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Navios' Frangou poised to capture the market upturn

Navios' Frangou poised to capture the market upturn
Greece's Angeliki Frangou, the driving force behind the burgeoning Navios Group, often catches the market by surprise, but seldom surprises. Well, very seldom surprises, as she is never one to stand still.

Listening to her comments over the past few months, the chairman of Piraeus-based Navios, hinted something was afoot in ”the market of opportunities”. Mid-February a buoyed Navios Maritime Holdings reported in the final three months of 2012 reaped profits of  $146.61m, against $11.81m in the same period of 2011.

Astute Frangou said the company had restructured the insurance arrangement with its credit default insurer, receiving a $175.4m lumpsum cash payment from the credit default insurer and $41.2m of revenue covered under the restructured credit default insurance policy.

Confidently she said: "I believe Navios Holdings is poised to capture any upturn in the market. During the past few years, as the maritime industry suffered, we focused our energies on controlling that which we could. Today, we not only have excellent cost controls and superb technical management capabilities, we have a strong balance sheet."

On Monday that balance sheet was put to good use when it was revealed a deal had been struck with German bank HSH Nordbank whereby the Greek company was picking 10 ships in distressed deals worth $300m. Many observers believe the deal changes the way private equity firms structure proposals to poach distressed assets. It is also the first move into the container sector, and as many of the distressed assets in Germany involve box ships, it is likely there will be more. 

Listed dry bulk owner Navios, and listed tanker arm Navios Maritime Acquisition, have created a new joint venture entity, Navios JV, to take over five product tankers -- ranging from 37,000 to 63,500dwt, built 2006 / 2008 and five container ships ranging in capacity from 2,000 teu to 3,400teu, built 2008 / 2009  from various debtors of HSH. In a statement Frangou said the joint venture will be kept separate from the participating listed companies, and will have a lifespan of 10 years.

Navios JV  is putting up $10m as an upfront investment as part of a $130m purchase price, the remainder of which will be financed by a new loan. It will take a subordinated participating loan of about $170m that reflects the balance of HSH’s exposure on the ships as it stands now. Navios will be paid an agreed 20% out of net cashflow from the ships and any proceeds from sale of ships, which Navios will operate for at least six years. Thereafter, the remaining 80% of income from operations or sales will cover repayment of principal and 8% annual interest.

Once the HSH loan obligations have been satisfied, Navios will keep any excess from operational cash or sale proceeds, and after the sixth year it can decide on any sales by itself. If proceeds from the business are insufficient to repay amounts outstanding on the HSH loan, Navios JV will not be liable for the unpaid amount, the owner said.

Frangou said: "Working closely with HSH over the past year, we devised a programme whereby vessels can be removed from insolvency and placed into a stable situation. In so doing, we are leveraging Navios' economies of scale and superior technical and commercial management to everyone's betterment. HSH and Navios are committed to their excellent working relationship and look forward to doing similar deals in the near future.”

She said Navios was acquiring “a significant fleet at historically low values with favourable economics”.

Frangou now controls 94 vessels of 9.7m dwt placing her on the fourth rung of Greek owners.