Pareto World Wide Shipping AS

Transcription

1 Pareto World Wide Shipping AS 2nd quarter report 2013 Link:

2 Executive Summary NAV NOK 141/share (as per ) The year has been an active one for the portfolio, with asset sales at good prices, significantly improving PWWS dividend capacity. The market development continues to be generally positive in offshore oil services, while it seems the shipping markets have reached bottom with some improvements already evident. Finally, the manager has presented an exit alternative for investors, which may be consummated during Market Development Activity has risen in both shipping and offshore, and charter rates are in a positive trend. Renewed optimism, combined with some easing of financing conditions have resulted in a greater interest to acquire assets in the two segments and a positive development in values overall. The Offshore Market The increase in offshore oil service activity has continued this year, with some lagging segments finally coming to life. The rising backlogs among many players indicate that the upwards trend will continue in the coming years. The positive surprise so far has been the positive development in day rates for both PSVs and AHTS, while we continue to see strong day rates and activity in seismic and the subsea contractors continuing to build backlog. The oil price has been weaker than expected, primarily due to growth concerns in China. The issue of rising costs in the oil industry has also been highlighted and could potentially reduce the activity growth in the coming years. As a result, more forecasters have trimmed the expectations for oil industry spending growth to around 5% per annum from 10% per annum. «an exit opportunity for shareholders already in 2013» The Shipping Market We are appear to be at or just past the trough in shipping as the trade growth is absorbing the rest of order book for new capacity well. Day rate improvements have been noted in dry bulk, product tankers and chemical tankers. Overall, there is generally a growing optimism in shipping which puts PWWS in a good position when it comes to realising its shipping portfolio in the next few years. Portfolio The manager has concluded the sale of two projects this year, which make up 8% of the portfolio. No new investments have been made and the focus going forward is on realising the portfolio in the best possible way. The manager is working on another major realisation, which may be consummated this summer. We have continued to work hard to present shareholders with a solution as PWWS heads towards the end of its scheduled life in July This has been done through a competitive auction for PWWS portfolio among international, institutional investors. The manager is pleased to report that there is a binding bid from Morgan Stanley Alternative Investments, which gives current shareholders the opportunity to exit PWWS at a price equal to NOK 122 per share. This represents a discount of 13% to the current NAV and a premium of 36% to the latest trading price of PWWS shares. The exit is a voluntary and individual option. If a sufficient number of shareholders choose to exit, a new structure will be proposed whereby the underlying portfolio is put into a new structure, jointly owned by PWWS and Morgan Stanley. This vehicle will endeavour to realise the portfolio in the best possible way within a 5-year time frame (with options to extend for a maximum of two years). The vehicle will not make any new investments. Newbuilding prices now appear to stabilise at a level that is attracting a fair level of new orders. Second hand tonnage is also attracting new interest, although the introduction of new eco-designs poses questions of what discounts older and less fuel efficient vessels should trade at.

3 NOK per share in PWWS Net Asset Value Development We publish an updated Net asset value in connection with the potential transaction whereby shareholders can realize their holdings in PWWS. NAV has been flat during H1 13. The USD/NOK has strengthened and many projects have had a moderately positive development. This has been offset by a write-down of the value of Singapore Tankers, which is in the process of being realized. NAV development NAV as of was NOK 141 per share, up 1% on the previous NAV ( ) and down 1% over the past 12 months. The next NAV will be reported in the Q2 13 report. NAV is flat since inception in 2006 (adjusted for repayments). This is primarily due to a weakening USD, which has had an 9% drag on the total return. In USD, the total return since inception is 8%. It is important to bear this in mind, as about two thirds of PWWS investments have been (and continue to be) in USD. This return is acceptable, and is owed to consistent, positive returns in our offshore oil service investments. The performance drag has come from the strong headwinds we have faced in the global shipping markets. While PWWS managed to exit many shipping investments at peak, the continued weak markets from 2009 and onwards finally took its toll on some of our largest charterers during 2012 and continue to pose challenges when exiting older projects in shipping. PWWS is in the process of exiting the project Singapore Tankers, where the counterpart is financially distressed. A framework for a transaction has been agreed, but at the time of writing there is still execution risk. As a result, this project has been marked down further in the new and updated NAV. Apart from this, the rest of the portfolio has increased in value. Direct yield In total, PWWS has paid out NOK 401m to its shareholders since inception, which equals 30% of par value. The next distribution is expected to be concluded at the end of Q3 13 and will depend on the outcome of the proposed transaction whereby current shareholders can make an exit. Last 6 mths Last 12 mths Last 24 mths Since inception PWWS 1.4% -2.7% 0.0% 0.5% Oslo Stock Exchange 7.7% 17.5% 13.5% 25.2% Shipping Index * 24.4% 43.3% 29.6% -10.7% Offshore Index ** 1.3% 11.9% 9.3% 24.6% * Based on OSE Marine ** Based on OSE Energy Equipment & Service PWWS - NAV development NAV per share NAV per share (dividend adjusted) PWWS - NAV Composition per share (NOK) Cash in Debt in Value of SPVs SPVs charters Charter free values Cash in Sellers' PWWS credit Net tax Other position costs 1 2 NAV PWWS Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun

