Over the last couple of months we have witnessed the decimation of the OSV sector in Southeast Asia. Big names such as Swiber, Emas, Emas Chiyoda, Swissco and Marco Polo have all gone to the wall. With others facing debt covenant repayment hurdles in the near future, attention has turned to what values can be achieved by selling vessels. When trying to determine values I was reminded of the Charles Dickens novel, Oliver Twist, in which the orphan Oliver asks for more food to quench his growing hunger. This reflects the relative position of an OSV owner who is trying to get as much cash as possible for a vessel in a market that is over supplied and underutilised.
Not so long ago, it was fairly easy to determine a value. In 2014 we had utilisation rates of 90% plus and vessel undersupply. In essence second hand vessels held value and we could apply simple measures to determine a price. Criteria included:
- Age, Length, Width
- OSV / MOTTS/ PSV/ AHTS – crane, deck space , Bhp, Bp , DP2, FiFi
- Crew Vessel – Pax, Speed, Fittings
- Barge – Draft depth, weight rating.
These criteria allowed most brokers/ sellers / buyers to work off a list price. Such a list would look something like this:
New 5-year 10-year 20-year
Small AHTS $16.9m $15.4m $10m $5.3m
Medium AHTS $30.8m $27.4m $14.8m $9.5m
Medium PSV $27.3m $25m $14m $9.9m
How things have changed in 2017. Determining the value of a vessel is a lot more complicated, with a number of significant downward price drivers. When looking at the current market we see great price variations, even to the extent that DCF prices in business models are often 15%-20% overstated. Examples of the price range include
- Utility vessel range from $450k to $3.25m
- AHTS / MOTTS / Tugs range from $3.5m to $27m
- PSV range $1.4m to $19m
- Deck barges range from $150k to $2.2m
Other factors that hamper the establishment of benchmark prices:
- Very few vessels are actively on sale in the market for finance security reasons. Owners do not want to have realisable values exposed through a sale agreement. Realised values would more than likely result in companies being in breach of debt covenants with the banks.
- Having looked closely at a number of companies, I was surprised to see that book values on the balance sheet is overstated by about 20%. In the case of one company it can be claimed that their valuations can be discounted by at least 40%.
- Significant decline in vessel value once beyond 15 years of age.
- Offers between 10c and 90c in the dollar on the asking price. In one case, the realised value of the sale was at 40c in the dollar on list price.
- 1,300 out of fleet of 5,000 OSVs are inactive and 500 still on order, with 450 of these due for delivery in 2017
- Crew boat sector has approximately 13,124 vessels
- There has been a 27% decline in term charters in 2016 and only 81 offshore orders given in 2016
- Utilisation rates are now below the 60% mark, with latest reports out of MENA suggesting that current utilisation rates are around 45%. Indicative utilisation:
- AHTS (shallow water) 51% (533 out of 1052 vessels)
- AHTS (deep water) 30% (231/773)
- PSV (shallow water) 66% (210/317)
- PSV (deep water) 34% (304/894)
The elephant in the room, however, is the increasing need by companies to generate cash in order to meet debt covenants and repayments that are becoming due. Nothing focuses the mind more clearly than when creditors want to be paid. Most companies, if not all, in Southeast Asia are over leveraged and will need to sell assets in the very near future to meet these commitments.
This has led me to develop another checklist to help determine price. Items on my list include:
- Value of immediate and short term debt repayment due
- Shallow water vs deepwater capability
- Vessel over 15 years of age.
In summary, the current market trends and financial position makes it increasingly difficult to determine realisable values of the OSV fleet. These market conditions will last until at least the back half of 2018. Until such time as we get a balance in the supply side of vessels, improved utilisation rates and a sustainable increase in offshore E&P, I suspect that many a vessel sale will have the seller asking, “Please sir, can I have some more?”