Well-heeled Hong Kong and mainland investors are among those being targeted by a shipping group that aims to buy and charter four to six oil tankers worth up to US$200 million in a customised club deal.
Speaking after meeting potential Hong Kong investors, Rasmus Bach Nielsen, chief executive of Singapore-based company Origoo, said final negotiations were taking place on the first project, in which investors would be able to buy a US$16 million stake in a vessel worth up to US$30 million.
Bach Nielsen said ship ownership was a hedge against inflation because the replacement cost of vessels increased along with inflation.
He said the tankers acquired by Origoo investors would specialise in transporting fuel oil or refined oil products such as petrol, jet fuel or chemicals over relatively long distances, such as between the Middle East and Asia or the Middle East and North America.
The tanker market generally has been buffeted by too much tonnage, which has put pressure on charter rates.
But Bach Nielsen was at pains to point out that the oil products sector was a lot different from the crude oil tanker market, with fewer new vessels on order.
The current order book for product vessels, so-called clean tankers, was about 15 per cent of the existing fleet. Meanwhile, demand for these vessels was forecast to grow by 5.5 per cent per year over the next few years, compared with supply growth of 3.2 per cent per year.
By comparison, the number of 300,000 dead weight tonne (dwt) supertankers on order was 30 per cent of the existing fleet and more shipyards were capable of building crude tankers than product tankers.
Bach Nielsen said the investment structure for the first tanker was based on a group of three to five investors, each providing a minimum stake of US$2 million. The ship would be owned and operated for five years before being sold. The internal rate of return for this ship was about 22 per cent, based on fixed-time charter income in the first two years followed by spot market exposure over the next three years.
'We have a very well-established platform, with some of the most seasoned shipping experts around, and what we see is a shortage of opportunities for ultra-high-net-worth investors to access ownership ... directly,' he said.
'Any investor can buy shares and bonds but the challenge is that a number of shipping companies are loaded with bad debt and have covenant challenges with their banks,' he said. 'We believe ship asset values, unlike real estate and other commodities, have still not recovered since the financial crisis but have a strong upside potential.'
The investment structure made non-recourse financing available because 'banks are comfortable to deal with new business when the anchor is strong, the business model is conservative, the entry level is low and the upside potential high'.
Outlining the attraction of investing in Origoo's shipping funds, Bach Nielsen said: 'We are seeing increasing wealth in Asia. There is also increasing volatility in stocks and bonds when investors are looking for stable investment opportunities. Shipping is historically a cyclical business with stable and strong returns particularly when the entry level is right.'
A special purpose company would be formed to own, operate and charter the ships, while Origoo, whose fellow directors include experts in banking, ship management and legal issues, would be responsible for the day-to-day management of the ship.