How much does investing in shipping yield today? It depends on the ship you choose as a target, on the financial leverage you use and obviously on the time horizon that you have.
Venice Shipping & Logistics, a well known Milan-based advisory firm and investment fund focused on the shipping and logistics sectors in Italy and co-owner of four ships (two modern dry bulk carriers and two MR tankers), made some simulations for the private equity newswire BeBeez which gave birth to the VSL Shipping Equity Index, using market forecasts provided by Clarkson Research Services.
Up to now VSL, which is headed by ship finance specialist Fabrizio Vettosi, has provided yield simulations for investments for five-year old handysize tankers, supramax bulk carriers, medium range tankers and handy bulk carriers.
According to the VSL Shipping Equity Index in a positive scenario for shipping freight rates, if you invest today in a handy tanker and intend to divest in a three years time, you can get a 7.37% internal rate of return (IRR) if you leverage your deal or 6.13% IRR in the unleveraged case. However, in the worst case (i.e. rates going 10% down), you can suffer a negative 12% yield per year in a leveraged deal or limit your loss to 3.86% each year in an unleveraged one.
“In a five-year time perspective, the loss risk is smaller (i.e. 7.26% in the worst case with the leverage) still having an interesting potential gain of 7.3% per year in the best case,” Vettosi states, referring to the handysize tanker case.
“The same simulation was made also for a supramax bulk carrier which brings positive yields in line with the ones of a handysize tanker, while the potential losses are much more limited,” Vettosi reckons. Actually you can get about 11.6% per year for a period of three years in the best scenario when using financial leverage or lose 7.48% every twelve months in the worst case with leverage. The potential loss is instead limited to 4.95% per year if you have a time horizon of five years.
As for an investment in an MR tanker, the best scenario might give you an internal rate of return higher than 11.25% in three years with leverage or 8.25% in the no-leverage scenario. In the base case instead (i.e. freight rates stable around $14,000 per day) the forecast is just a 2.4% IRR. The worst case brings a 7.4% negative yield in a leveraged deal or -1.4% in an unleveraged deal. “The five years perspective limits potential losses to 2.9% in the worst case with leverage and gives you the chance to gain from a MR tanker more than 10% per year in the best case with financial leverage,” stresses the Venice Shipping & Logistics’ managing director. The five-year perspective limits potential losses to 2.9% in the worst case
Apart from the four investments in ships, the fifth major project in which VSL had an important advisory role came this year when Palladio Finaziaria became a shareholder with Intesa Sanpaolo Bank in the RINA Group, which runs Italian classification society Registro Italiano Navale (RINA). VSL also owns a 5% share in the Genoa-based group.
Italian private equity group Palladio Finanziaria Holding (PFH) is one of the three core investors in VSL, with the other two managing shareholders being d’Amico Societa di Navigazione and Vega Finanziaria. The remainder of the shares are held by several shipping and financial investors including Rosina, D’Amato, Telesio, Costa, Bogazzi families, as well as Banco di Credito Populare and Tamburi Investment partners.