration that July has been the best month the dry bulk freight market has seen in a while, thus there had been some pent-up interest; also, although there has been certain price improvement since out last report, there is little real news to send home. Besides, several of the transactions mentioned above were for vessels at lay-up, and/or at auction, and/or driven by banks, and several of the Japanese sales were for reasons beyond market considerations, thus not a great deal of ‘voluntary’ trading volume.

As a matter of hopeful thinking, the graph herebelow depicts the Baltic indices since the market bottomed in early spring. Just think positive, enjoy the hopeful chart, and do not let sinister thoughts disturb skin-dipping in your favorite waters in the summer!

Baltic Indices since FEB2015

Baltic Indices since February 2015.


© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

Crude Oil Tanker Sale & Purchase (S&P) Update

Tankers: Think Counter-cyclically!

The tanker market has been positively surprising shipowners and investors so far this year, and 2015 is turning out to be the best year for this segment of shipping in a long while;, since 2008, to be accurate. It’s hard to fathom that just this time last year, VLCCs and Suezmaxes were barely touching $25,000 pd in the spot market, while nowadays these very types of vessels almost reach thricely the levels of last year.

Strong freight rates are always welcoming news, no doubt. On the other hand, an investor has to look forward and trying to decipher present trends that would matter in the future. One of the noticeable things of the present tanker market is that while freight rates are strong, asset prices have not improved correspondingly. Typically when freight rates are very strong, asset prices, with a short lag, typically follow the market higher: everybody wants to buy in a hot market, and the lucky owners for ‘hot’ tonnage are looking for a premium to part company with their vessels. However, in the present market, asset prices – at least for certain segments of the market – have not improved. Is this an omen of changing trends in the market, a new paradigm, or indicative of a market where ‘hotness’ has not been given proper consideration, for the right or wrong reasons.

MT ORWELL 2

Owned by a private equity fund, tanker MT ‘Orwell’ Image Credit: Karatzas Photographie Maritime.

In a previous article we mentioned the volatility smile, where ‘middle aged’ tonnage seems to be completely out of favor, and thus comparatively undervalued. And we can ignore the market of 15+ year-old tankers, as this is a market with its own dynamics. However, modern tonnage, allegedly the sexiest tonnage of all, has not behaving too strongly either. Typically, Wall Street analysts love modern tonnage given that vessel daily opex is lower for modern vessels and visibility of earnings are a tad better, and thus the positive bias from financial buyers for modern tonnage; on the other hand, cash-rich buyers of vessels with access to terminals and end users only pay lip service and show incrementally little interest for modern tonnage at full price – they would rather buy into a value proposition rather into sexiness. Accordingly, a great deal of sale and purchase transactions have been concentrated at the opposing ends of the spectrum leaving for a gap in the middle.

The VLCC market has been fairly active with Euronav (ticker: $EURN) acquiring four VLCC resales from Greece’s Metrostar at $98 mil each with options for additional tonnage (N/B Hyundai HI (Gunsan) Hull Nos 2725, 2726, 2727, 2728, 300,000 dwt and deliveries 2015 and 2016). Tsakos Energy Navigation also acquired two resales from US-based private equity fund two VLCCs (300,000 dwt, Hyundai Samho Hull Nos S779 and S780 with 2016 delivery) at $97 mil each. Shinyo International after a long respise has been active again in their favorite sector with the acquisition of three modern VLCC tankers MT ‘New Founder’, MT ‘New Medal’ and MT ‘New Coral’ (297,500 dwt, Shanghai Jiangnan Changxing Sb/China, 2008/2009/2010, respectively) at $245 million. Greek reference account Thenamaris has acquired MT ‘DS Vidonia’ (306,000 dwt, Daewoo, 2006) from DS Shipping at $57.5 million. Ridgebury Tankers based in the USA have acquired four older VLCCs MT ‘Pioneer’, MT ‘Progress’, MT ‘Pride’ and MT ‘British Purpose’ from Windsor Petroleum (1999/2000/2000/2000, 306,000 dwt, Samsung Heavy) at $150 mil, which amount was from equity freshly sourced from the buyers. While the age of the tonnage may rise eyebrows for financial buyers, it’s worth noting that Ridgebury were already the managers of the vessels and the sale of the vessels via the control of the bondholders after Windsor Petroleum went out of business.

