Oasis Shipping - Oasis

8/13/2019 Oasis Shipping - Oasis

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O ASIS S HIPPING L IMITED Confidential instructions for Oasis Shipping Limited 1

You are a member of the delegation (Managing Owner, Chief Financial Officer

(CFO), and an external advisor) for Oasis Shipping Limited , a very successful,

medium-sized Greek shipping company, headquartered in Athens. Oasis Shipping

Limited established in 1905, was until quite recently a local player, doing pretty well,but no more. This changed when the great-great grandchild of the founder, Aristotle

Oasis, took over. He was one of the first persons to realize the potential of Black

Sea trade after Michael Gorbachev took over power in the Soviet Union. Aristotle

established new contacts and developed new business right from the beginning.

Nowadays, your growth particularly stems from the rising East African trade, and

your location, close to the Suez Canal, and just “between” Europe and Africa,

benefits this business. This position has also led to a nice share of the upcoming

trade between Africa and China.

Like other shipping companies, the years after the financial crisis were not profitable

because worldwide trade fell. But this was just a temporary problem. Your good

customer structure remained unaffected, and soon you were back on the growth path

again; in fact, even better than before, because you were able to acquire some new

contracts after some of your competitors filed bankruptcy during the crisis.

To fulfill new contracts, you need five more ships and this is where Sørensen Invest

A/S comes into play, a serious Danish financial investor, very experienced in the

shipping industry. You estimate the costs of the new ships to be about 300m USD.

However, the losses during the financial crisis have eaten up your financial reserves

almost completely. Now your profits are fine again, but after the financial crisis it is

impossible for a Greek company to get a bank loan on ships – even when it is doing

fine.

1 This role play has been written by Peter Kesting, Aarhus University. All rights reserved. Do not usethis role play without the prior permission of the copyright owner. Contact: [email protected]. This role playis completely fictive. Any similarity with real persons or events is not intended.

mailto:[email protected]






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Consequently, you started talks with several investors about a “sale and lease back

contract” for ten ships of your fleet. Like its name says, this deal means that you sell

some of your ships to an investor, and the investor leases these ships back to you for

a specific time period. What happens with the ships after the leasing period is

completely at the discretion of the investor. The financial implications of the sale and

lease back contract will be fully determined by three parameters:

The sales price, i.e. the price that you sell your ships to the investor .

Here the main priority is that you get USD 300m to buy the new ships. If you

don’t get this money, the deal is pointless and you are not willing to engage in

it. Additionally, you would like to get some money for additional expenses, so

you think the sales price should be set at about USD 350m. And you thinkthat the ships are definitely worth it, if not more.

The leasing rate, the rate that you have to pay per year to lease the

ships. Of course you would like to have the leasing rate as low as possible.

Your aspiration is to pay around 20% per year, the lower the better. This is

way above the interest rate for a bank loan, but this rate includes the ships’

depreciation, and the markup reflects the investor’s risk. Of course the

financial investor can refinance these means at much better conditions – thatis how they earn their money. You don’t bother because you expect a gross

profit of about 60% per year on the invested capital. But your business

involves some risks as well.

The duration of the lease contract. You would like the duration of the

contract to be at least 5 years, because you want to avoid facing the same

restrictions in a few years from now., A longer contract duration yields more

profits for you; however, some of your main contracts will expire in 10 years

from now, so you would not like to go beyond this time frame.

Your CFO and his/her team have spent many hours calculating the financial

implications of the contract. They found that the basic profit from the new ships will

be USD 200m, given that the sales price is USD 350m, leasing rate is 20% p.a., and

the contract duration is 5 years. However it is important to remember that every

increase (reduction) of the sales price by USD 1m increases (reduces) your profit by

USD 2m, every increase (reduction) of the leasing rate by 1 point reduces



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(increases) your profit by USD 10m, and every increase (reduction) of the contract

duration by 1 year increases (reduces) your profit by USD 50m.

After several talks with various financial investors you decided to go with Sørensen

Invest A/S. You have already discussed the background and the substance of thedeal with them. There has also been a due diligence (a detailed investigation of the

physical condition of the ships and all other relevant issues of the deal) on both

sides, so basically everything is set for a deal. Now you are meeting with a

delegation of Sørensen Invest A/S (consisting of the Managing Owner and two

Project Managers) to conduct final talks regarding the specific conditions of the deal.

Try to negotiate the highest possible profit for Oasis Shipping Limited .

In brief:

Your net profit of the deal will be USD 200m, given that the sales price is USD

350m, the leasing rate is 20%, and the contract duration is 5 years.

Do not close any deal with a sales price below USD 300m.

Do not close any deal below 3 years and above 10 years.

Every increase (reduction) of the sales price by USD 1m increases (reduces)

your profit by USD 2m.

Every increase (reduction) of the leasing rate by 1 point reduces (increases)

your profit by USD 10m.

Every increase (reduction) of the contract duration by 1 year increases

(reduces) your profit by USD 50m.

Your profit therefore be represented by the equation:

Profit = 200 + 2*[Sales Price – 350] - 10*[Leasing Rate – 20]

+ 50*[Contract Duration – 5]

The ranking of this negotiation round is exclusively based on your profit.

Your profit only consists of the elements above. A no-deal leads to a profit of

USD 0.00 for both parties.

Deals that violate any of your restrictions above are treated like a no-deal.



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The tables below show your profit (in million USD) for different combinations of

leasing rates and contract durations for the three scenarios: a sales price of USD

300m (Table 1); a sales price of USD 350m (Table 2), and a sales price of USD

400m (Table 3). Please note that the negotiations are NOT restricted to thecombinations in the table – you can also negotiate ALL other combinations of sales

prices, leasing rates and contract durations that do not violate the restrictions above.

Table 1: Sales price of USD 300m

3 years 4 years 5 years 6 years 8 years 10 years

12% 80 130 180 230 330 430

16% 40 90 140 190 290 390

20% 0 50 100 150 250 350

24% -40 10 60 110 210 310

28% -80 -30 20 70 170 270

32% -120 -70 -20 30 130 230

40% -200 -150 -100 -50 50 150



12% 180 230 280 330 430 530

16% 140 190 240 290 390 490

20% 100 150 200 250 350 450

24% 60 110 160 210 310 410

28% 20 70 120 170 270 370

32% -20 30 80 130 230 330

40% -100 -50 0 50 150 250



12% 280 330 380 430 530 630

16% 240 290 340 390 490 590

20% 200 250 300 350 450 550

24% 160 210 260 310 410 510

28% 120 170 220 270 370 470

32% 80 130 180 230 330 430

40% 0 50 100 150 250 350

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Oasis Shipping - Oasis