4 Portfolio News PWWS is invested in a broad range of shipping and offshore projects, which implies a significant diversification across different markets. This section provides an update on the quarter s most important newsflow related to the underlying investments and the portfolio. Deep Sea Bergen Invest / KS AS Bergen Drillpart The sale of these two investments was concluded in February 13 with total proceeds to PWWS of around NOK 80m. Asian Offshore I and Asian Offshore III We are pleased to report that the pool of 15 AHTS (of which AO I and III has 10 vessels) in RK Offshore International is performing well. The average utilisation YTD is 87%, compared to 64% when the pool started in October. The average day rate this year has been 23% above the level of Q4 12, due to strengthening markets. The outlook for the second half of the year is good. Working capital requirements have continued to strain liquidity, but the pool participants are working on several solutions to this. Master & Commander The Commander s charter with Reflect Geophysical has been cancelled as the charterer did not honour its obligations. Due to significant upfront payments, M&C is in a better position than would otherwise have been the case if the vessel had continued for CGG. The vessel has been mobilised to Singapore where it is marketed for sale or new charters. The Phoenix continues on charter to CGG. A dividend payment is expected in H2 13, depending on the outcome on the Commander. a USD 2.5m seller s credit. The board in the project are already evaluating new long term charters for the vessel and expect to conclude on this in the near term. It is not expected that this will have a negative impact on the value of the project. Singapore Tankers The project is in a realisation phase. There is a heads of agreement whereby the counterpart Oceanic Shipping buys back the vessels with assistance from a company controlled by the Chinese Government. At the time of writing there is some execution risk and the settlement is due to come in three instalments. It is nevertheless hoped that the transaction will close during the summer. If the transaction does not close, there is further downside risk in this project, which will have to be borne by all current shareholders in PWWS. North Sea PSV The vessel now has contracts through 2013 for various clients and looks to earn an average day rate close to NOK on a 365-day basis. This is a good level in a market that has developed better than anticipated. 3B Offshore The project has paid a dividend of USD 0.6m to its investors, five months after inception and ahead of schedule. Brøvig UBT The market is improving and dayrates have risen 20%- 30% in the past quarter. One of the vessels has been sold at an agreeable price with delivery in March 13. The proceeds were used to take out Brøvig from the project, resulting in PWWS increasing its stake to 44% from 20%. The remaining vessel continues to trade with the owners evaluating both longer term charters and a sale of the vessel. Norseman Offshore The project has paid a dividend of USD 1m to its investors, five months after inception and ahead of schedule. Payments from projects Year to date, PWWS has received a net NOK 100m in cash distributions from projects. B-Gas The markets have picked up again and the performance this year has been steady. The company paid out a USD 1m dividend to its shareholders in May 13. Strategies for expanding the fleet with new vessels are continuously being evaluated. New investments The Board and the Manager do not plan to make further investments. The focus is now on realising the portfolio in the best possible way to create good shareholder returns. Vestland Seismic The underlying charterer RXT has now announced that it will go into liquidation, resulting in the original charter (5 years remaining) being cancelled along with