In the Suezmax tanker market, AMPTC has reported sold MT ‘Zallaq’ (153,000 dwt, Hyundai Heavy I., 2001) at $23 mil to clients of Avin in Greece; it is understood that the vessel is due drydocking in the second half of this year, which partially explains the softer-than-expected pricing. It is reported that US-based private equity fund CarVal Investors has sold Resale Hull No N/B New Times SB Jingjiang 0315819 (155,000 dwt, New Times, 2016) to clients of Dynacom Tankers in Greece at $59 million; it seems that the sellers have ordered this vessel, alone, in January this year at $65 mil, and less than six months later have sold at almost 10% loss; a change of heart, unless the ordering of a Suezmax tanker was their ‘option’ to enter into this market segment. On older tonnage, Vista Shipping has sold their Suezmax tanker MT ‘Pride’ (150,000 dwt, Mitsui Shipbuilding, 1993) at a scrap related pricing of $12.5 mil.

The aframax tanker market seems to be the market segment in the crude tanker market which has least benefited from the present surge in freight rates, and it has shown the least market activity, comparatively speaking. China seems to be replacing the US as the major, solid buyer of crude oil in the international markets since the emergence of shale oil, and transporting oil to China in Aframax tankers is not as cost efficient as using larger tankers. In the middle of June, Blue Lines Shipping has sold the oddly-sized Aframax tanker MT ‘BLS Advance’ (85,000 dwt, Sasebo, 2002) at appr. $20 mil to clients of Greece-based Avin International. Similarly aged MT ‘Kuban’ (106,000 dwt, NKK Corp, 2002) was sold by Novorossiysk Shpg. to Soechi Lines in Indonesia at just excess of $17 mil. It’s worth noting that Soechi Lines bought a similar vessel in many respects (size, shipbuilder pedigree, etc) MT ‘Hellespont Tatina’ (105,000 dwt, Sumitomo S.B., 1999) in September 2003 at below $10 mil, and less than two years later, asset pricing in the segment has proven many a buyer right. The still Japanese-built aframax tanker MT ‘Texas Star’ (115,000 dwt, Sanoyas, 2003) was sold by Atlas Maritime in Greece to Yinson Holdings in Malaysia at $28 mil; it had been reported at the time that this tanker then named MT ‘Herm’ was bought by Atlas Maritime in November 2012 at just excess $18 mil, representing a nice asset play transaction for the company.

MT PRINCIMAR AMERICAS 12

Tanker ‘Princimar Americas’, evocatively named, downstream the Houston Ship Channel. Image credit: Karatzas Photographie Maritime.

The tanker market had been weak for quite a few number of years, with many shipowners trading spot in the sector having reached the limits of their tolerance. Now that the market has turned around, there is renewed interest in the sector; some of such activity was to be anticipated as pent-up ‘demand’. However, while still the interest is mostly centered around modern tonnage and M&A activity, a perfunctory review of the transactions mentioned in this report clearly points for the sectors with greatest potential: ‘sexiest’ segment of the moment doesn’t make most profitable trade.

Probably, ‘think counter-cyclically’ is a good starting point when pondering shipping!


