micofinance: equity deals $10 mill. and below including ... annual... · below including residual...
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Evan F. Sproviero
June 17 – 19, 2014 27th Annual Marine Money Week
New York, USA
Micofinance: Equity deals $10 mill. and below including residual values, market
transactions and creative financing structures
GMS GMS Background
Current Headquarters Dubai, UAE
Founding Founded in Cumberland, MD in 1992, GMS began business through the acquisition of naval vessels from the US Maritime Administration
Clients Ship owners, Banks, PE firms, Brokers, Ship Recycling Yards
Salient Points World’s first ISO 9001:2000 certified Cash Buyer Developed a unique Green Ship Recycling program together with a leading
IACS class society Employs over 50 employees globally and about 300 crew
Lloyd’s List has ranked the President of GMS, amongst the Top 100 Most Influential People in Shipping for the last 4 consecutive years!
Principals of GMS have diversified into ship owning, ship finance, real estate and other types of investments
Vessels Concluded Negotiated over 2,500 ships so far......and counting !
Offices Dubai (UAE), Maryland (USA), Hamburg (Germany), Shanghai (China), Singapore, and Tokyo (Japan) , GMS is the only cash buyer with local representative offices in all five major recycling markets
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Cash Buying has evolved into a huge industry with large economic, environmental and social impacts. Since 2012, more than $11 billion worth of vintage vessels were purchased for recycling
From 2012 onward, there has been in excess of 118 MILLION DWT recycled Average age: 2011 – 30.6 years old 2012 – 28.2 years old 2013 – 27.9 years old
Industry Facts
INDUSTRY BREAKDOWN (2013)
INDIAN SUB CONTINENT CHINA TURKEY
No. of Vessels 610 286 240
Lightweight (lt) 6,952,118 1,977,000 920,000
Amount (US$) 2.83 bill 697 mill 290 mill
Note: all figures are approximates
74%
18%
8%
Estimated 2013 Totals ($) INDIAN SUN CONTINENT CHINA TURKEY
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2014 YTD – 26.8 years old
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Historical Highs – Ship Recycling BOOM!
•1985 42.6 Million Dwt 9 Million LDT •2012 56.5 Million Dwt 11.7 Million LDT •2013 45.2 Million Dwt 9.55 Million LDT •2014 16.67Million Dwt 3.52 Million LDT Note: All figures are approximate
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Braemar Seascope Demometer
Bulk Carrier 1.8m – DWT ( 33 VSLS)
Ship Type
Sales Recorded over last 30 days
Total Scrapped in 2014 YTD
Total Scrapped for Same Period in 2013
Total Scrapped in 2013
Total of New buildings Delivered in 2014
11.8m – DWT (243 VSLS)
21.4m – DWT (481 VSLS)
23.5m – DWT (313 VSLS)
8m - DWT (151 VSLS)
Tanker 0.9m – DWT (14 VSLS)
2.6m – DWT (53 VSLS)
10.1m – DWT (136 VSLS)
6.9m – DWT (138 VSLS)
4.7m – DWT (77 VSLS)
Containership 70,500 – TEU (24 VSLS)
216,000 – TEU (99 VSLS)
407,000 - TEU (178 VSLS)
690,000 – TEU (86 VSLS)
303,500 – TEU (100 VSLS)
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27th Annual Marine Money Week June 2014
Source: Marine Money
Private Equity Investment in Shipping
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1000
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2008 2009 2010 2011 2012 2013 14 YTD
Private Equity (mUSD)
Source: Marine Money
Private Equity Investment in Shipping
• Throughout the industry, private equity deals have increased dramatically over the years since 2009. The assumption has been that it is a good time to enter the markets as the low cycle has lasted long enough. Plus PE firms have been sitting on a lot of cash burning in their pockets.
I am not sure if the bet to enter the shipping industry is based on a biblical concept of 7 years of famine followed by 7 years of feasting, or was it in fact, the other way around !
• The financial crisis in shipping provided firms like GMS the opportunity to expand into ship
finance. The projects team at GMS works closely with brokers, banks, ship owners and private equity firms to structure creative and unorthodox financing options. Most of GMS’s investments are equity based but have also included some hybrid structures of debt/equity. GMS project deals have ranged from investments in shipping companies, ship owning, bareboat charter deals along with several other projects, including an investment into a German KG Company / Emissionshaus.
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Examples of $10 mill. and below transactions • Nov. 2010 – Navios Maritime Acquisition Co. – US$ 5.4 mill.
– Issued $5.4M of 2% mandatorily convertible preferred stock to shipyard as partial payment for 2 n/b LR1 tankers for $82.8M. 30% of the shares mandatorily convert into common on 6/30/15 with balance on 6/30/20, all at $25/share.
• Nov. 2011 – Sinokor Maritime – US$ 8.6 mill. – Secured 45% financing for a 1999 Japan built 10,700 dwt aframax tanker.
The 3 year senior secured loan has a loan profile of 5 years
• Dec. 2012 – Paragon Shipping Inc. – US$ 10 mill. – Company sold 4,901,961 shares to an entity controlled by Mr. Bodouroglou
for $10M. Proceeds will be used for working capital. Co. had right to buy shares back at offering price through 3/29/13.
• March 2014 – China Ocean Shipbuilding – US$ 7.3 mill. – Shares sold to four Chinese investors. Proceeds will be used to repay debt
and for general working capital purposes.
