Project work ipe-D'amico

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Il seguente lavoro analizza le fonti di finanziamento tipiche di una società armatoriale nel contesto di crisi economico-finanziaria del settore. In primo luogo, si opera una distinzione tra le fonti di finanziamento di debito e di capitale. Delle prime si mettono in evidenza le caratteristiche del finanziamento navale e degli strumenti obbligazionari a collocamento sia pubblico che privato. Per quanto concerne le fonti di equity, particolare attenzione è rivolta all’IPO e alle forme alternative di ricorso al capitale, tra cui il private equity. In ultima istanza si presenta una simulazione di finanziamento navale mediante canale bancario, utilizzando appropriate tecniche di copertura, secondo le attuali condizioni di mercato.

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The following paper analyzes the typical financing sources for a shipping company in the context of financial crisis. Firstly, the paper focuses on the distinction between debt financing sources and equity. Where debt sources are concerned, the most commonly used are bank financing and private and public issues of bond. Moreover, regarding equity sources, particular attention is dedicated to IPO and its alternatives like private equity. The last part is dedicated to a bank ship-financing simulation and related financial hedging instruments, according to ongoing market conditions.

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Project work ipe-D'amico

  1. 1. Finance Sources and Instruments for Shipping Companies Giuseppe Valerio Agovino Eugenio Biancucci Vincenzo Gregorio Del Sorbo Alessandra Laudati MIS – MASTER IN SHIPPING: LOGISTICA, FINANZA E STRATEGIA D’IMPRESA Tutors: Dott. Francesco Rotundo Dott. Giovanni Barberis
  2. 2. Logo azienda Shipping Companies 2/19 Capital intensive Family business High leverage Cyclical business
  3. 3. Logo azienda 3/19 Market tendence and optimal behaviours • ML term periods during which the market is stable, freight rates remain steady at medium/low level • During market peak, freight rates rocket Supply and Demand trend
  4. 4. Logo azienda 4/19 Financial crisis and Shipping Basilea 3 Credit crunch Leverage ratio decrement
  5. 5. Logo azienda Debt financing 5/19 The main debt financing sources are: Bank financing Bonds Convertible bonds Private and public placement Ship financing (Loan) Bank credit
  6. 6. Logo azienda Ship Financing 6/19 The Bank evaluation starts from the analisys of patrimonial status, resilience and refund capacity, in order to estimate the internal rating. the bank generates the contract proposal (term sheet), based on internal rating and market conditions, Internal rating Market conditions Term Sheet
  7. 7. Logo azienda Term Sheet 7/19 Interest rate • Benchmark • Spread Refund Conditions • Ammortization • Bullet Guarantees • Mortgage • Holding guarantee • [Refund guarantee] Covenants • Loan to value • Negative pledge • Next rata allowance
  8. 8. Logo azienda How to choose the benchmark 8/19 The choice of the benchmark for the loan has to be evaluated on the forecast of future interest rate trend. Bullish view of the interest rate  Pre-hedging • chosing a fixed interest rate Bearish view of the interest rate  floating interest rate
  9. 9. Logo azienda Bonds as an alternative for debt sourcing 9/19 The difficult conditions to access debt sources have prompted shipping companies, traditionally linked to bank financing, to look for new forms of financing. • The emission of bonds by shipping companies has increased noticeable during the last five years 46% 14% 24% 7% 4% 5% Asian Shipping Bonds Issues China Japan Korea Taiwan Singapore Malaysia-1000 4000 9000 Asian Shipping Bond Volume (in USD milion) 2009 2010 2011 Fonte: Bond Markets and Shipping: A Summary of 2011
  10. 10. Logo azienda Advantages and Disadvantages of public and private placement in bond allocation 10/19 Public High number of potential underwriters Size ≥ 500 € M Execution risk Covenants More complex and expences procedures More than one rating required Private Restricted number of selected high standing investors Size 50 – 250 € M No execution risk Less complexity and costs More control on the emission procedure High risk tolerance by underwriters required
