SHIPPING FINANCE

PRESENTATION TO: NATIONAL TECHNICAL UNIVERSITY OF ATHENSNIKOS VERAROSDATE: 12/5/2003

INDUSTRY FINANCIAL OUTLOOK

Highly cyclical industry Highly leveraged asset Timing critical for investment success Active second hand market for the

assets Average Return on Asset of 10% Average Return on Equity can be

significantly improved through financial leverage & good timing

VESSEL VALUES vs FREIGHT RATES

Panamax freight rates vs. vessel prices

020406080

100120140160

No

v 19

93

Apr

 199

4

Sep

 19

9

Feb

 19

95

Jul 1

995

De

c 19

9

Ma

y 1

99

Oct

 199

6

Ma

r 19

97

Aug

 19

9

Jan

 19

98

Jun

 19

98

No

v 19

98

Apr

 199

9

Sep

 19

9

Feb

 20

00

Jul 2

000

De

c 20

0

Ma

y 2

00

Oct

 200

1

Ma

r 20

02

Freight rates Vessel price

Vessel values follow freight rates fluctuations with a time lag

DEMAND IN PRINCIPLE …

Shipping trade demand growth Long-run: related to World Economy Short-run: fluctuations trigger shipping cycle surges & dips

Relatively inelastic to changes in freight prices because:

1. Transportation cost is only a small portion of overall product cost

2. Transportation comes at the very end of the production process

DEMAND GROWTH

Qty

surge

dip

time

long-run growth

short-runfluctuations

SUPPLY IN PRINCIPLE …

Relatively elastic to freight price changes Usually operators overreact to changes

in demand

EXPECTED FLEET GROWTH (measured in deadweight tons)

Current fleet sizePlus: Vessels under construction Change in avgMinus: Vessels to be scrapped fleet age

SHIPPING CYCLES IN PRINCIPLE …

C

Decline

AFlat

AFlat

BUpturn

… SHIPPING CYCLES IN FIGURES

TIMING IS WHAT COUNTS

When to enter? When market is flat

When to exit? Quickly, when market conditions

improve

When investment timing proves wrong, we should hold until the storm passes

FINANCING OF SHIPPING

Bank mortgage loans is by far the main method of financing

Capital markets (equity & bond issues) have only marginal contributions

Bank Financing to Greek Shipping (USD mn)

16,715

18,912

15500

16000

16500

17000

17500

18000

18500

19000

19500

2000 2001

Ocean going, 91%

Ferries, 9%

Source: XRTC

Bank Financing to Greek Shipping (USD mn)

Country ParticipationGreece 21%Germany 29%France 9%US 7%UK 19%Netherlands 8%Switzerland 4%Norway 3%Other 1%

Source: XRTC

Economics of Shipping Loan

Total Firm Value = Debt + Equity

Time Firm Debt Equity Leverage RoA RoE

0 100 80 20 80% - -

1a 130 80 50 62% 30% 150%

1b 90 80 10 89% -10% -50%

1c 75 80 ? ? -25% ?

Process of Granting a Shipping Loan

1. Submit proposal to the Bank2. The Bank offers Indication Letter3. Negotiate terms4. The Bank obtains Credit Approval and issues Commitment Letter5. Sign Commitment Letter6. Lawyers take charge and draft Loan Document7. Sign Loan Document8. Money Drawdown

VESSEL PARTICULARS RELEVANT TO FINANCING

Vessel Type Dwt Built Lwt Flag SS Due

Niki MT 60,000 1982 8,500 MALT Dec 03

Newbuilding Financing

Instalment payments to the yard Signing Keel laying Launching Delivery

Refund Guarantee Bank pre-delivery financing

Lease transactions

Concept of Depreciation Structures to benefit from depreciation

charges

Stock Exchange

Only Ferry companies so far in the Athens Stock Exchange Attica Enterprises, Minoan, Anek, Strintzis,

Nel, Dane Legal framework under review for ocean

going companies Major listings in New York include:

Tankers: Stelmar, TEN Bulkers: Angelikousis