**Smaller transactions involving mezzanine financing is also reaching the German / KG markets.
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Source: Marine Money
GMS Projects – Overview
• The Project Department’s goal is to invest and/or facilitate investments in global value creation opportunities
• The Project team’s objective is to identity ship owners whose financial needs are not being addressed by banks, which are either shying away from shipping or are lending only to their existing client base, or by major PE players who consider such deals to be too small for their portfolios. This is where GMS can fill the gap!
• With more than 20 years of strong shipping background, a highly experienced and motivated team of Traders, Mariners, Engineers, Naval Architects and Ship Finance experts, GMS is in the best position to profitably manage such projects
• The Projects team also seeks to identify value maximizing opportunities outside of shipping; key
projects are those that are characterized by strong business fundamentals, competitive advantages, recurring cash flows and robust growth prospects, but are facing temporary short term difficulties
• Relationships developed over the last 20 years of global activities and multiple offices across
different regions (USA, Germany, UAE, China, Singapore & Japan) gives GMS direct access to value creating opportunities across the globe. Many of our projects have been brought in through past relationships that our group has fostered over the years.
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Project Details
• Along with other private equity partners, the firm concluded the reorganization and recapitalization of one of Germany's largest KG companies, by acquiring a stake in the entity
Vessel Details
• Based in Hamburg, the company was established in 1999 • The company controls roughly 70 vessels ranging from MPPS, bulkers, container
ships and tankers • The Haus invested in many types of assets over the years including real estate,
funds of funds and shipping within its portfolio of over US$ 5bn
Financing Structure
• Capital structure comprised of a creative mix of equity as well as various tranches of debt
The investment provided GMS with many new opportunities within the German shipping and U.S. Private Equity markets
GMS Projects – Investment in Emissionshaus
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Project Details
• 8 Ultramax N/B ‘s • Delivered price was concluded prior to the recent spike in prices • Delivery schedule within 2016
Vessel Details
• Segment – Dual fuel engine with an Economical Design • Classification Society – One belonging to IACS members • Country of building – China
Debt Service
Acquire majority stake in New Building Eco Design Ultramax Vessels
• Interest and principal - to be serviced from operations or sale of vessels prior or after delivery
GMS Projects – NB Vessels Purchase
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Ship Owner
Owner sells Vsl with T/C back using vessel for storage purposes (or trading)
Sale Leaseback
Bridge Financing
GMS Projects – Pros & Cons to Consider
Pros Cons • Immediate Cash Inflow • Fixed charter hire - volatility greatly
reduced if the T/C market goes up • Unplanned cash flows – avoiding
exposure to breakdown, unplanned maintenance et cetera.
• No benefits should markets drop further and daily TC figures actually decrease.
Pros Cons • Immediate cash to fund repairs;
avoiding a long waiting time before claim gets honored by insurance
• Quicker repairs due to availability of credit ,means getting the unit back into earning mode
• None
Bridge finance for a fire damage- using insurance guarantee as collateral
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Ship Owner
Owner sell the vessel at a fixed price with a forward delivery to GMS
Guaranteed Sale Option
Partial Equity Ownership
GMS Projects – Pros & Cons to Consider
Pros Cons • Option to lock in forward rates
eliminates uncertainty of currency or steel price movements
• If INR depreciates by 1 to the US$, BDA prices reduce by $5; with several macro uncertainties – QE tapering, expected interest rates increase, recent EM crisis scare – entering into such agreement can generate substantial savings
• Limited upside should recycling markets experience a boom….however
• Similarly, gains are limited if commercial markets experience significant recovery and it becomes economical to put vessel through dry dock rather than recycle it
Pros Cons • Immediate cash injection - mortgage
or extensive dry docking • Partial upside remains with the Seller • By partnering with the largest cash
buyer, the owner could benefit from a boom in recycling markets using a floor and a ceiling.
• Due to dilution of ownership, existing owner’s share of profits from an unexpected boom in commercial markets will be shared
• Equity being more expensive than debt might not be suitable for all ship owners
JV with partial ownership
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Residuals & Microfinance – Recap & Why Us?
• Recycling related residual value pricing remains unseasonably and uncharacteristically high • Many older vessels can be purchased near recycling related levels and still have a useful
economic value to the right experienced owners/operators • There is both a “calling for” and “answer to” microfinance transactions in today’s market
• GMS Offers:
• Fast Execution - Owing to the lean organizational structure and solutions oriented approach,
GMS’s Project Team can identify, evaluate and execute a project swiftly without getting bogged down by bureaucracy; ‘fast, flexible, innovative and reliable sums up the approach aptly
• Industry Expertise GMS’s long and in-depth knowledge in the residual market has offered unique insights into
the commercial aspects of the many maritime sectors, which our partners stand ready to benefit
• Creative Financing
Unlike traditional players who focus only on equity or debt, GMS’s Project team can come in with both debt and equity depending on specifics of the project
Moreover, irrespective of the investment structure, GMS prefers to have a substantial skin in the game which ensures that our objectives align with that of our partners; in other words, we win when our partners win
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GMS Projects
• Please feel free to contact the Projects team at:
• Group email address: [email protected]
– Evan Sproviero – USA Mobile: +1-240-505-9716 – Abhishek Chikara – UAE Mobile:+971-55-4983960 – Sultan Riaz Khan – NL Mobile:+31-655-3266-03
Thank You
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