Charting a course Financial restructuring and consolidation in the shipping industry

Ian Wallace, 28 January 2015

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Turbulent markets

• Supposed sector recovery in 2014? • Sector challenges:

• Fundamental overcapacity • Estimated global trade volumes increase by 3.5%

to 4% to 2017, vs world fleet growth of 6% • Slowing of Chinese economy • Falling oil price • Strong competition • Increased regulation • Geopolitical tensions in Ukraine/Middle East • New sources of financing

• Increasing need for more permanent solutions for shipping companies?

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Fundamental overcapacity has not changed

Source: Containerisation International

Deliveries Scrap Net

teu

2012 2013 2014 2016 2015

2,500,000

2,000,000

1,500,000

1,000,000

500,000

-500,000

-1,000,000

0

Net fleet by capacity

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Fundamental overcapacity has not changed

Overcapacity in the dry bulk market

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The growth of restructuring

• Major restructurings in the sector 2013-14 • ZIM, Excel Maritime Carriers, Torm, OSG, Eitzen Chemicals, Pan

Ocean, Genco etc

• Increasing prominence of restructuring solutions partly due to: • Influx of new money from PE/hedge funds • Cashflow concerns • Absence of new money from shipowners

• Key restructuring trends: • Growth of LBO and corporate-style restructuring techniques • Debt trading and new money drives restructurings • Traditional ‘enforcement’ still uncommon in complex/high value groups • Chapter 11 and other restructuring tools available

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Consolidation and Strategic alliances

• Some key M&A/strategic deals in 2014 • Hapag-Lloyd and CSAV, Hamburg Sud and CCNI, CMA-CGM and

OPDR, and Horizon Lines and Matson

• Some key strategic alliances

• 2M Alliance; the Ocean Three Alliance; Hamburg Sud and United Arab Shipping Co agreeing an alliance; and the established CKYH Group adding Evergreen Lines and the G6 Alliance

• Increased cooperation among global regulators

Hapag-Lloyd $5.6bn business combination with the container shipping activities of CSAV • Creating 4th largest container shipping co., ~200 container vessels, ~1m TEU capacity • Savings of at least $300m are anticipated as a result of network optimisations

improvements to productivity and cost reductions • Complex transaction – over 30 jurisdictions involved • Market volatility created issues on ship and company valuations • Moved strategic alliances in the focus of antitrust authorities

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Consolidation and Strategic alliances

• Consolidation issues to overcome: • Regulatory/competition clearances • Strategic issues re: management and direction of travel • Legal concerns: JV agreements, merger documentation etc • Stakeholder management: lenders, employees, charterers etc

• Outlook for 2015