the funding gap myth or reality?
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The Funding Gap Myth or Reality?. Marine Money – 8 th Annual Gulf Ship Finance Forum Dubai – 7 th March 2012 Erik A. Lind Tufton Oceanic. March 2012. Tufton Oceanic. - PowerPoint PPT PresentationTRANSCRIPT
The Funding GapMyth or Reality?
Marine Money – 8th Annual Gulf Ship Finance Forum
Dubai – 7th March 2012
Erik A. Lind
Tufton Oceanic
March 2012
Page 2
Tufton Oceanic is a Fund Manager in the Maritime, Offshore Oil Service and Energy industries and today has equity funds under management of $1.6bn and Tufton and its managed Funds own a total of 26 vessels with total value of about $0.6bn as at 31-Dec-11.
Vessel supply / demand fundamentals are key to our analysis and understanding of the health of the industry and in forming our views on the outlook for the various segments and sub-segments into which we invest.
We believe that the impact of the coincidence of the extreme adverse supply / demand fundamentals which we are now experiencing has been made considerably worse by the lack of traditional sources of debt and equity to the industry.
We therefore need to study and evaluate not only the supply and demand for vessels but also the supply and demand of capital in order to more fully understand the current situation.
Tufton Oceanic
Page 3
Value of the world fleet – Fleet size by vessel type as at year end 2011
21%
24%
14%
7%
33%
Dry Wet Container General Cargo Offshore
US$841bn
Delivered Fleet
30%
18%16%
4%
32%
US$271bn
OrderbookTotal
US$ 1,112bn
Source: Various brokers and Tufton Oceanic Limited
Page 4
Who owns the fleet? – Fleet size by owner type as at year end 2011
US$841bn
Delivered Fleet
US$271bn
Orderbook
Source: Various brokers and Tufton Oceanic Limited
35%
60%
6%
Public Co. Private Co. Govt.
38%
57%
5%
Total US$ 1,112bn
Page 5
How the fleet is funded – Fleet size by source of funding as at year end 2011
US$841bn
Delivered Fleet
US$271bn
Orderbook
Source: Various brokers and Tufton Oceanic Limited
6%
7%
18%
51%
19%
Government Bonds / Other Public Equity Bank Debt private Equity Unfunded Orderbook
5%
10%
17%
16%
52%
Total US$ 1,112bn
Page 6
What funding is needed and wanted?
…..orderbook first
In order to assess what funding is needed we should evaluate the current
orderbook and “low-cycle” of sale & purchase activity
In order to assess what funding is wanted we should evaluate the current
orderbook + new orders and “mid-cycle” sale & purchase activity
Page 7
What funding is needed for the current Orderbook?
For delivery in
$ bn 2012 2013 2014 + beyond Total Avg.
p.a.
Total Orderbook 144 80 47 271 90
Unfunded Orderbook 55 55 32 142 47
… by new debt 40 47 27 115 38
… by new equity 15 8 5 28 9
• Total orderbook (US$271bn delivered) reviewed for year of build and stage payments
• Assumptions made as to funding of current assets under construction
“new” annual debt and equity requirement of approx. US$38bn debt and approx. US$9bn equity pa average over the next 3 years
Page 8
What funding is needed for the Sale & Purchase market?
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
0
3000
6000
9000
12000
15000
18000
21000
24000
27000
30000
33000
36000Tankers & Bulkers - S&P Turnover
Annualised Turnover as % of Fleet (Left Axis)
Annualised Turnover in USD (Right Axis)
USD Billion
Sources: Clarkson, Tufton
Page 9
What funding is needed for the Sale & Purchase market?
• “Low-cycle” approx. 3% volume turnover
• Applied to current value of the delivered fleet = US$25bn per annum
• Assuming 50% gearing leading to:
• US$12.5bn p.a. required from debt
• US$12.5bn p.a. required from equity
Page 10
What funding is wanted for the Orderbook and Sale & Purchase market?
For delivery in
$ bn 2012 2013 2014 + beyond Total Avg. p.a.
Current orderbook funding req. 55 55 32 142 47New orderbook funding req. 8 46 51 105 35Total funding required 63 101 83 247 82… by new debt 34 64 61 159 53… by new equity 29 37 22 88 29
• Assumes more
newbuilding orders in
2012, 2013 and 2014 for
delivery in 2013
onwards to keep
orderbook at about 70%
of current level
1. Orderbook
2. Sale & Purchase
• “Mid-cycle” approx. 7% volume turnover
• Applied to current value of the delivered fleet = US$59bn per annum
• Assuming 60% gearing leading to:
• US$35bn p.a. required new debt
• US$24bn p.a. required new equity
Page 11
Conclusion - What Debt funding is required?
$ bn 2012 2013 2014 + beyond Total Avg p.a.
Need 52 60 40 152 51 Want 69 99 96 264 88
Total Bank Loan PortfoliosUS$bn • 2009-11 gross run off = US$73bn p.a.
• New lending/entrants = US$33bn p.a. Net reduction = $40bn p.a.
• Current “Need” is within scope of recent gross run off, other factors
• Lower S&P - unlikely
• Orderbook slippage – possible
• Yard credits - possible
• Lack of available debt capital should constrain new orders over the next few years – no bad thing2007 2008 2009 2010 2011 2012 2013 2014
0
100
200
300
400
500
600
700
Page 12
Conclusion - What Equity funding is required?
$ bn 2012 2013 2014 + beyond Total Avg p.a.
Need 27 21 17 65 22
Want 53 61 46 160 53
• Public Market recent average approx. US$8bn p.a.
• PE rumoured to have up to US$10bn allocated
• Deep Pockets ? Unknown but potentially sufficient to fill the “need”
• All the above is “smart money” with alternative investment opportunities; therefore
can be there but needs the right incentives – “sensibility” & “pain”.
Page 13
Conclusion
• Should be sufficient debt and equity capital to fill current “needs”.
• Attractive investments are and will continue to be there for opportunistic capital (but
are also there in other industries).
• Lack of additional capital should constrain the orderbook in the short term with the
sale and purchase market being relatively elastic.
• More slippage will cure any minor Gap if it appears.
• Responsible reaction to ordering, pricing and capital structuring.
• Most ship types currently at yard breakeven levels. Further pricing falls should not
therefore be a function of the lack of capital but caution prevails due to shipyard over
capacity.