The World s Largest Buyer of Ships and Offshore Assets 9 th Annual Marine Money London Ship Finance Forum, 24 January 218 Evan F. Sproviero, Head of Projects, GMS 1
A. Recycling Prices and Residual Values B. Volumes Recycled C. Regulations Affecting the Market 2
Items to Consider: 1. Why has understanding Residual Values become important to Shipowners and Capital Providers? 2. Residual Values = Recycling Value? 3. How can we calculate Residual Values? 4. When should we start thinking of Residual Values? 5. Is their a way to monetize Residual Values TODAY? 3
Recent trends in the past few years and the growing importance of residual values: 1. Shorter Life Expectancy of Ships 2. Poor Freight Rates 3. Oversupply of Vessels 4. Lack of Debt Financing Consequently, A. Shortage of trading buyers B. Catastrophic drop in asset values (often recycling prices are equal to or at times greater than 2nd hand prices) 4
Average age for Recycling 35 3 3.6 28.58 29.32 25 25.29 24.6 23.75 2 15 22.17 18.61 2.73 1 5 215 216 217 Tanker Dry Bulk Container Data Source: Clarksons Database 5
216-217 Earnings 8 9 7 8 6 7 5 6 5 4 4 3 3 2 2 1 1 1/1/16 1/3/16 1/5/16 1/7/16 1/9/16 1/11/16 1/1/17 1/3/17 1/5/17 1/7/17 1/9/17 1/11/17 Average VLCC c. 21-built Earnings Average Capesize c. 21-built Earnings Average Aframax c. 21-built Earnings Clarksons Average Containership Earnings Data Source: Clarksons Database 6
Current Fleet Average Age 12 1 8 1727 1876 11113 14. 12. 1. 8.77 8.75 9.8 9.7 1. 1.3 1.62 11.5 11.51 8. 6 5171 589 571 6. 4 2477 2617 274 4. 2 2. 216-Jan 217-Jan 218-jan. Bulk Carriers Tankers Containerships Bulk Carrier Containerships Tankers 216-Jan 217-Jan 218-Jan Percentage Change Tankers : 5.6% for 217 and 4.7% for 218 Data Source: Clarksons Database 7
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The Hammonia Grenada (built 21) was sold for recycling at an estimated $5.5m earlier in 217. More than 12 vessels (8 of them are containerships) built after 24 were been sold for recycling in 217. 9
1. Supply & Demand 1. Supply is affected largely by earnings 2. Demand is heavily influenced by many factors including steel prices and supply of vessels for sale in the market 2. Prices of Commodities 1. Domestic steel prices (recycling, ship plate) 2. International Finished steel (rebar, billets, etc) 3. Currency exchange rates 4. International and Domestic Regulations 5. Recycling & Trading Opportunities 1. Vessel condition [recycling (own power/under tow), or some trading potential] 2. Freight rate 6. Speculation 1
Speculation at high levels! Source: Lloyd s List 11
BDA B/C SUBCON 45..1 4. 35..5 3. 25. 2. -.5 15. 1. -.1 5.. -.15 5-1-15 5-2-15 5-3-15 5-4-15 5-5-15 5-6-15 5-7-15 5-8-15 5-9-15 5-1-15 5-11-15 5-12-15 5-1-16 5-2-16 5-3-16 5-4-16 5-5-16 5-6-16 5-7-16 5-8-16 5-9-16 5-1-16 5-11-16 5-12-16 5-1-17 5-2-17 5-3-17 5-4-17 5-5-17 5-6-17 5-7-17 5-8-17 5-9-17 5-1-17 5-11-17 5-12-17 BDA B/C SUBCON Percentage Change Data Source: Baltic Exchange 12
Volatility in Residual Values presents significant risks and opportunities - 6 well maintained Panamaxes built between 29 and 211 at a total cost of $6-65m - Today s recycling price = USD 54M (approx.) - VesselsValue valued RMT s entire fleet (14 with an average age of 9.5 years ) at $89m, - Today s recycling price more than USD 115M (approx.) 13
14 12 1 8 6 4 Value of KOHYOHSAN (in million USD) 5.2 5.3 9.6 12.8 Kohyohsan, built 21, Capesize bulker carrier, was sold at approx. $ 5.2m for further trading on 16 th Feb 216. Source: Seaweb, Clarkson s Database 2 Sale Done on Feb 216 Scrap Value on Feb 216 Scrap Value Today (Estimated) FMV Today 14
Current Demo Prices ($ per LT) Tankers: $45/ Long Ton VLCC= $19mn+/- Bulkers: $44/ Long Ton Cape= $1mn+/- Containers: $46/ Long Ton Pmax= $9.2mn+/- 15
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Dry Bulk Container Tanker Offshore 216 217 216 217 216 217 216 217 New Building 47.23m DWT (564 VSLS) 38.17m DWT (454 VSLS) 94,85 TEU (131 VSLS) 1,147,24 TEU (148 VSLS) 33.3m DWT (429 VSLS) 46.9m DWT (454 VSLS) 2.7m DWT (34VSLS) 686k DWT (156VSLS) 216 217 216 217 216 217 216 217 28m DWT (375 VSLS) 14.53m DWT (215 VSLS) 654,411 TEU (194 VSLS) 397,9 TEU (141 VSLS) 1.6m DWT (54 VSLS) 12.99m DWT (136 VSLS) 2.9m DWT (193 VSLS) 2.6m DWT (128 VSLS) 218 - Expectation 13m DWT 218 - Expectation 218 - Expectation 218 - Expectation 3, TEU 16m DWT 2m DWT Data Source: Clarksons Database 17
Tanker Recycling in DWT Tanker Recycling in Number of Vessels 4,5, 4,, 3,5, 3,88,77 3,518,613 4 35 3 34 36 3 35 3,, 25 2,5, 2,, 1,949,124 2 1,5, 1,, 5, 1,291,69 1,67,677 924,44 578,671 636,191 539,977 288,268 149,849 VLCC Suezmax Recycling Aframax Recycling Handysize Recycling 15 1 5 2 13 13 6 3 2 1 VLCC Suezmax Aframax Handysize 215 216 217 215 216 217 Data Source: Clarksons Database 18
