Shipping and the Capital Markets in 2025 Craig Fuehrer – Managing Director – Deutsche Bank Securities 28 th Annual Marine Money Week June 2015
Shipping is an under-appreciated sector for the value-add it provides Tale of the Tape Established in 1999 Established in 1973 US$41 billion in assets US$12 billion in assets across offshore, gas and tankers 30 million packages delivered daily for 185 vessels items purchased from their site Leading internet commerce provider 6,700 employees Handle 10% of the world’s oil Market cap: US$214 billion Market cap: US$3 billion Deutsche Bank 1 Corporate Banking & Securities
Our shipping sector is small cap compared to other industries… NYSE Shipping $16.0 $16.0 $13.6bn $12.0 $12.0 (Average market capitalization) (Average market capitalization) $9.5bn $8.0 $8.0 1,964 1,806 $4.0 $4.0 $1.4bn $1.0bn $1.1bn $0.7bn $0.6bn $0.4bn $0.0 $0.0 June 2010 June 2015 June 2010 June 2015 Gas Tanker Bulkers Note: Gas peer group includes: Dorian LPG, Dynagas LNG Partners, GasLog, GasLog Partners, Golar LNG, Golar LNG Partners, Hoegh LNG Partners, Stealth Gas and Teekay LNG Partners Deutsche Bank 2 Tanker peer group includes: Capital Product Partners, DHT Holdings, Euronav, Frontline, Navios Maritime Acquisition Corp, Navios Maritime Midstream Partners, Nordic American Corporate Banking & Securities Tankers, Tanker Investments Ltd, Teekay Corp, Teekay Tankers and Tsakos Energy Navigation Bulkers peer group includes: Baltic Trading Ltd, Diana Shipping, Dryships, Navios Maritime Holdings, Safe Bulkers, Scorpio Bulkers and Star Bulk Carriers Market data as of 6/15/2015 Source: FactSet
Why?...We create the parties / hangovers Tankers Dry Bulk $140,000 200 $200,000 1,000 180 $180,000 900 $120,000 160 $160,000 800 $100,000 (Avg. Suezmax c. 2000-built spot rates) 140 (Avg. Capesize c.2000-built spot rates) $140,000 700 (Suezmax newbuild orders) (Capesize newbuild orders) 120 $120,000 600 $80,000 100 $100,000 500 $60,000 80 $80,000 400 60 $60,000 300 $40,000 40 $40,000 200 $20,000 20 $20,000 100 $0 0 $0 0 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Spot rate Orderbook Spot rate Orderbook Deutsche Bank Note: Tankers reflects 2000 year-built Suezmax vessels 3 Dry bulk reflects 2000 year-built Capesize vessels Corporate Banking & Securities Source: Clarksons
This has led to skepticism in capital markets for shipping 1 year share price performance - Tankers 1 year share price performance - Bulkers TNK 97.6% DSX (37.8%) NAT 54.4% NM (62.2%) TIL 50.0% EURN 46.2% SB (66.8%) TNP 33.6% BALT (75.6%) (a) NAP 21.2% FRO 16.7% SBLK (75.7%) DHT 16.1% DRYS (78.5%) NNA 1.1% SALT (82.1%) CPLP (20.9%) TK (24.4%) S&P 500 7.7% S&P 500 7.7% (60.0%) (20.0%) 20.0% 60.0% 100.0% 140.0% (100.0%) (80.0%) (60.0%) (40.0%) (20.0%) 0.0% 20.0% Outlook Outlook ? Is tanker rally going to last? ? Will the demand side ever come back? – Is it just seasonal? ? Too many ships….? – How long will recent earnings cycle continue? ? Won’t new orders be placed to kill rally? – Look at dry bulk – Companies need to renew fleets (buy existing versus build new) ? [TBU] It is all about sustained returns on capital Deutsche Bank 4 (a) Share price performance since IPO on 11/13/14 Corporate Banking & Securities Note: Market data as of 6/15/2015 Source: FactSet
What do investors want? Larger liquid companies! Private Equity / Hedge Funds Company Action M&A IPO ( ) ? Deutsche Bank 5 Corporate Banking & Securities
Why was Euronav IPO successful? Key IPO selling points Favorable charter market sentiment Large scale operations with 100% in house On January 22, 2015, $80,000 (“clean investment story”) and a $1.8bn Deutsche Bank acted as market cap the Lead Left Bookrunner $60,000 1 on Euronav NV’s $229.1 Increased potential share liquidity from near million (post-shoe) term exchange offer for Euronext $40,000 upsized Initial Public shareholders Offering of shares in the $20,000 United States 2 Robust charter rate environment $0 Euronav’s IPO captured a Apr-14 Jun-14 Aug-14 Nov-14 Jan-15 favorable turn in the crude 1 Year TC Rates 3 Year TC Rates Average VLCC 2010 Earnings tanker market charter Strong industry fundamentals sentiment as both spot – Favorable supply/demand outlook and longer term TL rates 3 Spot 1-year TC 3-year TC – Increased ton mile demand were climbing – Contango effect Current $69,801 $52,500 $45,000 1 mo. avg. $64,315 $40,583 $36,667 Strong pre-marketing campaign aimed at Pricing date: January 22, 2015 3 mo. avg. $50,018 $35,333 $35,067 increasing investor awareness for eventual 4 Offering size: $229.1mm (post-shoe) IPO 6 mo. avg. $36,773 $32,339 $34,179 16.3 million / Shares offered: 100% primary $12.25 Offer price: 1 year avg. $29,201 $28,991 $30,759 Discount to launch: (5.4%) Experienced management team with clear 3 year avg. $21,461 $23,769 $27,093 Discount to last sale: (2.3%) and well articulated management 5 presentation % of pre-deal mkt. cap: 12.4% 5 year avg. $22,574 $26,766 $30,182 Mult. of 3-month ADTV: 41.5x Lead Left Bookrunner Deutsche Bank role: Note: 1 and 3 year timecharter rates based on modern 310,000 dwt VLCCs. Deutsche Bank 6 Source: Clarksons Corporate Banking & Securities
The way forward to 2025… Companies need to get bigger – market capitalization >US$1.0 billion as a start towards US$3.0 billion – larger companies will create path towards equity index inclusion which will open more doors to institutional investors Expand investor base more towards traditional institutional investor base – long only mutual funds versus fast money hedge funds – increased share liquidity will create more efficient entry / exit paths for investors Greater discipline on ordering…we have enough ships! Enjoy the good times… Greater push for sustained returns on capital Deutsche Bank 7 Corporate Banking & Securities
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