5 Portfolio The portfolio is robust with 74% contract coverage, of which 59% is on bareboat contracts with no technical risk. The portfolio is well diversified with 71% invested in offshore oil services and 29% within shipping. The largest segments are offshore support vessels, subsea vessels, seismic vessels, chemical vessels and product tankers. The secured gross nominal contract backlog is NOK 1.4bn, with an average contract length of 3.2 years. Investments and capital PWWS portfolio consists of 31 projects that own stakes in 72 units. Its cash position as of was NOK 178m. Around NOK 20m is reserved for follow-up investments in existing projects. Charterparty Distribution Bond 0% PWWS has a life cycle that expires 1 July The Board and the Manager has presented shareholders with an early exit at a 13% discount to NAV, but a 36% premium to the transaction value of PWWS shares in the secondhand market. Shareholders who do not wish to exit are invited to maintain their exposure in a new vehicle with a 5-year life cycle together with new investors (i.e. 4 years beyond the current term of PWWS). This vehicle will focus solely on realizing the portfolio. Bareboat 59% Timecharter 15% Spot/Asset Play 26% PWWS shareholders are asked to decide whether they want to exit or stay on during summer Based on the amount of sellers, a final agreement will be negotiatet with the prospective buyer. This agreement will be presented to an extra ordinary general meeting (EGM) in August, where the transaction requires a 2/3 majority vote from the shareholders to be approved. Rig 1% AHTS (Europe) 5% Segment Distribution Subsea 12% Seismic 9% Accommodation 8% If the transaction is not carried through, the Board and the Manager will convene an extraordinary general meeting during Q3 13 to propose a 2-year extension to PWWS life cycle, i.e. to July It should be expected that another extension will follow to allow for sufficient time to realise the portfolio s full potential. The backlog is mainly spread across several counterparts and has an even exposure between offshore oil services, supply vessels and industrial shipping. Contracted revenues per year is also stable and appears sufficient to cover all debt and operating cost commitments through AHTS (Asia) 22% PSV (Europe) 15% Product tanker 8% LPG 8% Chemical 11% Cruise 2% Overall, PWWS share of revenues and asset sales in the projects is expected to yield around NOK 4.1bn of income, while total debt and cost commitments amount to roughly NOK 2.4bn. Financing situation in the projects PWWS share of debt in the projects amounts to roughly NOK 1.3bn, implying an average project leverage of around 56%. This is healthy, considering the high contract coverage. The repayment schedule is evenly spread across the coming four years. Balloon payments are scheduled in line with project completions and resulting asset sales. Charter hire backlog by counterpart African Offshore Services 17% Reef Subsea 8% Other 37% CGG Veritas 13% ConocoPhillips 1% Titan Oil 7% Heung-A Shipping Ltd. 7% STX Europe 5% Swiber Offshore Marine Pte. 5%

6 Portfolio (continued) Project / company Contract Charterparty Charterer Proportion of NAV Neptune Subsea IS Feb-17 Bareboat Reef Subsea 11.7 % Asian Offshore III IS Spot/Asset play 10.0 % Singapore Tankers AS Apr-16 Bareboat Titan Oil Pte. Ltd. 8.4 % Asian Offshore IS Spot/Asset play 7.9 % Master and Commander IS Mar-19 Bareboat Wavefield Inseis ASA / CGG Veritas 7.8 % B-Gas AS Aug-12 Timecharter Total / Vitol / Statoil 7.1 % Offshore Accommodation IS Dec-21 Bareboat African Offshore Services 4.2 % Havila Shipping ASA Jun-14 Timecharter 3.9 % PSV Invest IS Jan-18 Bareboat ConocoPhillips 3.9 % Parbarge IS Jul-23 Bareboat African Offshore Services 3.8 % PSV Invest II IS Nov-13 Timecharter Maersk Oil 3.6 % ParChem IS Nov-18 Bareboat Heung-A Shipping Ltd. 3.1 % NorthSea PSV IS Spot/Asset play 2.5 % Berthea IS Spot/Asset play 2.3 % Partankers VI IS Dec-15 Bareboat STX Europe 2.2 % Far East Offshore IS Feb-17 Bareboat Sanko Steamship Ltd 2.1 % Brøvig Stainless II DIS Nov-16 Bareboat Stolt Tankers B.V 1.9 % Norseman Offshore IS Dec-20 Bareboat Viking Supply Ships AS 1.8 % River Cruise KS Mar-16 Bareboat Viking River Cruises S.A. 1.7 % Parchem II IS Aug-14 Bareboat Eitzen Chemical ASA 1.6 % Bukit Timah Offshore DIS Jul-20 Bareboat Swiber Offshore Marine Pte. 1.4 % Iceman IS Spot/Asset play 1.3 % Vestland Seismic IS Sep-18 Bareboat Albatross Shipping Ltd. (RXT) 1.2 % 3B Offshore IS Nov-17 Bareboat Bourbon 1.1 % Carlisle Subsea IS Oct-15 Bareboat Hallin Marine Subsea International Ltd 0.8 % Bassdrill Ltd Aug-15 Timecharter Petrobras 0.8 % Lion AHTS IS Spot/Asset play 0.7 % Atlantic Gas II IS Oct-15 Bareboat Geogas Maritime SAS 0.7 % Brøvig UBT AS Spot/Asset play 0.5 % PWWS - Cash flow composition vs debt service, NOKm Capex (-) / Sale of assets (+) Spot EBITDA Contracted EBITDA Debt service PWWS - EBITDA composition Supply 32% Oil Service 38% Industrial shipping 30% 0 1, PWWS - Debt in projects, NOKm PWWS - Duration of contract backlog 1, Sellers credit 1,200 1, Bank debt Later 40% 1 years 22% ,327 1, years 38%

