The Valuation of Ships Art and Science

Transcription

1 The Valuation of Ships Art and Science By Roger Bartlett, Managing Director, Maritime Strategies International Asia Pte Ltd For Marine Money s 6 th Annual Korean Ship Finance Forum Busan 1 st November

2 Maritime Strategies International High level, independent shipping market forecasts and business advisory services to the shipping and its allied industries Clients from all parts of the shipping industry and across the globe.. Valuations Shipping Market Forecastsall sectors MSI est Business Advisory Services Major ship owners and charterers and traders Shipping banks, funds and financial Institutions Shipbuilders, Class, Ship managers, Public Sector, and others London and Singapore 2

3 MSI values all types of ships (incl. offshore) 3

4 Outline The Valuation of Ships A. Elements of a ship valuation * 1.Newbuilding, 2. Scrap prices, 3. Second-hand prices and 4. Forward Valuations B. What impacts ship values? * Falling scrap prices, New technology and economic trauma C. Where will prices go next? D. Conclusions * Systematic approach pays dividends, risks & rewards, buy/build now? 4

5 MSI The valuation of ships B. ELEMENTS OF A SHIP VALUATION 5

6 What Determines Secondhand Vessel Prices? Current Replacement Cost - Sets Upper Reference to S&P Market (Yard Prices: Highly Unstable; Major Market Risk) Expected Earnings - Sets Depreciation Rate (TC Rate, Vessel Life Expectancy) Sale Timing and Operational Specifics -Sets Exact Price (e.g. Proximity to special survey, vessel condition ) Residual Scrap Values - Sets Floor to S&P Market ($/LDT:Limited Influence or Up-/Downside Risk) 6

7 Elements of a Ship Valuation 1. NEWBUILDING PRICES 7

8 New building price drivers Yard costs Shipbuilding Price Index ($/CGT) Global Newbuilding Orderbook FORWARD COVER Global Ship building Capacity 8

9 Forward Cover and Price $ CGT 3,500 3,000 2,500 2,000 $ CGT Price (1980s) $ CGT Price (1990s) $ CGT Price (2000 to 2004) $ CGT Price (2005 to 2008) $ CGT Price (2009 to 2010) 3 to 4 Years Forward Cover (FC) is a measure of the aggregate orderbook across all sectors compared with total available global shipyard capacity and is measured in years 1,500 During the 1980 s and 1990 s FC remained in a 1 to 2 year bound 1, to 2 Years During the mid 2000 s FC reached 4 years Years Forward Cover 9

10 New building prices move in tandem across sectors 90 Mn US$ Newbuilding Contract Price Aframax Tanker Panamax Bulker 1.1kTEU FCC 24kCuM LPG Carrier 2.5kLm RoRo MSI Asia Pte Ltd 10

11 Yard costs and prices diverge 250% Index (2003=100) Yard Cost Versus Price 200% Av Yard Cost Av Price 150% 100% 50% 0% MSI Asia Pte Ltd 11

12 Elements of a Ship Valuation 2. SCRAP PRICES 12

13 Scrap Price 600 Ship Scrapping Volumes (RH Axis) Mn GT Scrap Price ($/LDT) Steel Price Index (1980 = 100) Scrap price is a function of steel price, local steel demand and scrapping volumes Steel from scrapped ships makes up a small fraction of total scrap steel sales (approx. 10%), which is dominated by scrap auto sales

14 Elements of a Ship Valuation 3. SECONDHAND PRICES 14

15 Second hand prices All historical secondhand prices are converted into a net replacement value for the individual ship: NRV = (2 nd hand price scrap price in YoS) (Newbuilding price in YoS scrap price in YoS) This (expressed as a %age) allows us to compare all prices over time independent of both new building and scrap prices 15

16 NRV Plotted Sales Since 1990 NRV 180% Panamax Bulker 160% 140% 120% Actual Transaction Line of Best Fit 100% 80% 60% 40% 20% 0% Age at Sale 16

17 Depreciation and Earnings Relationship NRV 180% Large Capesize Bulker 160% 140% 120% 100% Intermediate Market Trough Market Peak Market Super Cycle 80% 60% 40% 20% 0% Age at Sale 17

