US Private Equity Invest Heavily In Restructuring Asian Shipping Firms Following Shipping Downturn

Asia’s shipping industry may have just been hit by the restructuring wave that has already swept Europe and the U.S., but American private equity and investment funds are investing in hopes of riding a recovery from the worst shipping downturn in three decades.

The Asian shipping industry hit hard times in 2007 and 2008, when it splurged on new ships that were delivered just as demand slumped, particularly on once-lucrative oil routes between the Middle East and Asia, according to the Jakarta Globe, an Indonesian newspaper.

That spree sent charter rates down as much as 90 percent, and halved the value of vessels bought at the top of the market, according to data from the maritime consultancy Clarkson Research Services.

As such, the list of Asian shipping firms seeking rescue is lengthening. South Korea’s STX Pan Ocean (SGX:GZ9), the largest shipping failure in Asia, had a total debt of $4.94 billion as of the first quarter of 2013.

But these Asian firms, having plummeted in value, represent good investment opportunities for American private equity and investment funds. The interest is being driven by expectations that the shipping industry will finally recover, and pull out of a long slump, according to the Jakarta Globe.

More than $3.5 billion has already been invested in ships and shipping containers so far this year, according to a study by Marine Money, compared with $2.7 billion in 2012 and $4.2 billion in 2011.

“Lots of funds are running around and ordering new ships or at least trying to,” said Tim Huxley, chief executive of Hong Kong-based shipowner Wah Kwong Maritime Transport. “It will need patience as there won’t be an overnight bounce back, but it’s got plenty of potential if you partner up with the right people.”

Major deals in recent months include U.S. private equity firm Alterna Capital Partners ordering four tankers costing a total of $130 million in June from South Korea’s Hyundai Mipo Dockyard (KRX:010620) in a continuing investment in the tanker sector; U.S. investment group York Capital Management striking up a joint venture with Greek-owned container ship operator Costamere to spend $500 million acquiring ships; and New York-based Oaktree Capital Management teaming up with German shipowner Rickmers to order up to 16 container ships.

In addition, the New York corporate advisory firm Alvarez & Marsal is conducting due diligence on behalf of several private equity funds looking at investments in Asia, according to Ray Dombrowski, a managing director at the firm.

The funds are looking at as many as 20 ships that have been ordered but are not yet under construction at shipyards in China, South Korea and Japan, Dombrowski said.

“They believe the ships that are being built are more economic, with more efficient engines, so the cost of operating them will be significantly lower,” Dombrowski added, according to the Jakarta Globe. “They are large U.S.-based but global funds who want to be well-positioned when the recovery in the shipping market picks up in earnest.”