US funds bet on Asia for shipping recovery

PUBLISHED : Thursday, 04 July, 2013, 12:00am
UPDATED : Thursday, 04 July, 2013, 3:48am

United States private equity and investment funds are betting Asia's shipping industry, hit by a restructuring wave that has already swept Europe and the US, is the best spot to ride a recovery from the industry's worst downturn in three decades.

Sturdy commodity demand growth and slower new ship deliveries will help balance fleet and cargo demand for the first time since 2004, analysts say, boosting freight rates next year and into 2015.

For private equity looking to buy into the upturn, Asian shipping firms undergoing restructuring, such as South Korea's STX Pan Ocean and Indonesia's Berlian Laju Tanker, offer opportunities. The ships investors are looking for are also being built in the region's yards.

More than US$3.5 billion has been invested in ships and shipping containers so far this year, according to figures compiled by Marine Money, compared with US$2.7 billion last year and US$4.2 billion in 2011.

"My guess is that unless the public markets open quickly there will be at least twice as much private equity commitment to the industry by the end of 2014," billionaire private equity investor Wilbur Ross said at a ship finance conference in New York last month.

The shipping industry splurged on new ships in 2007 and 2008 that were delivered just as demand slumped, particularly on once-lucrative oil export routes between the Middle East and Asia. The spree sent charter rates down as much as 90 per cent and halved the value of top-priced vessels, according to data from maritime consultancy Clarkson Research Services.

The interest from private equity is being driven by expectations of a recovery. Barclays Bank estimated in a report last month that the volume of seaborne dry cargo will start to outpace fleet growth by next year, increasing by 6.3 per cent against a 3.8 per cent rise in vessel supply.

US private equity firm Alterna Capital Partners ordered four tankers costing a total of US$130 million from South Korea's Hyundai Mipo Dockyard ship brokers last month.