We have had the pleasure recently to have an exchange of ideas on market developments with the editors of Singapore-based ‘Maritime CEO’, an esteemed publication on international maritime matters with strong focus on the market developments in Asia, and specifically in China. Here are excerpts of our interview:
Karatzas Marine Advisors: Owners must become more transparent and corporate
New York: In the new straitened times for shipping, shipowners will have to get more transparent and corporate with their capital and organisation structures, argues a leading New York-based ship wheeler dealer. “Banks will be looking for corporate lending, and access to alternate sources of capital will require more documentation but mainly setting up proper management structures,” says Basil Karatzas, who heads up his eponymous firm, Karatzas Marine Advisors.
Karatzas Marine Advisors is a shipbrokerage and shipping finance advisory firm, representing mostly financial shipowners, financial institutions and banks in shipping. It has sold vessels at the exclusive mandate of Bank of America Leasing, HSH, AIG, when the charter/lease ended, or the bank decided to have the vessels sold. It has been advising private equity and institutional investors on shipping matters, as well as advising private, independent Greek owners in accessing institutional investors.
On trends for ship finance this year, Karatzas reckons debt financing will not be easily available with most of the traditional shipping banks in Europe not having the capacity for new loans, on a large, sustainable basis. “They are active on a limited and very selective capacity in terms of clients, asset classes – type of vessels – and specification of vessels – age, spec, etc,” says Karatzas. Most of the European banks are still pre-occupied with legacy issues, says Karatzas, implying old, bad loans. They do not have additional capacity to expand their portfolios at this phase of the cycle, he reckons. Furthermore, banks are looking forward with Basel III in mind, when asset based lending, such as first preferred ship mortgages, will be very costly in terms of reserves the banks will have to maintain, which implicitly will reflect the spread the banks that will have to charge their clients in order for the banks to get their expected return on capital.
In further bad news for owners, the cost of capital will be getting higher, whether for bank lending or accessing alternative sources of capital, Karatzas says. Moreover, with banks becoming extremely choosy on assets to finance, owners looking to acquire value priced vessels of 15 years of age will have to depend on their own capital.
Still, with banks remaining wary of lending to owners at present, Karatzas is confident that the wave of private equity investments in shipping shows no sign of abating.
According to a recent article in the Financial Times, private equity funds have about $780bn dry powder to invest in projects in all industries.
“By the virtue of this number alone, they will have to look into every industry, including shipping,” says Karatzas.
“Shipping as an industry has been in a multi-year trough and now it’s in the early stages of a cyclical recovery, thus it provides for good investment opportunities on its own right, for funds to enter the cycle now and ride the wave,” the finance advisor concludes.
Karatzas, originally from Greece, has been living in the US for more than 20 years. His advisory company was founded two and a half years ago. [13/01/14]