Shipping Industry. Sector report. Low charter rates and resulting difficulties in financing bank commitments are driving sector consolidation

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1 Shipping Industry Sector report October 2014 Low charter rates and resulting difficulties in financing bank commitments are driving sector consolidation Following the collapse of charter rates in 2009, the situation has been slowly improving, with overall demand for shipping again growing faster than supply of newbuilds, though it does not apply to every segment equally, with large container segment, for example, facing significant new deliveries Key findings from our research Cyclical industry does not support high leverage Many vessel owners relied on complicated debt structures to finance their vessels. Following the collapse of charter rates, they found that they could no longer pay for those structures, resulting in significant amount of distressed assets on the market Private Equity entering in JVs with Shipping companies There were very few outright acquisitions of Shipping operators by Private Equity. They focus instead on the asset (vessel acquisition) side and enter into Joint Ventures with the operators, relying on their expertise in the market New financing sources are emerging Following the collapse of German KG market and pullback of major shipping banks, private equity is emerging as one of the key provider of both equity and debt capital Favourable timing for acquisition of vessels Both prices of vessels and charter rates are well below historical mean. A reversion to mean strategy shows significant upside potential Supply of distressed asset for sale driving new transactions Due to expiration of pre crisis charter agreements, and rechartering of vessels at newer, significantly lower rates, many vessels are struggling to cover financing and sometimes even operational costs, therefore falling into distress. Shipping sector is showing significant signs of stress in current low charter rate environment, which is driving the push towards cost optimisation and consequent strive towards achieving economies of scale. Specialised, well connected shipping companies with streamlined cost structure and asset platform are strongly placed to take advantage of expected flood of quality distressed vessels coming to the market. Those situations are expected to remain the main drivers of the market until charter rates and asset values improve, at which point PE funds will be looking for profitable exit, driving the next wave of M&A activity Uwe Kröger Managing Director 1

2 Shipping industry transports over 90% of global trade, hence it comes as no surprise that industry growth rates close track those of global trade, which itself grows at a double rate of global GDP. Shipping market overview Shipping is a key sector enabling global trade. In 2013, about 9,6 billion tons of goods (up 4,4% from 2012) were transported worldwide. Type of Cargo Carried 24% Oil & Gas 17% Other Dry Cargo 30% 29% 5 Major bulk * Containers * Iron Ore, Bauxite, Grain, Coal, Phosphate Rock Source: WTO World Trade Report In terms of number of vessels owned per countriy, the market is very centralised, with top 5 countries accounting for 53% of all vessels. Country Number of vessels Germany 3798 Japan 3795 China 3651 Greece 3213 United States 1972 Russia 1891 Norway 1684 Turkey 1199 South Korea 1189 Singapore 1021 Denmark 975 Source: Economist World Figures Comparison of GDP and Trade Growth Rates 20,00% 15,00% 10,00% 5,00% 0,00% -5,00% -10,00% -15,00% Key developments Source: WTO World Trade Report Trade After a prolonged crisis, shipping industry is undergoing some major structural changes. As a result of significant overcapacity in the market, there is a strong industry wide drive for alliances among the liners, and a push for cost reduction, resulting in increased slot sharing, employment of larger, more modern vessels on main routes (Far East Europe, Far East-North America), and moving vessels previously serving those routes to other routes, pushing smaller vessels out (cascading), and a fight for survival due to falling charter rates on the nonoperating owner side. GDP There is certain dichotomy in this segment, with listed companies (many of them Greek) having access to capital and taking advantage of the currently depressed prices to fuel growth and both acquire cheap second hand vessels, or order new ecodesign vessels, while private shippers (a lot of them German) who relied on heavy leverage and fund structure (such as German KG market) are struggling with the low charter rates that are not sufficient to service the debt load, and are well advised to partner with alternative capital providers to stay competitive 2

