Nov. 1. 2017

KDB Shipping Fund and the Sophistication of

the Korean Shipping Industry

Marine Money Forum

2

What on earth is a Shipping Fund?

3

Salad, Veggie or Fruit? – The Taxonomy

4

Taxonomy of Shipping Fund

Finance Category Type of Finance Examples

Equity

Owner Equity Retained Earnings of Shipping Company

Ship Fund / Private Placement

Limited Partnerships such as KG or KS

Shipping Funds I.A.W. relevant laws

Public Offering Stock Issuance at Stock Exchange

Mezzanine Finance Hybrid of Equity

and Debt Uncovered Funding such as BW or CB

Senior Debt

Bond Issue Bond Issuance at Bond Market

Commercial Bank Loan

Syndicated Loans, Bilateral Loans, etc.

Shipyard Credit ECA Ship Builder’s Credit

Lease Finance Lease BBCHP

Operating Lease BBC

Sources of Ship Finance

5

Syndicated Loans in Good Old Days

SPC

Charterer

Lenders Builder / Seller

Ship Owner

Sub-Charterer

Loan

P+I

Equity Dividend

Hire

Hire

COA / TC

BBCHP

6

Bank Loan and its Pro-cyclicality

Ship Value

Equity

Loan

Capital Gain

Repayment

Ship Value

Loan

Equity

7

Pro-cyclical Banking Behavior stylized in the Market

Boom

Recession

Pro-cyclical Ship Finance

→ Excessive Amplitude

8

Things happening in the Rainy Downhill Years (1)

Boom

Recession

9

Things happening in the Rainy Downhill Years (2)

SPC2

Charterer Sub-Charterer

Equity Dividend

Hire

Hire

COA / TC

SPC1 Ownership

BBCHP BBC TC

Lenders1

Loan

P+I

BBCHP Termination

Dividend Equity

Ship Owner1

Lenders2

Sr. Tranche

Jr. Tranche

Loan

P+I

Ship Owner2 or

Tonnage Bank

10

Things happening in the Rainy Downhill Years (3)

Ship Value

Loan1

Equity1

Loan2

Equity2

Loan1 Repaid

Loan2

Liquidity

Right to Use Retained

+

11

Things happening in the Rainy Downhill Years (4)

Ship Value

Loan1

Equity1

New Owner’s Equity

Liquidity

Equity1

Loan1 Repaid

Net Liquidity

Right to Use Retained

+

12

Things happening in the Valley of Shadow (1)

Boom

Recession

13

Things happening in the Valley of Shadow (2)

Ship Value

Loan

Equity

Gap

Ship Value

Loan

Equity

Jr. Tranche

Mezzanine

14

Shipping Fund in Legal Sense (1)

SPC

Charterer

Sr. Lenders

SIC

Sr. Loan

P+I

Equity Mezzanine

Dividend P+I

Hire BBCHP BBC TC

FIs + SIs Equity

Dividend Asset Holding Co.

Ship Management Co.

Builder / Seller

Sub-Charterer

Hire

COA / TC

15

Shipping Fund in Legal Sense (2)

SPC

Charterer

Sr. Lenders

PEF

Sr. Loan

P+I

Hire

Limited Partners Equity

Dividend

Equity

Dividend

General Partner

Dividend P+I

BBCHP BBC TC

Builder / Seller

Sub-Charterer

Hire

COA / TC

Equity Mezzanine

16

Shipping Fund in Legal Sense (3)

SPC

Charterer

Sr. Lenders

Trust

Sr. Loan

P+I

Dividend P+I

Hire BBCHP BBC TC

FIs + SIs Investment

Ben. Cert. Trustee Co.

Asset Management Co.

Builder / Seller

Sub-Charterer

Hire

COA / TC

Equity Mezzanine

17

Economic Cycle and Types of Shipping Fund

18

Salad, Veggie or Fruit Revisited – What Fund? KDB LTSF (one blind fund and its capital calls)

KDB OVF, NBP Program, etc. (one set of project funds)

19

Big Player

Deep Pocket

Promotional Public Bank

True North :

Sophistication of the Korean Shipping Industry

Tycoon versus Architect

Magnetic North

20

The Korean Tonnage Bank (est. Jan 2017)

Charterer

Sr. Lenders

SIC

Sr. Loan

P+I

Equity Dividend

Hire BBCHP BBC TC

KSmart

Equity

Dividend

Ship Management Co.

Sale & Leaseback

Sub-Charterer

Hire

COA / TC

SPC

21

New Building Promotion Program

SPC

Charterer

Sr. Lenders

Trust

Sr. Loan

P+I

Equity Jr. Loan

Dividend P+I

Hire BBCHP BBC TC

FIs (KDB, KEXIM)

Investment

Ben. Cert. Trustee Co.

Asset Management Co.

K-Sure

Builder / Seller

Sub-Charterer

Hire

COA / TC

Maritime Finance Center

22

SPC

Charterer

Sr. Lenders

Trust

Sr. Loan

P+I

Equity Jr. Loan

DividendP+I

Hire BBCHP BBC TC

FIs + SIs Investment

Ben. Cert. Trustee Co.

Asset Management Co.

KMGI

Builder / Seller

Sub-Charterer

Hire

COA / TC

Credit Enhancement for Jr. Tranche

23

KDB Ocean Value-up Fund (KDB OVF)

SPC

Charterer

Sr. Lenders

Trust

Sr. Loan

P+I

Hire BBCHP BBC TC

KDB (70%) + FIs (30%)

Investment

Ben. Cert. Trustee Co.

Asset Management Co.

KMGI (Equity) Jr. Loan

(Dividend)P+I

Sub-Charterer

Hire

COA / TC

Builder / Seller

24

Concert of Public Entities as Long-term Infrastructure

Pump Priming / Sponsor

Inter-industry Ramification Eco-systemic Development

Diversified/Combined Sources of Ship Finance

Ship Finance Shipping Fund

S&P Business

Market Intelligence Brokerage

Insurance Education

Legal Services

Shipping

Ship Building Asset Mgmt

Ship Mgmt

25

Safety Valve Recession

Counter-cyclical Ship Finance

Boom

Concert of Public Entities (Public Sector Initiative)

26

Forging Self-Sustainable Ecosystem(Private Sector Initiative)

Boom

Built-in Stabilizer

Recession

Specialized Forecast /Analysis

Built-in Stabilizer

Sell High Prudent Banking

Forward-looking Investment

Buy Low

Thank You