  11. 11. Logo azienda Alternatives types of bond 11/19 Plain Vanilla Perpetual bonds Sukuk Convertible bonds Bonds
  12. 12. Logo azienda Equity sources 12/19 The use of equity sources is not well developed in Italy, due to the high standing required to enter this market and the cultural background of the shipping companies’ governance. IPOs Private Equity Mutual funds Mezzanine instruments (LBO, convertible bonds)  Requires an open attitude to the market  Access to mass investors  Mandatory strong reputation, financial resilience and company transparency  Internal adequate structure  Residual remuneration of the shareholders
  13. 13. Logo azienda The role of Private Equity in shipping industry 13/19 • IRR 25% • Duration 3-7 years • Capital gain • Strong investment (more than 30%) • Strong influence in the governance IPOs Private Equity Mutual funds Mezzanine instruments (LBO, convertible bonds)
  14. 14. Logo azienda d’Amico International Ship s.p.a. (DIS): IPO in FTSE/MIB in 2007 14/19 Differently from competitors, d’Amico I.S. has percieved the exigency to wide its horizon, in order to compete in the global market. Capitalization (2007): 241,19,349.5 Fonte:Morningstar
  15. 15. Logo azienda Ship financing simulation 15/19 According to nowadays market condition, the hypotesis concerns the buying of a new Vessel with the following features: • Vessel: HANDYSIZE MR2 (Product Tanker) 50.000 DWT • Price: 35.000.000,00 USD mm.dd.yyyy Tx (months) USD Causal 07.02.2014 T0 SAJ Form underwriting 3.500.000 1st advance 10% 01.02.2015 T6 3.500.000 2nd advance 10% 04.24.2015 T10 Steel Cutting 3.500.000 3rd advance 10% 07.02.2016 T24 Ship delivery 24.500.000 final payment 70% (bank committment) SAJ Form Agreement The contract establishes the following conditions for the ship building, terms of payment and delivery
  16. 16. Logo azienda 16/19 Loan Amount: 24,5 M USD refoudable in 10Y with 15 Y profile Refound procedure: Mixed (9 payments x 1,634 M USD) + (1 baloon x 9,8 M USD) Benchmark: 10 Y Mid SWAP (1,5%) Spread: 280 BP  250 BP Upfront: 1%  0,8 % Commitment: 1%  0,8% x year, until 07.02.2016 Guarantees: Mortgage; Holding Guaranty Covenants: Loan to Value 135% 130% Bank Contact (T1) & Term Sheet negotiations Company request: 70% of the vessel price (no execution risk) Bank Evaluation on company health status and financial stability (History; managment; reputation) internal rating
  17. 17. Logo azienda Bank approves at T3 the following debt repayment plan: 17/19 Anno Quota capitale (USD) Quota interessi (USD) Totale (USD) Residuo (USD) T24 - - - 24.500.000 A1 1.633.333 65.333 1.698.666 22.866.667 A2 1.633.333 65.333 1.698.666 21.233.334 A3 1.633.333 65.333 1.698.666 19.600.001 A4 1.633.333 65.333 1.698.666 17.966.668 A5 1.633.333 65.333 1.698.666 16.333.335 A6 1.633.333 65.333 1.698.666 14.700.002 A7 1.633.333 65.333 1.698.666 13.066.669 A8 1.633.333 65.333 1.698.666 11.433.336 A9 1.633.333 65.333 1.698.666 9.800.003 A10 9.800.003 9.800.003 0 Totale 24.500.000 587.997 25.087.997 • 2 months later the Bank stipulates the loan agreement (T5) Is possible to forecast the sale of the vessel for a particularly advantageous offer. Repayment the loan in advance  need to pay the value of the swap at mark to market. Is necessary to evaluate whether the capital gain is higher than mark to market.
  18. 18. Logo azienda Conclusions 18/19 Complex pattern of financial sources and the inability of bank loan to cover financial needs Major emissions of bonds and partecipatory financial instruments IPO and Equity finance • coherent use of pre-hedging instruments (IRS) • require a strong standing and reputation • financial marketing needed in order to get bank loan at better rate and conditions and competitive advantage
  19. 19. Logo azienda Thank you for your kind attention 19/19 Giuseppe Valerio Agovino Eugenio Biancucci Vincenzo Gregorio Del Sorbo Alessandra Laudati

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