3 Cyclical nature of industry with resulting bouts of overcapacity The trend towards larger, more modern and fuel efficient vessels pushing smaller vessels out of business is expected to continue Due to significant overcapacity, industry is trying to reduce costs by slowing down vessel speeds, use of larger, more modern vessels and reducing capacity by early scrapping of vessels with lower specifications Shipping is a very cyclical industry, with demand adjusting quickly to new economic conditions, while the supply (vessel capacity) has a lag of several years, causing periodic capacity squeezes and overcapacity. Due to significant capacity growth in the crisis years of 2008 and 2009, when world trade decreased significantly, freight rates collapsed, which brought with it the free fall of spot charter rates for tramp shippers, causing financial distress to highly leveraged asset owning vehicles (for example German KG system), as well as to liner themselves who were sometimes locked into long term charter rates agreed during the market peak. The pressure on rates has resulted in increased push for cost reduction, which manifests itself in four principal ways: Slow Steaming, a practice where the speed of vessels is reduced in order to minimize bunkering costs, one of the main drivers of operational expenses. As a result, vessels are sailing much slower, turning around later, resulting in liners requiring more vessels to service their routes, which is absorbing part of the excess vessel capacity Modern, fuel efficient vessels, especially those with eco-design and complying with new environmental standards being implemented in Europe and US, are being sought after and attract premium in chartering market due to the fact that their operational costs are lower and hence enable carriers to deploy them profitably even at lower freight rates Cascading, where due to the fact that at 80% utilisation, operational cost per TEU on larger vessels is significantly (up to 30%) below that of smaller vessels, increasingly large vessels (up to TEU Maersk Triple E class for example recently delivered Merete Maersk (18,270 TEU)) are deployed on the main East West routes (Far East Europe, Far East America), pushing displaced vessels to smaller routes, and due to cost efficiency displacing smaller vessels previously serving those routes. This aspect will become even more pronounced with the expansion (new locks) in Panama Canal, which is currently only wide enough for vessels up to TEU. Once expansion is completed, significantly larger vessels, carrying up to TEU will be able to cross it, enabling larger vessels to be deployed on routes traversing Panama Canal. With completion of the new Nicaragua Canal, for which the final route was fixed in August 2014, even this restriction will fall away, as it will be able to accommodate even the largest vessels currently in service (Maersk Triple E class). Scrapping of older vessels (typically older that years) is a classical solution for dealing with overcapacity, but, according to Alphaliner, with currently only 3,5% of global fleet being older than 20 years, it does not offer much in terms of relief. This has resulted in scrapping of much younger vessels (sometimes even less than 10 years old) with smaller carrying capacity, inefficient engines and in general with lower, undesirable specifications. 3

4 While there are different successful business models, companies in given geographical area cluster around one model (Hybrid model in Germany, Publicly listed asset companies in Greece) Overview of business models The players in tramp shipping market can be broadly divided in 4 categories based on the degree of asset ownership and service level, with service providers increasingly looking into lower cost locations. Focused service model, providing services for vessels owned by 3 rd parties. This so called asset light model has an advantage of fixed, stable and predictable revenues not linked to charter rates, based on long term management contracts. The services offered can be either in technical or commercial management, crewing, chartering and broking, insurance or any combination thereof. A successfull example of this is V.Ships, increasing Vessels under management 4 fold (from 100 to 520) between 2003 and 2014 and thus not meeting financial investors demands. Hybrid model, with a shipping company having some own vessels, but also managing 3 rd party vessels. This is a very common model in Germany, with historically most 3 rd party vessels coming from captive KG funds. Only recently have those companies started to focus on managing non-affiliated 3 rd party vessels. They fall broadly into 3 categories, namely: Large, financially strong groups, such as B. Schulte and P. Döhle); Highly leveraged, but too big to fail (Rickmers group) Small, well capitalised players (Vogemann) Asset Platforms Closed end funds Shipping Trusts Listed Asset Companies Structure Purchase of units Purchase of Purchase of units shares Capital Fixed after target Flexible, Can do capital reached through capital increase increase, open ended Liquidity Sale on secondary market Diversification No diversification for vessel funds, Diversification for umbrella funds Source: Corporate Finance magazine, EquityGate research PE Joint Ventures Separate entity Depending on JV agreement Daily Intraday upon liquidation High diversification Depends on the company fleet structure Depends on the company fleet structure Costs High Low Low High Investor Type Private investors Institutional Institutional Private Equity High Net Worth High Net Worth Traditional shipping company, with own vessel(s) operated and managed in-house. They are usually started by captains, family owned, and tend to be smaller, lacking quality reporting systems, Asset platforms, with chartering and ship management outsourced to either focused service companies, (sponsoring) shipping companies or industry partners where they are PE sponsored JV s. 4