© 2013-2015 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

 

Dry Bulk Sale & Purchase (S&P) Update

The Baltic Dry Index (BDI) established a 30yr low point in February this year; actually the lowest reading of the index ever. Since then, the market has been bouncing along the bottom with a very anemic improvement to show since then. There are concerns that the industry has entered a long-term phase of malaise with chronic oversupply of tonnage; certain trends point to such direction such as massive orders by cargo interests and end users building up their own fleets (i.e. Cosco, Vale, etc) that will make life for independent dry bulk owners difficult, or at the very least ‘shave the market peaks’. China is done for now with their exponential growth of their market as they try to position their economy towards services and focus on a more equal distribution of wealth that can assure social peace. There also have been structural shifts in the markets associated with shipping, such as replacement of coal with natural gas for electricity and power generation; at present the trend against coal is so bad that it seems coal is becoming a ‘four letter word’ as investors, institutions and sovereign funds are competing for the fastest exit from the industry; for sure, natural gas will need also shipping but not on dry bulk vessels; and the coal trade as almost as big as iron ore at almost 1.2 bln tonnes of coal expected to be transported this year vs. 1.5 bln tonnes of iron ore, based on data by Karatzas Marine Advisors & Co.

2015 06JUN_BDI Graph

Baltic Dry Index: not a day at the beach, regrettably! (Karatzas Marine Advisors & Co.)

Most institutional investors and shipping banks have turned their backs on the dry bulk market, at least for now; thus, there is extremely limited liquidity, which further compounds the downward pressure on dry bulk asset pricing that are inflicted by the weak freight market. The main sources of financing for dry bulk projects today are from the capital markets (selectively available and often at a substantial discount; $SALT’s secondary offering at 30% discount is a clear example of a fallen angel) or with sweat equity and own equity. Independent shipowners and sweat equity have their own capital limitations and likely to opt for older tonnage at rock-bottom pricing, mostly looking for vessels older than 15yrs of age at about scrap pricing; if one has access to cargo or charterers or niche markets, buying a vintage bulker at scrap is not a bad investment proposition: for a few million dollars (small amounts in absolute terms that can be afforded by individual investors) and with minimal capital at risk (premium over scrap), if a buyer can squeeze a few year’s of economic life out of cigarette-butt (think of Benn Graham and Warren Buffett), what can go wrong? And, if the market unexpectedly recovers, these buyers will have hit the jackpot. The access to capital accurately reflects the market dynamics and asset pricing, as big, cash-rich, prime buyers go for beaten-down prices of modern, top quality tonnage, while small, cash-rich owners with access to cargo go for bottom-fishing; thus, there is relative demand from buyers on the opposing ends of the spectrum while demand is sagging for middle-aged vessels; for those involved with volatility analysis and option trading, what’s happening in the dry bulk market reminds of a so-called ‘volatility smile’.

Activity in the dry bulk market is ebbing and flowing, but mostly ebbing as most buyers are taking their sweet time before make any decisions, to buy at all, and if so, at what price. Since asset prices are low and most of the market really is focused on older and cheap tonnage, sale & purchase commissions often are laughable, putting pressure on many smaller brokerage houses.

In the capesize market, Scorpio Bulkers (ticker: SALT) has been continuing their selective divestment of assets in an effort to fill the funding gap for their massive newbuilding program (along with their discounted pricing of secondary offerings as announced earlier this week for 133,000,000 shares of common stock at $1.50 per share; the stock was trading well above $2.20/share at the time of the announcement). In early April, Scorpio has sold three units of capesize bulkers at $44 mil each (2015/2016 deliveries of 180,000 dwt tonnage at Daewoo-Mangalia, MV ‘SBI Churchill’, MV ‘SBI Perfecto’ and MV ‘SBI Presidente’) while this week it has been reported that additional sales took place at $41 mil each, indicating an 8% drop in asset pricing in approximately two months (MV ‘SBI Corona’, MV ‘SBI Estupendo’ and MV ‘SBI Diadema’, 180,000 dwt, 2016, Shanghai Waigaoqiao/China). Approximately one month ago, the still modern cape MV ‘Blue Everest’ (180,000 dwt, 2010, Daehan) was sold at $27 mil, and the older MV ‘Jiang Jun Shan’ (177,000 dwt, 2006, Namura) was sold at $18.2 million. Most market reports have a standardized 5yr-old cape at $30 mil ($29.2 mil as per the Baltic Exchange Sale & Purchase Assessment Index (BSPA)), while just one year ago, such number was pushing the $50 mil mark ($49.08 mil as per BSPA); this is a monumental illustration is value destruction, where $20 mil per vessel has evaporated into thin air, a 40% drop. Few people could have envisioned such a market decline (at least not us, we have to confess), but for professional asset managers, institutional investors, portfolio managers, private equity funds and shipowners on roadshows pounding the table about the market getting this so wrong is a humbling example to watch and wonder.

