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SHIPPING FINANCE

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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  1. SHIPPING FINANCE PRESENTATION TO: NATIONAL TECHNICAL UNIVERSITY OF ATHENS NIKOS VERAROS DATE: 12/5/2003

  2. 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

  3. VESSEL VALUES vs FREIGHT RATES Vessel values follow freight rates fluctuations with a time lag

  4. 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

  5. SUPPLY IN PRINCIPLE … • Relatively elastic to freight price changes • Usually operators overreact to changes in demand

  6. SHIPPING CYCLES IN PRINCIPLE …

  7. … SHIPPING CYCLES IN FIGURES

  8. 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

  9. FINANCING OF SHIPPING • Bank mortgage loans is by far the main method of financing • Capital markets (equity & bond issues) have only marginal contributions

  10. Bank Financing to Greek Shipping (USD mn) Source: XRTC

  11. Bank Financing to Greek Shipping (USD mn) Source: XRTC

  12. 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% ?

  13. 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

  14. VESSEL PARTICULARS RELEVANT TO FINANCING

  15. Newbuilding Financing • Instalment payments to the yard • Signing • Keel laying • Launching • Delivery • Refund Guarantee • Bank pre-delivery financing

  16. Lease transactions • Concept of Depreciation • Structures to benefit from depreciation charges

  17. 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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