Hong Kong: The director of one of Hong Kong’s oldest shipping lines has lashed out at private equity’s intervention in the industry, arguing that the downturn is far more harsh as a result of all the new money in shipping.
Kingsley Koo, the current chairman of the Hong Kong Shipowners Association, told Splash: “There is too much speculation in shipping.” He said there were too many funds with too much money investing in shipping. While Valles typically orders one or two ships at a time, private equity is ordering “by the hundred”, Koo said.
Koo urged fellow owners not too build new ships, as the markets are too fragile too absorb more tonnage. Valles’s fleet sees 12 ships on the water plus three product tankers on order, which Koo stressed was replacement tonnage.
While he felt tankers were picking up, Koo, whose past career included a lengthy stint at American class society ABS, was concerned about dry bulk prospects.
“I worry for some of the owners on the dry side,” Koo said.
Dear Kingsly
The private equity funds do not just mess up shipping but they mess up so many other industries because by nature they are just opportunists with hot cash to invest and who often have little knowledge the industry in which they are investing. But, of course it is a free market and they are free to devalue their investments if they wish. I know of one hot cash investment group who bought old jack up rigs and shafted me on USD 500,000 commissions. i try to keep away from them unless
they are very specialist shipping groups
david price
Mr Koo is absolutely right.
The private equity funds see one thing – the cyclical nature of freight rates and thus of ship prices – but what they are really “banking on” is not, in fact, the sale and purchase market for second-hand tonnage but the willingness of the large banks to re-enter the ship finance business. The reason why bulker prices are low at present is that Banks are not interested in financing them, and the reason why so many new ships are being ordered is that export credit finance for newbuildings remains available.
I think we will see a lot of S&P plays in the coming months as bulker prices hit rock bottom. I am already hearing that decent Japanese tonnage that comes onto the market is typically seeing up to 10 different companies vying for each ship. Amidst the doom and gloom there are opportunities for cash-rich firms to bag bargains
While I don’t entire disagree with sentiments of Mr. Koo, I struggle to find analytical measures linking private equity investment with new orders (contrast with investment in second hand tonnage). We can point to certain listed companies that have “splashed” their money-mojo around. At present, the banks are constrained- so PE/ “alternative capital” has jumped in- but I would like to see some better analytics on how much PE has contributed to the over-ordering. However, at the height of the market, when banks were throwing money at the market, they too were heartily slammed. Overcapacity is just part of the market dynamic and, to be honest, I get a little tired at folks talking about taming this wave- it ain’t gonna’ happen. My old mentor, Michael Hampton, had graphed these shipping cycles going back to the mid 1700’s. I think that a real issue is that with the growth of media, and PE all plugged in, like all of his, they see a blip up and think it’s indeed the end of the slump. But oversupply will always win.