5 ECB supervision of banks has increased pressure on banks with large shipping exposure Main shipping banks have either reached their maximum shipping appetite, or exceeded it and are reducing their exposure, causing difficulties to German shippers who have historically relied on them The financial crisis have had a strong impact on the shipping banks. Not only were they impacted by the general tightening of the funding terms, but also the collateral securing their exposure had collapsed in value due to a decline in world trade and a glut of newbuild vessels coming to the market. This has resulted in collapse of freight rates, which impacted the charter rate on which the vessel companies depended to fund their loans. Furthermore, with ECB taking over supervision of banking sector in November 2014 stricter valuation criteria of collateral (closer to current market value, as opposed to cash flow valuation used historically by German banks) will be applied, meaning significant write downs for German banks. In short, a perfect storm. As a result, many banks who were previously very active in the market are reducing their exposure either by direct sale of loans (i.e. Commerzbank, Lloyds), by repossessing vessels and selling them on (Commerzbank, China Construction Bank), or by limiting new underwriting (HSH). Even the Chinese banks, which have up to now generously, but at higher cost than German banks, funded newbuilds ordered from Chinese shipyards, thus acting more like an Export Credit Agency than a bank, are starting to examine their shipping exposure and are expected to reduce their participation in new financing. ABN Amro, which entered the shipping market in 2012 at the bottom and thus has no legacy loans, is one of the few banks which has appetite in the sector and is expecting to grow their shipping book by 10% per year. Such strong withdrawal from the market has hit German shipping companies especially hard given their historical reliance on debt funding from predominantly German banks. "Although there are signs of recovery of the global economy, the geopolitical tensions increased towards the end of the second quarter. Therefore in the shipping sector, despite a slight improvement in some indicators, caution is advisable," says NordLB Shipping companies are looking for alternative sources of debt financing In order to cope, shipping companies are looking at alternative sources of debt financing. Larger ones, such as Rickmers Holding, are turning to public markets by issuing corporate bonds, some are turning to Closed end shipping trust structures, such as HCI Hammonia and Marenave Schiffahrts, while some are trying out the open end fund structure (SICAV), or seek funding from Debt Funds or private placements. Not all shipping companies, however, are able to take advantage of those funding sources. Many, especially smaller ones, struggle with Corporate Governance issues and the amount of reporting that is required in order to comply with the requirements of those investors, as well as minimum investment sizw. 5

6 Tax considerations are driving the development of KG market The German KG system, with its high cost structure and focus on tax structure has failed spectacularly in the low charter rate environment, leading to several notable bankruptcies and scaring of new investors In the 1970 s the German KG model was established to raise private equity as a form of finance for projects. To raise the necessary funds initiators set up a legal entity and placed the equity among individuals as private investors. It was structured with accellerated depreciation, so investors had significant paper losses in the first few years, which they could use to offset their tax liability. Those types of deals concluded in beginning of the 2000`s, when the government removed this tax incentive. It was instead replaced by a system of tonnage tax, which rendered properly structured investment in vessels essentially tax advantaged. Through significant use of leverage, the returns were further improved, leading to a huge demand for investments in German vessel KG. 3 factors contributed to spectacular collapse of the German KG market: 1) Complex, multi layered structure, adding significantly to operational costs of the vessels 2) Banks were eager to finance KG funds with very high leverage, and did not pay sufficent attention to the structuring considerations 3) Banks were providing almost 100% construction financing, as well as equity pre-financing, enabling speculation without significant capital According to Dagfinn Lunde, former president and head of shipping at DVB, KG funds were responsible for up to 20bln per year of new vessel investments. As per Mr. Lunde, the costs of the KG structures and holding, as well as management fees charged by asset managers, have added up to 50% to the operational costs of the vessels. When the charter rates collapsed at the beginning of the crisis, many vessels not only struggled to service their high debt loads, but also, due to their cost basis, had troubles meeting their operational expenses. There were several high profile failures and many retail investors have lost significant sums of money, leading to a de facto freeze of the market, with most pundits saying that the market is dead. The KG system in itself, however, is not a bad system at all. When properly structured, a KG investment in a vessel is an amazing opportunity, as investment in Shipping is under current German tax code tax free, and investment can thus provide very high return. Though at present many investors got burned and scared away from the market, memories fade fast and within a few years we will see a tentative revival of the market. The revival will be driven by, same as with the revival of CDO market in the US, simple, easy to understand structure, without inflated costs and with a convincing equity story. Shipping companies with a track record of successful deals with PE will be well positioned to take advantage of this development. The revival of the KG market will be driven by, same as with the revival of CDO market in the US, simple, easy to understand structure, without inflated costs and with a convincing equity story. 6

