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
VESSEL VALUES vs FREIGHT RATES

Vessel values follow freight rates

fluctuations with a time lag
Panamax freight rates vs. vessel prices
160
140
120
100
80
60
40
20
0
May 199

May 200
Mar 1997

Mar 2002
Nov 1993

Sep 199

Aug 199

Nov 1998
Dec 199

Oct 1996

Jun 1998

Apr 1999
Sep 199

Jul 2000
Dec 200
Apr 1994

Feb 1995
Jul 1995

Jan 1998

Feb 2000

Oct 2001
Freight rates Vessel price
 DEMAND IN PRINCIPLE …
 Shipping trade demand growth
 Long-run: related to World Economy
 Short-run: fluctuations trigger shipping cycle surges & dips
DEMAND GROWTH

long-run growth
Qty

surge

dip
short-run
fluctuations

time
 Relatively inelastic to changes in freight prices because:
1. Transportation cost is only a small portion of overall product cost
2. Transportation comes at the very end of the production process
 SUPPLY IN PRINCIPLE …

EXPECTED FLEET GROWTH (measured in deadweight tons)

Current fleet size

Plus: Vessels under construction Change in avg
Minus: Vessels to be scrapped fleet age

 Relatively elastic to freight price changes

 Usually operators overreact to changes
in demand
SHIPPING CYCLES IN PRINCIPLE …

A B C A
Flat Upturn Flat

Decline
… SHIPPING CYCLES IN FIGURES
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
FINANCING OF SHIPPING
 Bank mortgage loans is by far the main
method of financing
 Capital markets (equity & bond issues)
have only marginal contributions
 Bank Financing to Greek Shipping
(USD mn)

Ferries,
19500
18,912 9%
19000
18500
18000
17500
17000 16,715
16500
16000
15500 Ocean
2000 2001 going,
91%

Source: XRTC
Bank Financing to Greek Shipping
(USD mn)
Country Participation
Greece 21%
Germany 29%
France 9%
US 7%
UK 19%
Netherlands 8%
Switzerland 4%
Norway 3%
Other 1%

Source: XRTC
 Economics of Shipping Loan
Total Firm Value = Debt + Equity
Time Firm Debt Equity Leverage RoA RoE

0 100 80 20 80% - -

1a 130 80 50 62% 30% 150%

1b 90 80 10 89% -10% -50%

1c 75 80 ? ? -25% ?
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
 VESSEL PARTICULARS
RELEVANT TO FINANCING
Vessel Type Dwt Built Lwt Flag SS Due

Niki MT 60,000 1982 8,500 MALT Dec 03

Newbuilding Financing
 Instalment payments to the yard
 Signing
 Keel laying
 Launching
 Delivery

 Refund Guarantee
 Bank pre-delivery financing
Lease transactions
 Concept of Depreciation
 Structures to benefit from depreciation
charges
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