Seatrade Maritime is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

When shipping investors find the exit door is locked….

When shipping investors find the exit door is locked….
A few years back, at the Connecticut Maritime Association (CMA), then Commodore Robert Bugbee compared shipping investors with leisure travelers who visit a tropical island- some decide to stay and some decide they do not like it, and they journey back home. But what about those travelers who wish to leave the island, but discover that their ferryboat back to the mainland is inoperable?

Brian Devine, a Norton Rose Fulbright partner offered a similar analogy, referring to investors who are “stuck in the room”, during a Ship Finance seminar organized by the Young Shipping Professionals of New York (YSPNY), and hosted at Norton Rose’s midtown offices on Fifth Avenue.

Though described as an introduction to the subject, Devine, and his Partner, Brad Berman (a one-time President of the CMA) offered a very timely view, replete with anecdotes describing actual conversations with investors. Devine, in his remarks on Private Equity (PE), expressed a view that PE will continue to invest, because of the industry’s risk profile, and because of where we are in the cycle - for certain segments of the market.

He voiced a major concern that: “shipping is super-cyclical” with an implication that young analysts - some of whom are members of YSPNY - need to look at 30 and 40 year cycles, rather than simply the most recent decade. Berman described encounters with scions of shipping families who spent years mired in non-remunerative markets, basically just waiting for a particular cycle to turn upwards. The lengthier cycles may be at variance with the typical PE timetable of exits within five to seven years of getting into transactions.

On a brighter note, the speakers noted two deals from the tanker sector where PE may be making a profitable exit- the Principal Maritime deal where Teekay Tankers is acquiring vessels from the PE-backed seller, and Ridgebury Tankers where market rumblings have this Bob Burke-led company offloading vessels that were purchased before the ongoing tanker market boom.

Both speakers stressed the nuanced nature of shipping, with unique risks and ways of operating, requiring highly specialized knowledge, giving the example of one investor - with deep experience in the property sector - who was contemplating a “Real Estate management” agreement, rather than a Bimco authored contract, when hiring a technical manager for vessels.

They also noted that PE investments in shipping are now being done by a second tranche of lesser known names in the financial world, as distinguished from entities such as Apollo Management, the sponsor of Principal Maritime, and Riverstone, the backers of Ridgebury Tankers.