7 Entry of PE into Shipping market has a potential to be a game changer in terms of operational efficiency and governance Shipping companies are increasingly forming JV s with PE players to acquire attractive vessels for the JV, and management contracts for themselves Depressed asset prices, together with many shipping companies and vessels tethering on the brink of bankruptcy due to low charter rates have proven a magnet for private equity investors who had record amount of funds available for investment, and a lack of affordably priced assets. To take advantage of the market, they have formed Joint Ventures with strategic industry players, in effect insourcing the industry know how and networks, as well as deal flows. To avoid conflicts of interest, most of the joint ventures are structured in a way that strategic players contribute significant (10%+) amount of JV equity funds, limiting the ability of medium size german shipping companies to participate. Shipping Company PE Vessel Focus Mid Ocean Marine Alterna Capital Partners Tankers Western Bulk Alterna Capital Partners Bulkers Statis Molaris Group AMCI / Maas Capital Distressed Tsakos Ship Management Anchorage Capital Tankers Principal Maritime Management Apollo Global Management Tankers Rickmers Group Apollo Global Management Containers Eletson Corp Blackstone Tankers Dalex Shipping Carlyle Bulkers Seaspan Carlyle / Tiger Group Containers Franco Compania Naviera Castlelake Bulkers Prime Tanker Management Castlelake Tankers Genco Centerbridge Bulkers Euroseas Eton Park / Rhone Capital Containers Seacove Greenbriar Equity Distressed Euronav GSO Tankers Eagle Bulk Kelso & Co Bulkers Technomar Shipping Kelso & Co Containers Borealis Maritime KKR Distressed Cardiff Marine Matlin Patterson Global Advisors LNG Capital Maritime Monarch Alternative Capital Containers Oceanbulk Maritime Monarch Alternative Capital Tankers Starbulk Monarch Alternative Capital Bulkers Hansa Heavy Lift (ex Beluga) Oaktree Capital Management MPP Navig8 Oaktree Capital Management Tankers Oceanbulk Maritime Oaktree Capital Management Bulkers Oceanbulk Maritime Oaktree Capital Management Tankers Oceanbulk Maritime Oaktree Capital Management Containers Rickmers Group Oaktree Capital Management Containers Starbulk Oaktree Capital Management Bulkers Prime Marine Management Perella Weinberg Partners Tankers Conti Group Solus Alternative Asset Management Bulkers Diamond S Shipping W L Ross Tankers Conti Group W L Ross Bulkers Augustea Bunge Maritime York Capital Bulkers Costamare York Capital Containers Source: EquityGate research 7

