Moments before our friends in China enter the lullaby period of the New Year festivities, Europe is still struggling with adjusting to the new definitions of old concepts when it comes to social and economic reforms, Russia and Ukraine have signed a ceasefire agreement propelling oil prices to a U-shaped recovery and all of this at the back of the worst EVER dry bulk market. Could anyone draw a vaguer picture for what lies ahead?
Looking at the low asset values, dry bulk fundamentals look bleak whilst the sector is becoming more and more transparent, consolidated and world trade/growth looks positive in the years ahead, one cannot help but wonder what happened to the shipping pundit everyone loves to hate; Private Equity.
Under normal conditions this would be the “perfect storm” that PE would be looking to position itself or increase its exposure in any industry. But shipping is not an industry where “normal conditions” apply and truth be told, PE has realised in the hardest of ways that the shipping industry is a very volatile sector and when you really want to get out during its bad days, the market is very illiquid.
The second hand market is flooded with top quality tonnage that receives little to zero interest from the scarce buyers out there. Any outsider observing the market fundamentals would enquire who in their right mind is even inspecting vessels these days in a market, which suffers from negative ROE. The answer would be simple; small to medium sized family companies with a conservative, long-term view of the market. Are these not the people whose lead PE usually follows or partners up with?
The biggest sceptics would argue that the investment horizon that most PE funds have is not enough to support the commitment that shipping requires to bring in noteworthy ROE’s. I find that hard to accept since the biggest part of their investments went to loan portfolios and surely they didn’t expect the finance market to be more liquid when no one was foreseeing a pick up on lending anytime soon and especially since the funding gap was only rising.
There is a general consensus in the industry that PE – of any form and origin - besides largely supporting the shipping finance market, it has played a major part in significantly increasing an already oversized order book during 2013 and 2014. Some people argue that they are the only ones to blame for the extremely low markets we are facing today and they had no right to be involved/altering the supply side. Maybe so, but if that was indeed their intention – to kill the market - then surely we would see more of them these days on the buying side of SnP reports. If, on the other hand, a BDI of 530 points is the collateral damage of their learning curve and they are heavily suffering as well then what better timing for PE to show its long term commitment in the sector and raise its exposure whilst improving its average acquisition values?
Banks - the traditional supporter of SME’s in Shipping- are coming back to the market and their experience/know-how in how counter-cyclical our industry is, could pave the way for increased activity on the second hand market. PE only has to follow their lead, steer clear of the temptation to order more ships – a temptation admittedly smaller these days compared to the previous trough - stay close to its partners with market experience and focus on the opportunities that comes its way.
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