7 Price per share Volume (Thousand NOK) Second Hand Market and Liquidity As of PWWS had 8.2m shares outstanding. Pareto Project Finance AS ( PPF ) strives to facilitate an active second hand market for shares. The last trading price at the time of writing was NOK 92 per share. Pareto Project Finance has temporarily suspended its trading of the shares in PWWS until the proposed transaction with a possibility to exit has been clarified or completed. Second hand market Despite a general improvement in the underlying markets, the second hand pricing of the shares have plummeted from NOK 115 as per Q3 12 to NOK 92 as per today. The traded volume is NOK 17,3m so far this year. From what brokers and investors tell us, this steep decline seems primarily driven by investors preference for liquidity rather than future upside. This is an important reason behind the proposed transaction whereby investors who wish to exit can do so at significantly higher levels. Many of the traded share prices displayed in the graph below (red dots) have been calculated on the basis of implicit feeder trades, adjusted for the merger exchange ratio. Last 5 trades in second hand market Date Share price No. of shares Volume (NOK) 15/05/ ,088 15/05/ ,044 15/05/ ,700 14/05/ , ,691 14/05/ ,979 Number of trades since startup: 1, Volume traded NAV per share NAV per share (dividend adjusted) Second hand price per share 10,000 9,000 8, ,000 6, ,000 4, , ,000 1,000 0 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Date 0

8 The offshore oil services market The activity growth continues unabated, despite oil price volatility and uncertain financial markets. The oil industry is planning for the long term, driven by reserve replacement needs and production growth ambitions. In fact, the most negative factor this year has been project delays on political hurdles or late delivery of equipment, but this only adds to pent up demand going forward. Overall, there is reason to remain positive on this market in the future. The oil and gas markets The oil price has been range bound between USD /b in the past two years. This year, it has been in the low end of this range, primarily owing to uncertainty about economic growth, particularly in China. Source: EIA Overall, global upstream investments were up by 13% in 2012 and initial budgets call for a 10% increase in This year s plans are based on an average planning price of USD 98/b (Brent), which is USD 2/b higher than for 2012 and below the current oil price. However, rising costs for the oil companies may curtail the investment plans in the near term, so we have seen consensus forecasts for 2013 E&P spending growth drift downwards to 5%. Source: Pareto Securities Favourable supply / demand outlook The average growth in global E&P spending has been 12% during the past twelve years. The activity growth in offshore oil services has averaged 14% in the same period, so it seems we can continue to expect robust market growth, based on the oil industry s investment budgets. Source: Pareto Research Demand and capacity growth in oil services Capacity Grow th Avg demand growth e 2014e PSV > 3,000 dw t 16% 26% 13% AHTS > 15,000 BHP 13% 13% 6% UDW rigs 17% 12% 19% Subsea, vsls > 90m LOA 13% 11% 8% High end seismic vsls 9% 4% 7% Average 14% 13% 11% Source: Pareto Research Since our previous report, the drilling markets have been stable at a very strong levels. There has been a solid improvement in the seismic markets, with the players filling up the capacity for this year early and at good prices. In the subsea market, the order intake remains strong, which should mean that the vessel markets are set for an uptick in activity from 2014 and onwards. The AHTS and PSV markets have fared much better than feared this year. A lot of the spot market PSVs in the North Sea was taken on term contracts by the oil companies early and at reasonably good rates. As a result, the remaining vessels in the spot market have seen a recovery in rates. AHTS rates were lacklustre at the start of the year, but have now jumped to high levels. The order book for new AHTS is low, while it is still significant for PSVs and continue to represent a potential drag on rates. Overall, the difficult financing conditions should reduce the appetite for speculative newbuildings.