8 Public equity markets are intensively used by Greek companies, with at present over 25 (mostly NYSE) listed vessel owning entities Public markets have proven a resilient source of funding for capital intensive vessel ownership A shipping company either spinsoff its vessels into a new entity that is then listed on a public stock exchange, or, alternatively, establishes a new entity with the purpose of acquiring vessels, with identification of deals and vessel management entrusted to the shipping company. This model is often used by the Greek companies, and has, due to lower levels of debt employed, proven very resilient to the current market conditions. It has, in fact, enabled many companies to grow due to being able to take advantage of distressed prices for quality assets Source: Equitygate research Company Stock Exchange Description Aegean Marine Petrol NYSE Marine fuel logistics Awilco OSLO Owner, operator of LNG carriers Belships OSLO Owner, operator of dry bulk carriers Box Ships Inc NYSE Owner, opeator of containerships Asset platform (tankers, dry bulk and Capital Product NASDAQ containerships) Costamare Inc NYSE Asset platform (containerships) Danaos Corporation NYSE Asset platform (containerships) Diana Containership Inc NASDAQ Asset platform (containerships) Diana Shipping NYSE Asset platform (dry bulk) Dryships Inc NASDAQ Asset platform (dry bulk and tankers) Dynagas LNG NASDAQ Asset platform (LNG) Eagle Bulk Shipping NASDAQ Operator (dry bulk) - in bankruptcy Euroseas Ltd NASDAQ Asset platform (dry bulk and containerships) Freeseas Inc NASDAQ Asset platform (dry bulk) Gaslog Ltd NYSE Owner, operator and manager of LNG carriers Globus Maritime Ltd NASDAQ Owner, operator of dry bulk carriers Owner and commercial manager of dry bulk Golden Ocean Group OSLO carriers Goldenport Holdings LSE Asset platform (dry bulk and containerships) Hellenic Carrier LSE Owner, operator of dry bulk carriers Navios Maritime Acquisition Corporation NYSE Owner, operator of tanker vessels Navios Maritime Holdings NYSE Owner, operator of own and leased bulk carriers Owner, operator of dry bulk carriers and Navios Maritime Partners NYSE containerships Newlead Holdings Ltd NASDAQ Asset platform (dry bulk and tankers) Ocean Rig inc NASDAQ Operator of semi-submersible oil rigs and UDW drillships Paragon Shipping Inc NASDAQ Asset platform (dry bulk) Rickmers Maritime SINGAPORE Asset platform (containerships) Safe Bulkers Inc NYSE Asset platform (dry bulk) Siem Shipping OSLO Owner, operator of refrigerated container vessels Star Bulk Carriers Corp NASDAQ Asset platform (dry bulk) Stealthgas Inc NASDAQ Owner, operator of tankers and LPG carriers Top Ships Inc NASDAQ Owner, opeator of tankers Tsakos Energy Navigation Ltd NYSE Asset platform (tankers) Western Bulk OSLO Operator of dry bulk carriers 8

9 To succeed, shipping companies have to re-discover their core competencies and build around them Success factors within the shipping industry Success by organic growth and focus on core competences Given the new focus on cost and economies of scale, especially in the relatively commoditised container shipping area, we can expect further consolidation in the sector, with smaller operators finding it increasingly difficult to compete on a cost effective basis. Focus on providing high quality core services to both liners and asset (vessel) owners, by building focused competence centres and keeping costs low by reaching a critical mass. Growth can happen either organically, or by targeted acquisitions which will either expand the service range offered, bring critical expertise, or broaden When cost reduction is the name of the game, terms like critical mass, economies of scale and specialisation quickly follow. Many shipping companies are actively exploring different opportunities to further reduce their fixed cost basis, by moving part of their operations to Cyprus, and ensuring their crews are sourced in lower cost countries such as Ukraine and Romania in Europe and Philippines in Asia. Additinally, given than except for vessel operating costs, which are invoiced to the shipowner, the cost of managing 30 vessels is not so much different from that of 60 vessels, or 90, perhaps even 120 vessels, leading to failing managing cost per vessel with scale. Many shipping companies are consequently trying to grow the market penetration. Become a one-stop shop for liners, by consolidating the market and offering both vessels and ship services at attractive prices, ensuring vessel utilisation due to economies of scale and regular contacts with liners. This is a very capital intensive strategy that can be undertaken either by the largest shippers, or alternatively by midtier players supported by PE or public vehicle. Additionally, as the firm becomes larger, this strategy naturally brings with it increased need for professionalization and standardisation of reporting, and improved corporate governance. Added value is our competitive edge. Our efficient management combined with technical excellence and integrated services result in significant cost advantages and high utilization rates for our customers." Alexander Schulte, Managing Director, Thomas Schulte Group number of vessels under management. There are 3 main possible ways to acquire new vessels under management: 1.) Win management contracts for 3 rd party vessels. This is the least capital intensive method 2.) Acquire a competitor and thus connected management contracts, which can be connected with refinancing of their vessels 3.) Buy vessels (as part of JV with PE or through listed entity), and arrange for management contracts to be managed by the shipping company. Source of vessels will most often be distressed assets owned by banks, and could either be structured in a highly leveraged structure with earnouts for banks taking write-offs (Nautilus), or a straight purchase at market value 9