In the panamax market, MV ‘Navios Esperanza’ (75,000 dwt, Universal S.B., 2007) was sold to $14 mil with her intermediate survey due. Interestingly, MV ‘F.D. Jacques Fraubart’ (76,500 dwt, Imabari S.B. Marugame, 2007) was sold less than six months ago at $19 mil, indicating the magnitude of the asset declines in this sector; presuming appr. $1 mil for the cost of the intermediate survey, this sale represents more than 25% decline in less than six months. The sale of the MV ‘Navios Esperanza’ however is in line with present market given than two weeks ago MV ‘Lowlands Queen’ (76,500 dwt, Imabari S.B. Marugame, 2008) was sold at $15 mil. Decade-old tonnage in this segment has just been decimated as recently the Japanese-built MV ‘Million Trader’ (76,500 dwt, Tsuneishi Zosen, 2004) was sold for appr. $9.5 mil; given that the salvage value of the vessel is $4.5 mil in the present market, she’s Japanese-built and her remaining economic life is more than ten years (fifteen actually remaining years as far design life is concerned), it is hard to see how this can be a bad investment, negative cash flows in the immediate future notwithstanding. And, the market is so terrible for pricing panamax bulkers of this vintage that actually the sale of MV ‘Million Trader I’ (76,000 dwt, Tsuneishi Zosen, 2006) at $12 mil in early May was actually considered at ‘overpriced’ territory by one prospect buyer. Similar and tonnage and pricing, MV ‘Medi Sinagpore’ (75,500 dwt, Universal S.B., 2006) was sold for $12.8 mil while the slightly older MV ‘Rose Atlantic’ (75,500 dwt, Sanoyas, 2005) at $11.0 mil. As a matter of comparison, this time last year, the consensus estimate for a 5yr old panamax bulkers was standing at $26 mil ($26.9 mil as per BSPA index), while now the market stands at appr. $17 mil ($16.4 mil as per BSPA), representing an impressive 40% drop in asset prices.

In the ultramax / supramax market, Norden A/S has disposed of two 60,000 dwt Ultramax newbuildings at Oshima Shipbuilding for delivery in Q4-2015 and Q1-2016 for a price in the region of $25m each (N/B RESALE HULL 10781 / 10782, Oshima Shipbuilding, 2015/2016); EastMed of Greece has been reported as buyers. Similarly sized tonnage but older, MV ‘Nord Liberty’ (58,750 dwt, Tsuneishi Cebu, 2008, 4x30T cranes) was sold to Sea World Management for a price region $12.5 mil. The lightly newer MV ‘Hudson Trader II’ less than a month ago (58,00 dwt, Tsuneishi Zhoushan, 2009) had achieved a more respectable $14.2 mil. From Nisshin Shpg.Co.Ltd. Again, as a matter of comparison, BSPA for a modern surpramax was standing at $25.8 mil this time last year and only at $15.46 mil at present; as painful as it has been, supramaxes / ultramaxes / handymaxes have been another great way of value destruction since last year.