Tankers sent for recycling have reached a three year high on the back of a combination of low freight rates and high demo prices. Over the last 12 months, the recycling value of an average VLCC had risen by 4%, from $12m ($3/ldt) to $16.8m ($42/ldt). However, it still pales in comparison to delivery volumes. More tankers need to be recycled. Source: TradeWinds 19
18,, Bulker Recycling in DWT 18 Bulker Recycling in Number of Vessels 16,, 16 14,, 14 12,, 12 1,, 1 8,, 8 6,, 6 4,, 4 2,, 2 Capesize Panamax Handymax Handysize 215 15,438,232 6,874,56 3,144,582 5,221,815 216 13,335,427 8,353,43 4,311,759 3,247,237 217 6,376,585 3,529,53 3,43,161 1,578,132 215 216 217 Capesize Panamax Handymax Handysize 215 93 96 71 171 216 78 116 96 118 217 33 49 66 67 215 216 217 Data Source: Clarksons Database 2
Containership Recycling in TEU Containership Recycling in Number of Vessels 45, 1 4, 9 35, 3, 25, 2, 15, 1, 8 7 6 5 4 3 2 5, 1 215 216 217 215 216 217 215 216 217 Feeder 1-2,999 TEU TEU 91,66 162,787 119,361 Intermediate 3,-5,999 TEU TEU 11,647 427,525 259,458 Intermediate 6,-7,999 TEU TEU 64,78 19,84 Neo/Post-Panamax 8,+ TEU TEU 215 216 217 Feeder 1-2,999 TEU 67 89 81 Intermediate 3,-5,999 TEU 25 95 57 Intermediate 6,-7,999 TEU 1 3 Neo/Post-Panamax 8,+ TEU Feeder 1-2,999 TEU TEU Intermediate 3,-5,999 TEU TEU Feeder 1-2,999 TEU Intermediate 3,-5,999 TEU Intermediate 6,-7,999 TEU TEU Neo/Post-Panamax 8,+ TEU TEU Intermediate 6,-7,999 TEU Neo/Post-Panamax 8,+ TEU Data Source: Clarksons Database 21
1,6 Recycling by Country Number of Units 1,4 1,2 33 1, 8 6 4 2 226 251 32 272 193 139 221 267 16 39 197 133 114 29 18 87 126 136 8 97 163 112 12 81 17 97 12 96 49 93 78 72 81 499 98 93 4 33 27 96 96 91 14 7 88 131 12 71 43 351 19 423 35 16 13 25 33 16 33 212 288 57 364 229 38 351 333 26 28 311 49 7 71 162 273 12 11 7 2 14 5 11 16 54 5 9 51 123 61 65 65 66 63 69 49 87 127 154 186 211 183 183 23 22 68 83 94 136 171 11 21 6 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 Bangladesh India Pakistan PRC Other 22
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Old vessels for which, upgrade is not cost-effective, will be recycled Ballast Water / Emissions EU Waste shipment Regulation EU flag ships to be recycled in EU approved facilities If a ship, regardless of flag, departs an EU port for recycling, it is obliged to be recycled in an OECD based yard with BASEL to apply Indian yards have applied to EU for approval. Hong Kong Convention Certified yards SOC yards IHM, SRP, FMP, Auditing and Reporting 57 yards in Alang are SOC with HKC certified, and 9 are in progress (updated on 12 Jan, 218) More than 55% of the recycling yards in Alang are already or working towards SOC with HKC. In October, 217, the PHP shipbreaking yard received a Statement of Compliance under the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships from the classification society RINA. 24
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1. Residual Values (recycling related) have become important to Shipowners and Capital Providers 2. Residual Values often equal Recycling Values with few exceptions 3. Given the markets over the last few years, residual value / recycling pricing should be considered from newbuilding delivery 4. Recycling Volumes are high but there is capacity to expand / recycle more tonnage (NB deliveries still far outpacing recycling) 5. Regulations will play an even larger role in the future of recycling but it is important for owners to properly understand the facts about the recycling market and efforts being undertaken to offer RSR options 6. Is there a way to monetize Residual Values TODAY? 1. Yes. Please contact us or visit our website: http://gmsinc.net/ or download our app from the App store / Google Play 26
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Established in USA in 1992. Largest Buyer of Vessels & Offshore Assets! In last few years, principals of GMS have delivered about 1/3 of the world s fleet sold for recycling (excluding Chinese subsidized tonnage). World's FIRST ISO 91:2 certified Buyer. GMS has negotiated (about): 3,3 ships and Offshore Assets; 1,, DWT; 3 vessels/offshore assets in a single year (212) One of the BIGGEST deals in the history of recycling With multiple offices across the world including: U.S.A., Germany, Greece, U.A.E., Singapore, China, Korea, Japan and exclusive rep offices in India, Bangladesh, Pakistan and Turkey. This allows us to deliver 24/7 local service to global shipping clients. Financial and Management capability to: Buy fleets on simple CASH "as is where is terms. Take forward positions Structure Deals 28