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Borealis Maritime: Buy low, sell high

London: Contrary to much positive sentiment earmarked for rates in the second half of this year, the founder and managing director of Borealis Maritime is concerned.

The much talked about firm made up of former Allocean high fliers does not share the positive sentiment of others for the remainder of the year.

Investors in 2013 rushed in to the market with the expectations of a quick profit, but most have been left disappointed so far, explains the boss of the firm, Christoph Toepfer. Volatility in asset prices, particularly in the dry bulk market, is likely going to remain high, he reckons.

“Profits can be good if timing is perfect, but most investors are not nimble and disciplined enough to get their timing perfect,” he says, while reserving some praise for private Greek shipowners, who he thinks are likely to outsmart most of the so called smart money.

“Returns for investors are very time sensitive, and a delay in the market recovery by one to two years may destroy returns,” says the German national.

“We expect a downward tickle in most of the main segments over the next six months, not for lack of supporting fundamentals, but asset prices had run too far ahead and the chartering market did not follow,” Toepfer observes.

On the container side he reckons there may well finally be a more proactive approach to clear out insolvent KG ships from Germany, which may keep a lid on values for the time being.

While instability in Iraq, Syria, Libya and Ukraine is a concern, the real worry for Toepfer lies in China with its bloated real estate market and shadow banking system, something he says could contain “Lehman crisis downside potential”.

Describing itself as an integrated investment and vessel management firm, Borealis started out in 2010.

“The best time to invest in to shipping is during a time of low asset values,” Toepfer relates. Back in 2010 he could see that the coming years were going to be a very difficult period in shipping and would therefore likely offer attractive investment opportunities. Borealis was established in January 2010, starting with a small team of three people who all had previously worked at Allocean. Most of 2010 was spent on securing equity backing from investors. Initially the company decided against pursuing private equity, believing the process would take too much time and have a too uncertain outcome.

“The raising of debt as a start-up was further going to be very challenging, and we therefore decided to use our good relationship in to the German, Norwegian and UK banks to try work on refinance existing projects in cooperation with the existing lenders,” he explains.

Borealis wanted to target markets with an attractive fleet supply profile and a higher barrier to entry and started targeting the chemical tanker market. In January 2011 the company acquired its first two chemical tankers at auction with the support of the existing mortgagee. This was followed by several additional purchases of chemical tanker between six to 17,000 dwt, many in cooperation with the existing lenders.

While building the fleet Borealis also concentrated on building a partnership with a commercial team and found this partner in North Sea Tankers, a company set up by a group of ex Stolt-Nielsen executives. Since 2012 the Borealis Investor Group owns a share in North Sea Tankers who today manage a total of eight chemical tankers for it. In early 2014 Borealis acquired Crystal Pool together with its commercial activities and now has a specialised chemical chartering team based in Helsinki.

In 2012, Borealis decided the time was right to chase private equity money. It had secured $200m in private equity by the following year.

It also then targeted the container sector. Toepfer says the sector was attractive for investments due to its dysfunctional ownership structure dominated by insolvent German KGs, and a large debt problem faced by banks. “This should result in low asset prices from forced sales for some time,” he says. Borealis made its first container investment in November 2013 followed by four more vessels so far in 2014.

In total, Borealis is about one third invested so far, Toepfer says, admitting honestly that some of its early investments were too early, but overall the company did not rush into the market with massive newbuilding orders or big fleet purchases.

The goal now is to grow the business by identifying attractive investment opportunities.

“We are working closely with many lenders and companies on problem loans and also acquire vessels which we believe to have a long term attractive value,” he says, adding: “We do not expect any quick profits, but want to build a sustainable shipping company that will invest and manage assets through the various cycles. We will continue to work with different investor groups over time as markets move from distress to attractive yield, and cycles repeat themselves.”

Borealis wants to strengthen and consolidate its position in the Northwest Europe and Baltic chemical market as well as adding to its container fleet.

Toepfer himself is a man who can truly claim shipping is in the blood. He grew up in a Hamburg shipping family. One grandfather was Alfred Toepfer, a grain merchant and shipowner, and the other Egon Oldendorff, another well know shipowner.

“With shipping in the blood from both of my parents my eventual fate was probably sealed from very early on,” he says, smiling.

Toepfer started out with Tufton Oceanic before co-founding an internet start-up in 2000. Following the bursting of the bubble in 2001/02 he started his own shipbroking business, mostly focused on financial sale and lease-back structures.

Over time Allocean, part of the Allco Finance Group in Sydney, became his most active client. In September 2006 he joined Allocean and by early 2008 he had been made managing director.

After a couple of years Toepfer looked for pastures new, and Borealis was founded in the UK, a company whose star is now very much in the ascendant.  [26/06/14]


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