18 Depreciation and Earnings Relationship NRV 140% Large Capesize Bulker 120% 100% 80% Intermediate Trough Peak Super Boom 60% 40% 20% 0% Age at Sale 18

19 Depreciation and Earnings Relationship NRV 140% 120% 100% Handymax Bulker % 60% 40% 20% 0% Age at Sale 19

20 140% 120% Panamax Bulker Price and Earnings Relationship NRV 10 year NRV Net Earnings (RH Axis) Correlation = $/day % 50 80% 40 60% 30 40% 20 20% 10 0%

21 Secondhand Values Secondhand prices can be expressed as Net Replacement Values Removes the steel element and allows comparisons over time Shape of depreciation curve is driven by earnings environment The poorer the earnings environment the more concave the depreciation Net Replacement Value can exceed 100% in very strong earnings environment 21

22 Forward valuations: the added dimension Shipyard, specifications, design, proximity to survey, trade, previous owners, flag.. New building price outlook Earnings forecasts Scrap price outlook Forward Valuations Tank Bulk Cont Assessment of residual risks and rewards banks, owners, insurers, investors 22

23 MSI Vessel Valuations B. HOW DO ISSUES IMPACT ON SHIP VALUES? 23

24 Effect on values of falling scrap prices Newbuild Price Young Ships face min risk Older ships values at greater Risk Scrap Price Year 10Year 15Year 20Year 25Year 24

25 New technology reducing life expectancy Newbuild Price Values of younger ships face small risk Old Ship values face maximum risk Scrap Price 0 5Year 10Year 15Year 20Year 25Year 25

26 Charter markets at rock bottom Newbuild Price Young Ships Face Max Risk Old Ships Face Min Risk Scrap Price 0 5Year 10Year 15Year 20Year 25Year 26

27 MSI The Valuation of Ships C. WHERE WILL VALUES GO NEXT? 27

28 Newbuilding Prices Outlook Index (2003= 100) 250% 225% 200% 175% 150% Yard costs pressure will help maintain newbuilding prices Forward Cover (RH Axis) Av. Yard Cost Av. Yard Price Yard costs to remain at record highs Years % % 75% FC to drop below 2 years %

29 Earnings Outlook Index (2003 =100) 200% 180% 160% 140% 120% 100% 80% 60% 40% Container Bulker Tanker 2007 = 317% 2008 = 327% Earnings forecast will trough over the next 18 months for the main sectors Bulkers will hit lows first shortly followed by tankers and then containerships 20%

30 5 Yr Old Price Outlook Mn US$ Panamax Containership Panamax Bulker Aframax Tanker Downward pressure NB Price & Earnings Scrap price offers support for ageing tonnage

31 Q Medium Term Outlook Newbuilding Prices Newbuilding prices declining over the next 12 months Scrap Price Scrap prices to support older ship values Earnings Supply / demand balances skewed towards supply side for main sectors More downside if capacity remains open / operational $LDT price firm due to local scrap steel demand and global steel price Gradual and sustained recovery in earnings during H for most sectors / sizes 31

32 2004 blt VLCC price history and outlook Delivered 2004 $105M (resale) approx $46M Ordered 2002 $66M

33 Conference VLCC value tracking NB Scrap MM Korea VLCC MSI Asia Pte Ltd 33

34 MM Korea VLCC (blt. 2004) value over time 34

35 Concluding thoughts Systematic approach to valuations Critical Element in decision making Based on fundamentals and Independent Future valuations permit assessment of residual risks Risks / Rewards Charter rates affects modern ship values most New technology leads to dual/multiple markets Changes in Scrap prices > impact older tonnage Buy / Build now? New building prices bottom out 2013 Oversupply depressing markets affect modern tonnage values more.. Secondhand could provide good opportunities distressed assets hard to find MSI Asia Pte Ltd 35

36 Maritime Strategies International Ltd High level, independent ship market forecasts, valuations and business advisory services for shipping and allied industries London: 2 Baden Place London SE1 1YW Tel: +44 (0) Fax: +44 (0) info@msiltd.com Singapore 8, Shenton Way #12-01, AXA Tower Singapore Tel: roger.bartlett@msiltd.com