MV MONSTEIN 6

Wishing that all waters in shipping were so clear to read! (Image source: Karatzas Photographie Maritime)

While dry bulk asset prices have dropped substantially over the last year, the consensus is that is the ‘glass is half empty’, still. There many reasons to think so, given still the outstanding orderbook to be delivered, excess shipbuilding capacity, low interest rates and excess liquidity for certain markets, mentions of additional credit lines for export credit from China, and lots and lots of dry powder from institutional investors that can move the market at any given point. On the other hand, as we outlined in a recent post, smart money are getting a second look on certain types of vessels in the dry bulk market. Prices are low enough to be tempting, despite negative cash flows in the near term that will have to be ‘added’ to any purchase price; however, delays in deliveries are negotiated each day from buyers, newbuilding orders have stopped – to the delight and surprise of many a shipowner, charterers have gone on a limp to stay away from the period market and delay as much as possible their chartering requirements. There are some smart money that have start thinking that most of the bad news have been priced in the market and, at least in the near future, any surprises likely to have a positive effect on the market. Maybe it’s time to start seeing the dry bulk glass as half-full.


© 2013-2015 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

S&P, Newbuilding and Demolition Update (March 22th, 2015) – Dry Bulk Market Focus

The last couple of weeks have brought the slimmest hope that springtime may be forthcoming for the much beleaguered dry bulk market; we are not talking about signs of an impending great recovery, but at least the dry bulk indices have stopped dropping and have shown marginal improvement; the widely-observed Baltic Dry Index (BDI) established an all-time low point on February 18th at 509 and closed at 591 on Friday March 20th; on percentage terms the improvement seems impressive (close to 20%), but again one has to keep in mind that the low of 509 was a thirty-year low – almost, and despite the improvement, dry bulk vessels are earnings below cash break even rates – thus, the improvement is not financially meaningful; it only bears psychological significance that hopefully the worst is behind us, for now.

As one would expect, publicly listed dry bulk companies continue to report abysmal earnings (actually losses), and earnings conference calls tend to range from confessionary litanies to Christmas lists on what would turn the market around. There have been the occasional corporate bankruptcy here and there and some ship arrests on a limited basis but nothing of a Korea Line Company (KLC) magnitude shockwave. Likely another blowup the size and significance of KLC will not materialize in the dry bulk market as KLC had taken shiploads on vessels at sky-high rates prior to 2008 while most of the traders / charter-in operators today have established their cost floors and rates at substantially lower rates in 2012 to 2014.

MV STAR EPSILON 2

Supramax Bulker ‘Star Epsilon’ passing the Statue of Liberty in the New York Harbor; image source: Karatzas Photographie Maritime

While the dry bulk handysize, supramax and to a lesser extent panamaxes were slowly improving for a couple of weeks now, capesize vessels are kept on a freight declining route; only this week capes bounced from a low of 357 points to 423 points in a matter of two days, generating suspense for the coming week whether the freight rates will keep moving higher. It may be so, and it will be most welcome news; however, over the longer term, capesize tonnage likely will have a tough ride: the Chinese economy has both been slowing down and also getting shifted from industrial production to consumption which does not bode well for iron ore imports and the cape market; further, China has been producing (and storing) much more steel that can use and recently there have been talks of China dumping below cost steel to the international markets raising the prospects that the World Trade Organization (WTO) may be asked to look into the complaints; the fact that mining companies have been building up their own captive fleets and that Vale managed to find a resolution with China and Cosco for their so-called Valemax fleet is not boding well for the overall capesize market and the independent owners. A boost to the capesize market is much needed and hoped for, but on the long term, one has to be skeptical of too rosy prospects.

In terms of sale & purchase activity in the dry bulk markets, at present, actual activity is low; there is lots of ‘browsing’ and ‘interest‘ for buying quality vessels but little of such interest is translated to actual transactions; buyers are trying to find a ‘balance’ of not buying too early when bulkers can further drop in pricing, but, on the other hand, they do not want to miss out when the market recovers; it seems a patience search of the absolute bottom in asset prices is the name of the game. Few transactions can be reported in the dry bulk market and mostly for small, older, cheaper vessels (in absolute terms); given the lack of benchmark transactions is hard to place an accurate estimate of asset price decline; however, the trend is apparent that based on the transactions reported the market keeps heading lower.

