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Investor appetite for shipping firms gone into reverse

Julian Macqueen - Monday 2 March 2009

INVESTOR appetite for shipping companies has gone into reverse, according to US investment banker Craig Fuehrer.

The Deutsche Bank banker told a Marine Money seminar in Hamburg last week that the market had experienced a “massive confidence correction”.

Risk adverse investors were moving in to cash, he said, adding that initial public offerings by shipping companies, or any other company, for that matter, were few and far between.

Mr Fuehrer noted Dry Ships’ $500m January share issue, although he pointed out that this was to reduce liabilities such as bank debt, rather than funding further expansion.

For many companies, surviving the next 12 months was the important thing as the spate of no dividend payouts testifies, he said.

If there was an equity model for the future, it would be along the lines of Seaspan’s Singapore offering, where a percentage of the equity interest was pre-sold.

“In this way you can communicate to the market that you’ve got the deal well covered,” Mr Fuehrer said.

He added that the situation was unlikely to change any time soon. Institutional investors looking to place funds have a lot of choice and players are likely to bide their time until the market’s direction becomes clearer.

That would only come about once the various government stimulus packages had started to work their way into the wider economy, Mr Fuehrer said.

The state of play among retail investors in Germany — the famed German dentist who makes up the backbone of the KG market — was also put under the conference spotlight. With banks unwilling to play their part in these deals, which is usually around a third of the total fund finance, the system is under pressure.

Tobias Konig, of Hamburg-based KG house Konig & Cie, who joined a panel discussion at the conference, acknowledged that the next two to three years were going to be difficult. But he said that the German investor is in for the long term and that the banks would return to the market.

In the meantime, it was possible to cover the funding gap by other means. He cited the success of his company’s own Marenave fund, as well as the use of sale-and-lease-back deals, in which his company is also involved, as proof that it could be done.

If there were going to be casualties, it would be among the smaller funds, he said. The well-established funds would continue to thrive.

Nevertheless, of the 160 bigger KG houses in operation last year, Mr Konig said that he expected this number to fall to under a hundred.

Hg