Private Equity Knocks on Shipping's Door
Shipping is currently attracting a great deal of interest from investors in the private equity sector, according to UK-based accountants Moore Stephens, members of shipping trade organization Maritime London and as reported in its fortnightly 'London Matters'.
In its Shipping Group newsletter 'Bottom Line' Moore Stephens notes that it has been estimated that at least USD7-bn of private equity funding could find its way into shipping this year.
The shipping industry, however, still accounts for only a tiny percentage of overall private equity investment, so there is arguably scope for significantly more. The timing appears to be good. A shipping industry emerging from a protracted slump offers potentially exciting opportunities for private equity investors. Newbuilding prices are relatively low, so it makes sense for private equity funds to invest in them.
Freight rates have not yet returned to the sort of levels which would normally have private equity investors reaching for their cheque books, but they are no longer in the doldrums. In fact, according to Moore Stephens, there is a reasonable expectation that, if rates rise and values recover, the returns in the next few years will be above the long-term average.
Tonnage ordered now may be in the water at a good point in the industry up-cycle, according to Moore Stephens. Therefore investors should be able to sell promptly for a good price, should they choose to do so. IPO would be one of a number of exit strategies. This fits well with the comparatively short-term horizons of private equity funding, which are generally reckoned to be of a five-year duration.
Moore Stephens list a number of private equity firms involved in recent successful shipping deals : Oaktree, Blackstone, Riverstone and KKR. These, among others, are all examples of significant investments into shipping at a low point in the shipping cycle. There is a clear incentive for others to take the plunge. Moreover, private equity could provide a viable funding option for shipping company senior executives looking to set up on their own. Experienced professionals with a thorough knowledge of the industry are just the sort of people with whom private equity should be looking to do business, so it is a perfect example of goal alignment.
Source: Maritime London/Moore Stephens