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Shipowners and the lure of private equity

Shipowners and the lure of private equity
There has been little doubt for some time the ship finance landscape has changed and continues to do so at a fast rate. Indeed, the traditional shipping man who attended the fifth Capital Link Greek Shipping Forum in Athens, February 24, would have been troubled by what was said by panelists, many of them representing private equity (PE). Right from the off, delegates were being told these private investors “are smart people who invest to make money”.

As Hamish Norton, now head of corporate development at Oceanbulk Maritime pointed out early on, “until recently the returns on investment in shipping not thought sufficient” before reminding the forum “in shipping timing the investment is how the money is made”.  

Marianna Fassinotti, managing director of private equity firm Siguler Guff, said to now it has been a learning process for the PE sector, but the research has largely been completed and, “now is the right time for PE to get into shipping”. However, she was quick to warn all PE investors have an exit strategy in place

Robert Burke, ceo of Ridgebury Tankers, a portfolio company of Riverstone Holdings, said PE “sees an opportunity to make money”. He agreed there is money to be made and money to be lost, but investors “saw a lack of capital and jumped in with both feet” and “once some came in others wanted to do also”.

Burke agreed shipping can be a hard sell, because investors have to be educated and this has taken time, shipping is not as easy to manage and understand like other investment opportunities.

Fassinotti said the company’s “management team is the key”. “We need to be educated, to find some one to dance with. You have a lot of money in shipping so we like to be in command. We always wanted to be the largest investor, but not be alone, we want to have a significant contribution from the shipowner,” she said.

Norton agreed. “Making money is the focus for the private equity firm and the management team of the shipowners and the PE firm must have equal commitment. At Oceanbulk interests are aligned.”

Indeed, Burke said everything has to be at arm’s length and not involve the owner in some commissions arrangement like of S&P.

Then the debate came back to the exit strategy with it being pointed out most ship owners like to hang on to their vessels while most equity funds have a life of only 10 years. It was pointed out shipowners usually promise an IPO as an exit and this is an incentive for investors.

Chris Weyers, head of maritime investment banking at Stifel Financial, said 2014 could be one to remember for shipping IPOs but during formal discussions and those involving networking it became clear most funds are likely to go to big companies.

“The biggest characteristic of IPOs at the moment is they are all big and all being done by institutional investors,” said Weyers. Indeed, he noted a pipeline of potential public floatations for 2014 has been created by recent private equity partnerships with shipowners.