In the capesize market, the sale of MV „Cape Stork” (171,000 dwt, IHI, 1996) was reportedly at close to $7.8 mil, a scrap related price level; interestingly, the vessel was sold in November 2014, less than six months ago, at excess of $15 mil, implying that the buyers’ bet then on a seasonal recovery for capes during the holiday season has not played out as expected. In another interesting transaction in the sector, Oaktree has sold at $80 million apiece two VLOCs MV „Selma B“ and MV „Camilla T” (320,000 dwt, HHI, 2010/ 2011, respectively) to Olympic Shipping (Onassis Group) to be converted to VLCCs; Oaktree was involved with the vessels during the restructuring of Nobu Su’s TMT (Today Makes Tomorrow); during the last year, the Onassis Group has shown to be an active buyer of tonnage, primarily in their historically beloved tanker market; however, the pricing for these vessels seems to be too strong given the costs, risks and ‘hair’ involved for the conversion project, not mentioning the concern that typically converted vessels do not seem to get special attention for the remaining of their trading lives by the charter market.

In the panamax bulker market, the post-panamax bulker vessel specialized for the coal trade MV „Sekiyo” (91,500 dwt, Hitachi, 1998) was sold at close to $9 million to Chinese buyers by Nippon Yusen Kaisha (N.Y.K. Line); the price is at premium of a couple million to scrap pricing, which is the norm these days for tonnage built prior to 2000. In the same sector, MV „Lopi Z” (72,000 dwt, Shin Kurushima, 1998) was sold to Norwegian investors in a sale-and-lease back transaction from Dalomar Shipping in Greece at approximately $6 mil, a purely scrap related price.

MV BULK COLOMBIA 12

Supramax Bulker ‘Bulk Colombia’ in the Port of Hamburg; image source: Karatzas Photographie Maritime

The supramax market has proven the most active in the dry bulk market, with the sale of MV „C.S. Rainbow” (55,700 dwt, Mitsui, 2006, 4x30T cranes) at $11.25 mil by Japanese sellers to Greeks buyers (Blue Seas). The sale seems to be well below the price achieved by same sellers of similar vessel MV „Sunny Ace” (55,800 dwt, Kawasaki, 2005, 4x30T cranes) at $11.3 mil one month ago (vessel was also SSDD due.) Looking further back in January, when MV „VERDI” (2007, 58,500 DWT, Tsuneishi Zhoushan) was sold at $15 mil, the trend in supramax bulker pricing is clear. It’s really very hard to comprehend that ten-year-old supramaxes were selling at more than $60 mil in the spring of 2008 and at $22 mil just one short year ago; now we are talking about $10 – $11 mil for a ten-year-old vessel. The ten-year-old handymax MV „Ramada Queen” (46,000 dwt, Oshima, 2005) with drydock due sold at an eye-popping price of $8.7 mil to Greek buyers (Primal). The older handymax MV „Valopoula” (45,500 dwt, Tsuneishi Cebu, 2000, 4x30T) was sold at a respectable but still scrap related pricing of $6.1 mil to Greek buyers again (Dianik Shipping) with drydosck due. The smaller and meaningfully older handymax MV „Bay Ranger” (43,500 dwt, Oshima, 1995, 5x25T cranes) was sold at appr. $4.5 mil with the vessel recently having been drydocked (present estimated scrap value of about $3.1 mil at 7,350 ldt.) The similar vessel MV „Hellenic Horizon” (44,800 dwt, Halla, 1995), 4x25T cranes) was sold at a scrap related $3.7 mil – with drydock promptly due.

As one can note, recent transactions in the dry bulk sale & purchase market resemble rather a scrap report, with vessels sold between 10-20 years old and no modern tonnage to report on, drydock position and estimated scrap price always as points of reference. And the prices achieved resemble prices for vessels selling for scrap rather than further trading, another indication that buyers opt to act only when there is little downside risk with their acquisitions, either with vessels with 5+ years of trading life at scrap pricings on a minimal pricing over scrap and drydocking for vessels having a decent survey position.

Can things get more difficult?


© 2013-2015 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website.Whilst every effort has been made to ensure that information herewithin has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.