IPO vs Private EquityCS: Sale and Lease Back

Agenda

Capital Markets Considerations for an IPO Private Equity Considerations for Private Equity Sale and Lease back. Financing Scheme Process Requirements Advantages – Disadvantages

Capital Markets

Mid – 1990’s: the US Capital Markets had no exposure to the International shipping industry.

March 2006: the US Capital Markets: over 20 shipping companiesMarch 2007: 23 Greek ocean-going shipping companies publicly listed in major

stock exchanges around the globeInvestors’ Appetite: Recent Profitability, STEADY and high growth of the

Shipping Industry.Shipping has become more sophisticated as a number of participants have a better understanding of financial markets &

instruments.Good for the industry: Increasing number of IPOs has a positive effect on

the shipping industry; some of the benefits of this trend are transparency, improved reporting standards and independent boards.

Investment Banks: Shipping companies’ capital markets related needs are not catered by the shipping banks that assist them in their debt

financing. Instead they are catered by specialized US based Investment banks

THE CYCLICALITY OF THE SHIPPING INDUSTRY DETERS THE INVESTMENT COMMUNITY’S INTEREST

Considerations for an IPO

Which Bourse? What amount? Loss of Controlling interest? Cost Involved? The Story?

1. Vessels2. Employment period3. Dividend payout strategy

Valuation Metrics?

IPOs…To be Public or not to be?

ADVANTAGES1. Exit Strategy (Liquidity) for

Minority Owners2. Valuation (Higher) – above

Net Asset and Book Value3. Fleet Growth through access

to capital markets4. Cost of Capital is reduced

due to Liquidity of Company’s stock

5. Ability to make acquisitions using company stock

DIS-ADVANTAGES1. Less Confidentiality(complete financial and related partydisclosure)2. Time Consuming(Management devotes time topublic company operations)3. Higher Costs(Regulatory, Auditing, Legal andInvestor relations requirements)4. Continuous scrutiny(Investors and Analysts)5. Investor’s Interest(not steady)6. Strategy (not easy to change)7. Asset play (not easy to conduct)

Private Equity

Purest Form: Participation in the shipowner’s business (either at the Company Level or at a Project Level)

Where do we find private equity?1. Historically: Friends & Family and Retained Earnings

(operation & Asset Play)2. High Net Worth Individuals (HNWI) e.g. Private Banking3. Institutional Investors (Listed or Private Equity P/E Funds)

Why does Private Equity wish to invest in a shipowners business?RETURN ON EQUITY - The Private equity investors seek to obtain a return on the funds they invest of more than 15% p.a.DIVERSIFICATION – The Private Equity funds need to diversify their investment portfolio.

Private Equity

What are Private Equity Investors looking for?... Counterparties: reputable companies, track record Corporate structure: transparency, shareholding structure, rating (or not),

succession Exit: defined upon entering of investment Control: ability to control own invested capital/participation Asset age: young to middle aged assets Asset type: Liquid assets versus specialised (diversification / timing) Yield: minimum annual dividend with degree of predictability Structure: Standard versus tailor made Sponsor support: corporate backing, guarantees, asset cover Employment: bareboat, time charter, pool or joint venture backed investments

Sale and Lease backFinancing Scheme

Investors (2-6)

Shipping Fund

SPC Vessel Owning

Bareboat Charterer Time Charterer

Group (Guarantor)

Bank

100%

75%20%

Loan

Equity

Sellers’ Credit

5%

Process

Sale of the vessel– MOA

Lease Back– Bareboat Charter

Charterer’s Undertakings Security

Buy Back– Option Agreement

Additional Charter Guarantee Charterer’s Assignment Account Pledge

Requirements

From the Shipping Fund– Counterparties: Reputable companies, track record– Corporate Structure: Transparency, Shareholding structure

(Group – Holding Co)– Control: Ability to control the own invested capital– Age: Young to middle aged assets– Guarantees: Corporate support, asset cover– Employment: Time Charter, Contract of Affreignment

Requirements

From the Bank– Know Your Customer– First Priority Mortgage– Financial Convenants

a. Minimum Market Adjusted Net Worth

b. Maximum leverage

c. Working Capital greater than zero

Advantages - Disadvantages

Increased Liquidity (finance 100% of the MV of assets)

Confidentiality

Management’s Control

Evenly spread repayment

High Cost of Capital (effective interest rate 8%)

High Exit Cost

Long term time charter or CoA

Inflexible exit scenarios

Financial Covenant (Debt ratio)

The figures…

Year 5th Year 6th Year 7th Year 8th

Capital raised 42650000 42650000 42650000 42650000

BB rate -16112 -15914 -15773 -15667

Total BB fees -29050921 -34428046 -39805171 -45182296

Buy Back Price -29750000 -26750000 -23650000 -17525000

Total Repayment -58800921 -61178046 -63455171 -62707296

Diff -16150921 -18528046 -20805171 -20057296

IRR 8,78% 8,74% 8,76% 8,05%

Thank You!