9 The Shipping Markets Optimism continues to grow in shipping and many believe we re at the bottom and that it is time to invest. Newbuildings appear to be the preferred exposure, but inquiries for second hand tonnage are on the rise and there has been some uptick in transaction values. Dayrates in several segments have shown a positive development so far this year. A proper rebound or just levelling out? We think the graph to the right is instructive. The markets right now mostly resemble those of the super slump of the 1990s, where slow economic and trade growth restricted demand, while a young fleet meant that the supply side didn t get much help from natural scrapping. It took a very long time for the markets to tighten, and we fear this may be the case this time as well. That being said, the direction is definitely north, but it may still be slow going for some. Attractive newbuilding prices Low newbuilding prices are attracting new orders, as the key to making money over the long run in shipping is to enter the markets at a low cost, which is clearly the case now. Hence, the increase in newbuilding orders appears rational. With delivery a few years down the road, investors will leapfrog the current weak markets. Moreover, a new ship will be significantly more fuel efficient than existing tonnage, implying better long term earnings and returns. Source: Clarksons Second hand tonnage is the fire sale over? There has been an uptick in the average second hand values, which reflects optimism replacing gloom. In addition, it would appear that some of the fire sale activity driven by forced sellers has abated. Albeit on a small data sample, we have seen an improvement in prices for second hand tonnage, but it remains selective and focused on a few segments with favourable supply/demand characteristics. SourceClarksons Recovery, but how fast? We believe there will be significant differences between the various segments in terms of how rapid the improvement in rates is. Product tankers and chemicals tankers have seen a nice jump this year. Drybulk and LPG is generally stable, while crude tankers continue to face difficult times. The key going forward will be to be invested in segments with moderate fleet growth, robust levels of demand growth and an old fleet. Source: Eitzen Chemical Orderbook vs demand Orderbook in % Normal annual grow th of fleet demand growth LNG 28% 6% Containers 20% 6% Drybulk 16% 5%-6% Crude 11% 2%-3% LPG 11% 3% Product 10% 3%-4% Chemical 7% 3% Average 12% Source: Clarksons

10 Fund Management Team Richard Jansen Sølve Rund Larsen Johan Anker-Rasch Head of Fund Management Head of Sales Funds Head of Fund Management Shipping/Offshore Shipping/Offshore/Real Estate Real Estate Phone: Phone: Phone: E- richard.jansen@pareto.no srl@pareto.no jar@pareto.no Patrick Kartevoll Jonathan Andreas Barfod Fund Manager Fund Manager Shipping/Offshore Real Estate Phone: Phone: patrick@pareto.no jab@pareto.no Dronning Mauds Gate 3, P.O. Box 1396 Vika, NO-0114 Oslo, Norway, Tlf: ,

11 Disclaimer This Quarterly Report has been prepared in order to provide information about Pareto World Wide Shipping AS ( PWWS or the Company ) and must not be considered an offer to trade in the shares of the Company. actual events to differ materially from any anticipated development. All investors must verify these assumptions themselves. The company cannot give any assurance as to the correctness of such information and statements. Information contained in this Quarterly Report is obtained by Pareto Project Finance AS ( Pareto Project Finance, Pareto, or PPF ). Information is presented to the best of our efforts and knowledge, but Pareto Project Finance AS cannot guarantee that the information is correct or all inclusive. Pareto Project Finance AS takes no responsibility for any loss caused by information given being misleading, wrongful or incomplete nor for any other loss suffered as a consequence of investments made in the Company. Historic returns and return forecasts do not constitute any guarantee for future returns. Returns may vary as a consequence of fluctuations in currency exchange rates. Investors should be aware that there is significant uncertainty related to valuations in the current volatile market. The valuation process is described in PPF s market report as per February Risks and costs are further described in the prospectus (information memorandum) produced in relation to share issues in the Company. This Quarterly Report includes and is based on, among other things, forward-looking information and statements. Such forward-looking information and statements are based on the current expectations, estimates and projection of the company or assumptions based on information available to the company and Pareto Project Finance AS. Such forwardlooking information and statements reflect current views with respect to future events and are subject to risks, uncertainties and assumptions that may cause The contents of this presentation are not to be construed as legal, business, investment or tax advice. Each recipient should consult with its legal-, business-, investment-, and tax advisors as to legal, business, investment and tax advice. Specifically, Pareto Project Finance AS has been engaged as the company s financial advisor and does not render and shall not be deemed to render any advice or recommendations as to a transaction.