10 Tausende Shipping M&A market overview Transaction activity has remained relatively subdued as the banks were not actively seeking to resolve troubled shipping loans portfolio. With new ECB rules, we expect M&A activity to pick up on the asset side Both deal values and deal volumes have collapsed following the latest financial crisis. Since then, number of deals has recovered, reaching 120 in 2011 (higher than a peak in 2007), yet the value of the transactions remained subdued, significantly below 2007 level was a very interesting year from the transaction point of view, where we saw a lot of very small deals. Value (in bn) & number of transactions within the Shipping industry , ,0 57 6,3 5, ,0 4,1 2,5 1,3 1,8 1, * Value Number Transaction details Source: Capital IQ; 2008 value excludes 4,2bln Hapag Lloyd transaction; 2012 value excludes Fesco ( 1,7bln) and Dockwise transactions ( 1,3bln) *YTD Aug Out of total of 120 deals, only 8 deals had a deal value above 100m, with only the sale of the Maersk LNG business exceeding deal value of 1bln in a market dominated by strategic players (87 transactions involved only strategic players, as opposed to only 6 transactions involving only financial player). A very interesting trend has been developing of late, where financial players have entered into JV partnership with the stronger strategic players, using their expertise and network to identify attractive asset targets (vessels). Over the past 5 years, there have only been a few deals where a private equity invested directly in a corporate part of shipping, most notable transactions are the purchase of Beluga Shipping by Oaktree (which later went bankrupt and Oaktree created Hansa Heavy Lift with bulk of its employees and assets), the Monarch and Oaktree participation in Starbulk rights issue, WL Ross recapitalisation of Navigator Holding and Oaktree acquisition of Genco (through debt conversion). Source: Capital IQ 10

11 Looking at transaction multiples alone, which range in 8x 10x EBITDA, fails to show the stress in the shipping industry, as most of it is reflected in lower EBITDA levels Shipping industry transaction multiples Despite the crisis, transaction multiples have held on very well, remaining in the range of 8,0x 10,0x EBITDA. When comparing this valuation metric with the deal value, we can clearly see while the average purchase price declined significantly, the EBITDA has decreased to very similar level, keeping the overall multiple un- changed. The results come as no surprise given the fact that the industry has very high fixed costs, while the income is demand driven, and thus prone to wild fluctuations. With the improvement of supply / demand balance, we expect to see the multiple to move toward upper band and for EBITDA to be at significantly higher levels. Transaction multiple (EV/EBITDA) evolution ,1x 8,8x 10,5x 10,7x 8,5x 10,0x 8,0x 7,8x 8,1x 9,2x * Transaction per Region Source: Capital IQ *YTD Aug Europe was the most active region in terms of number of transactions, accounting for 448 (over 50%) deals completed over the last 10 years. This is followed by Asia - Pacific with 226 (27%) deals, United States and Canada with 104 deals (12,4%), with rest coming from Africa and South America. Number of transactions per Region ( ) 12% 3% 4% 27% 54% Africa / Middle East Europe United States and Canada Asia / Pacific Latin America and Caribbean Source: Capital IQ 11

