Shipping finance
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SHIPPING FINANCE. PRESENTATION TO: NATIONAL TECHNICAL UNIVERSITY OF ATHENS NIKOS VERAROS DATE: 12/5/2003. INDUSTRY FINANCIAL OUTLOOK. Highly cyclical industry Highly leveraged asset Timing critical for investment success

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SHIPPING FINANCE

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Shipping finance

SHIPPING FINANCE

PRESENTATION TO: NATIONAL TECHNICAL

UNIVERSITY OF ATHENS

NIKOS VERAROS

DATE: 12/5/2003


Industry financial outlook

INDUSTRY FINANCIAL OUTLOOK

  • Highly cyclical industry

  • Highly leveraged asset

  • Timing critical for investment success

  • Active second hand market for the assets

  • Average Return on Asset of 10%

  • Average Return on Equity can be significantly improved through financial leverage & good timing


Vessel values vs freight rates

VESSEL VALUES vs FREIGHT RATES

Vessel values follow freight rates fluctuations with a time lag


Demand in principle

DEMAND IN PRINCIPLE …

  • Shipping trade demand growth

    • Long-run: related to World Economy

    • Short-run: fluctuations trigger shipping cycle surges & dips

  • Relatively inelastic to changes in freight prices because:

    • Transportation cost is only a small portion of overall product cost

    • Transportation comes at the very end of the production process


Supply in principle

SUPPLY IN PRINCIPLE …

  • Relatively elastic to freight price changes

  • Usually operators overreact to changes in demand


Shipping cycles in principle

SHIPPING CYCLES IN PRINCIPLE …


Shipping cycles in figures

… SHIPPING CYCLES IN FIGURES


Timing is what counts

TIMING IS WHAT COUNTS

  • When to enter?

    • When market is flat

  • When to exit?

    • Quickly, when market conditions improve

  • When investment timing proves wrong, we should hold until the storm passes


Financing of shipping

FINANCING OF SHIPPING

  • Bank mortgage loans is by far the main method of financing

  • Capital markets (equity & bond issues) have only marginal contributions


Bank financing to greek shipping usd mn

Bank Financing to Greek Shipping (USD mn)

Source: XRTC


Bank financing to greek shipping usd mn1

Bank Financing to Greek Shipping (USD mn)

Source: XRTC


Economics of shipping loan

Economics of Shipping Loan

Total Firm Value = Debt + Equity

0 100 80 20 80% - -

1a 130 80 50 62% 30% 150%

1b 90 80 10 89% -10% -50%

1c 75 80 ? ? -25% ?


Process of granting a shipping loan

Process of Granting a Shipping Loan

1. Submit proposal to the Bank

2. The Bank offers Indication Letter

3. Negotiate terms

4. The Bank obtains Credit Approval and issues Commitment Letter

5. Sign Commitment Letter

6. Lawyers take charge and draft Loan Document

7. Sign Loan Document

8. Money Drawdown


Vessel particulars relevant to financing

VESSEL PARTICULARS RELEVANT TO FINANCING


Newbuilding financing

Newbuilding Financing

  • Instalment payments to the yard

    • Signing

    • Keel laying

    • Launching

    • Delivery

  • Refund Guarantee

  • Bank pre-delivery financing


Lease transactions

Lease transactions

  • Concept of Depreciation

  • Structures to benefit from depreciation charges


Stock exchange

Stock Exchange

  • Only Ferry companies so far in the Athens Stock Exchange

    • Attica Enterprises, Minoan, Anek, Strintzis, Nel, Dane

  • Legal framework under review for ocean going companies

  • Major listings in New York include:

    • Tankers: Stelmar, TEN

    • Bulkers: Angelikousis


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