Heavy Shipping Poised for Takeovers as Financing Fades: Freight

Heavy-Lift Ship Fleets Become M&A Targets as Banks Exit: Freight
The heavy-lift ship Ocean Charger, part of the Intermarine LLC fleet, is seen in this undated handout photograph provided to the media on Thursday, August 23, 2012. Source Intermarine LLC via Bloomberg

Shipping lines that carry generators and giant trucks for General Electric Co. and BHP Billiton Ltd. are becoming takeover targets amid a lack of funding for the vessels needed to tap one of the most resilient cargo markets.

The withdrawal of lenders such as Commerzbank AG, Lloyds Banking Group Plc and Societe Generale SA from maritime finance as credit policies tighten is making life tougher for specialist lines that dominate heavy-lift shipping, while arousing interest from potential consolidators including private-equity firms.

A merger last week between U.S-based Intermarine LLC, owned by New York buyout specialist New Mountain Capital, and Scan-Trans Holding of Denmark created the world’s No. 2 heavy-lift shipper and may herald a spate of takeovers in the sector, according to Al Stanley, who will head the enlarged company.

“If you’ve got a strong balance sheet and the ability to act quickly, opportunities come up when you’re in a turbulent industry,” Stanley, currently Intermarine’s chief executive officer, said in a phone interview from its base in Houston.

Heavy-lift shippers, which transport everything from giant trucks used in Colombian mines to General Electric generators and 75-meter (245-feet) blades for Siemens AG wind turbines, are luring investors as big-ticket items prove less dependent on the economy than the container market, which varies according to demand for Asian consumer goods in Europe and North America.

Smaller Operators

As of 2010 there were only nine lines operating 10 or more vessels with heavy-lift gear, according to Dirk Visser, an analyst at Dutch maritime consultant Dynamar BV. It’s the preponderance of smaller operators that makes the segment ripe for consolidation, according to Intermarine’s Stanley, who spent eight years at buyout firm Morgenthaler Partners and 10 at GE.

A Panamax container vessel -- of a size able to pass through the Panama Canal -- would have been making about $55,000 a day in 2008, more than twice the $20,000 from a multipurpose craft such as a heavy-lift ship, according to analyst Peter Sand. While following the global slump a Panamax vessel might now be earning only $10,000, revenue in the multipurpose segment is almost as high, at about $9,000 a day.

“It’s much more stable,” said Sand, who works for Danish shipping association Bimco, which accounts for 65 percent of global tonnage. “That’s why some private equity funds are looking at that segment -- because the investment horizon might be shorter than for more-mainstream shipping companies.”

China, Croatia

The business formed from Intermarine and Scan-Trans, which will keep the U.S. company’s name, will be No. 2 in the industry by fleet size, according to Visser, who defines heavy-lift ships as those with at least 100 metric tons of lifting capability.

The most powerful deck-mounted cranes are able to load items in excess of 2,000 tons and vessels can have a deadweight -- a measure of cargo capacity -- of 25,000 tons or more. Of 142 multipurpose ships delivered last year, two-thirds were made in China, where the leading manufacturers are China Shipbuilding Industry Corp. and China State Shipbuilding Corp., Visser said.

European yards also compete in the market, according to Jan de Pooter, head of new-build at Rotterdam-based Jumbo Shipping, which has a second 3,000-ton-capable vessel under construction at Brodosplit in Croatia. The ship will be fitted with cranes in the Netherlands, the second-largest builder of heavy-lift craft.

Oaktree Investment

Market leader BBC Chartering & Logistic GmbH, based in the German North Sea port of Leer, has 118 such ships, according to its website. That compares with 45 at the enlarged Intermarine and 22 at Hamburg-based Hansa Heavy Lift GmbH, the successor to defunct operator Beluga Shipping of Bremen and owned by Los Angeles-based buyout firm Oaktree Capital Management.

Other companies with at least 10 ships capable of hoisting 100 tons or more include Hamburg’s Rickmers Linie, Copenhagen-based Clipper Group A/S and Spliethoff Bevrachtingskantoor BV of Amsterdam, parent of BigLift. While most major operators are closely held, Safmarine is a unit of Copenhagen-based A.P. Moeller-Maersk A/S, the world’s largest container carrier.

Scan-Trans posted a record profit in 2008 before the impact of the credit crunch and recession pushed the company to its first and greatest loss in 2009, followed by another deficit in 2010. It has since returned to profit, though overcapacity created as companies expended fleets in the boom years continues to weigh on industry margins, CEO Lars Juhl said by telephone.

Shippers are still seeking to add vessels and boost crane capabilities to meet anticipated demand, according to Visser’s study, with the average lifting capacity increasing from 250 tons for the current fleet to 560 tons for craft on order. That may also drive consolidation as bank funds dry up.

‘Technically Bankrupt’

Commerzbank, the third-largest maritime lender, said June 26 that its ship-finance unit will close as the focus is narrowed to business that is “sustainably profitable.” That’s after Lloyds and Societe Generale quit an industry where margins are generally burdened by high fuel costs and low freight rates.

Purchases across the whole industry will require some $249 billion of debt and equity in the next three years, shipping fund manager Tufton Oceanic Ltd. said in a Jan. 26 presentation.

Consolidation may take other forms as indebted operators return fleets to banks which will sell them off at a discount, according to Scan-Trans CEO Juhl. Some German ship-owners are “technically bankrupt, kept alive because the banks allow them to kick the can down the street forever,” he said from the company’s former base in Naestved, southwest of Copenhagen.

‘Bunch of Ships’

“If there are larger deals where a bank comes along and asks us to take a whole bunch of ships off the balance sheet, then New Mountain could step in,” said Juhl, who will become chief operating officer at the merged company. “They have expressed their willingness to fund us for the right projects.”

Oaktree Capital Senior Vice President Roger Iliffe, a London-based former CEO at Hansa Heavy Lift, said his buyout firm, too, is actively seeking opportunities for consolidation and the purchase of distressed assets.

“The longer-term market for heavy lift is good,” he said. “We have our list of vessels we’d like and are waiting for the banks to come back. If they call you, you get a good price -- if you call them, it’s less good.”

Still, heavy-lift fleets mustn’t get too big, given the specialist nature of the industry, according to Iliffe, who said that market leader BBC, while “an excellent business,” sometimes has to consolidate shipments from 15 or 20 customers per voyage.

“We end up with two or three,” he said. “But very large pieces.”

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