12 Shipping sector transaction overview Transactions in the shipping sector are mainly asset deals, when either individual vessels, or small portfolios (5-15 vessels) are changing hands While most of the transactions are pure vessel deals, there are occasional transactions involving management companies. Most known recent transactions involving German players are the takeover / merger of Ahrenkiel with MPC Steamships and Thien & Heyenga (April 2014), the takover of CSAV of Chile by Hapag-Lloyd (April 2014), as well as the takeover of CCNI by Hamburg Süd (currently ongoing). Those actions seem to put the often rumoured merger between Hapag Lloyd and Hamburg Süd to the backburner for the time being. Private equity also occasionally participates in a corporate deal, with a recent takeover of Odfjell LPG business by Oak Hill Advisors and Breakwater Capital (May 2014) Selection of recent corporate transactions Date Target Acquirer Description Enterprise EV / Value EBITDA Tinworth Pte. Ltd. BW Offshore AS Ship Chartering 73, EMAS Marine EOC Limited Ship management for offshore oil and gas industry 382,4 4,6x Oceanbulk Shipping Star Bulk Carriers Corp. Operator of dry bulk vessels 449,3 ACM Shipping Braemar Shipping Group Services Plc Ship Broking 57, EMS Seven Seas Supreme Group B.V. Ship management and supply services 40,3 8,9x Odfjell SE Oak Hill Advisors Breakwater Capital LPG shipping business 73, CSAV SA Hapag-Lloyd AG Container liner 999, Petrolmar Vroon B.V. Bunkering and transportation services 5,0 Christian F. MPC Steamship; Thien & Shipping company Ahrenkiel Heyenga Neste Shipping Oy OSM Group AS Ship management Overmeer Transport Group Cooperatie NPRC U.A. Inland shipping operator Source: Capital IQ; Mergermarket Outlook for M&A within shipping We expect M&A activity to remain strong on the asset side, less so on the corporate where only occasional deals will take place In particular, we expect to see: Smaller, single vessel companies being unable to service their debt load, leading to their repossession and thus creating opportunities for well funded PE asset JV s, or publicly listed asset companies to acquire quality assets at distressed prices Only occasional pure corporate deal to strengthen competences in a given area, or a distressed acquisition by private equity (as in Genco) When vessel values and charter rates improve, we expect to see important profit taking by PE investors, either by tapping public markets, or selling the assets to other investor types (private placement, secondary buyouts, strategic investors etc.) Succession issues will be the main driver of corporate deals given the average age of principals at many smaller shipping companies 12

13 Selected transactions Transport & Shipping Acquisition of a majority interest in EquityGate acted as financial advisor to the investor Reederei [undisclosed] Financial Advisor on 100m equity for a joint venture with a financial investor for the acquisition of used dry bulkers Financial Advisor on 200 m equity and debt package for Structured as a joint venture with Joint-Bookrunner of 474m Initial Public Offering About EquityGate Advisors EquityGate is a member of Mergers Alliance, an international partnership of the leading independent corporate finance advisory boutiques with extensive transactional track record within their territories. The network spans the world s leading business centres with offices in 25 countries and a first class team of 350 professionals. Our partners help us identify international buyers and provide local intelligence for our clients looking to acquire overseas. For the last ten years principally corporate clients have been relying on EquityGate s unbiased and quality financial advice to make their complex and mission critical financing, financial restructuring and mergers and acquisitions transactions work. Over 50 successful transactions in Germany/Southern-Eastern Europe over the last 48 months, and over 130 successful transactions globally only last year demonstrate our ability to get your deals done. We work solely to the clients benefit as we have no balance sheet interest or product specific incentives. EquityGate Advisors have received several awards for their work such as: "Corporate Finance Boutique Firm Germany of the year 2012 and 2013, Finance Monthly Magazine, European Boutique Investment Bank of the year 2010 and European Financing Restructuring Advisor of the year 2010, M&A Advisor International Awards, Equity Financing of the Year Europe M&A Advisor Awards Top 10 Debt Advisors, FINANCE magazine EquityGate Advisors was founded a decade ago by Senior Bankers from premier financial institutions such as Citigroup, Deutsche Bank, Kleinwort Benson and Schroeders working in London, New York, and Frankfurt. Uwe Kröger Managing Director Phone: kroeger@equitygate.de EquityGate Advisors GmbH Mainzer Straße Wiesbaden Telefon: Fax: