Private Equity Firms Set Sights on Eco-Ships and the Distressed Shipping Market

(Bloomberg) — Carlyle Group LP and Tiger Group Investments’ ship fund is in talks about financing new vessels with five container lines as higher fuel prices spur demand for larger and more efficient ships.

Yang Ming Marine Transport Corp. and United Arab Shipping Co. are among the companies that GCI Group is talking to about ships that would be delivered in 2014 and 2015, Tiger Chairman Graham Porter said in a Nov. 28 interview in Hong Kong. Talks are at a late stage, he said, declining to elaborate further.

Tiger, Carlyle and other investors formed GCI Group last year with the goal of buying $5 billion of assets as container lines add new vessels to counter rising fuel costs. Ship prices have also fallen because of overcapacity, industrywide losses and tighter financing caused by European banks paring lending.

GCI Group has so far invested about 20 percent of its committed capital, Porter said. The company intends to mainly focus on new fuel-efficient container ships, along with some second-hand vessels.

“We are actively pursuing new investments,” Porter said. “The focus is heavily on either new eco-ships or looking at opportunities in the distressed market.”

Yang Ming’s board on Oct. 30 decided to lease five new 14,000-container ships with options for five more. No one at the Taiwanese company was available for comment when telephoned on Nov. 30.

United Arab Shipping is in discussions with shipyards about vessels able to carry 16,000 boxes, according to Alphaliner. Calls to the company yesterday went unanswered.

Carlyle Funding

Carlyle, the world’s second-biggest private-equity firm, put up $750 million of GCI Group’s $900 million equity capital. It will also provide further funds for investments. Tiger Group and New York-listed affiliate Seaspan Corp. will manage the assets.

GCI Group ordered seven vessels able to carry 10,000 20- foot boxes each from Yangzijiang Shipbuilding Holdings Ltd. in June last year. The $700 million deal, which was handled by Seaspan, included options for 18 more similar-sized ships. Jiangyin, China-based Yangzijiang said last month that the options may be exercised by year-end. Porter declined to comment.

GCI Group’s fleet growth has been hindered by a slump in the shipping industry this year. Overcapacity and tumbling demand has pushed rates on Asia-Europe routes below break even. Vessels carrying more than 10,000 boxes are mainly deployed on that sector as U.S. ports generally aren’t able to handle them.

“It’s been slower in developing than we originally anticipated mainly because of the macro environment,” Porter said. “2012 has been a tough year for shipping.”

Capacity Surge

A surge in new capacity could compound the slump next year. Container lines are due to take delivery of ships capable of holding a total of 1.67 million 20-foot boxes in 2013, a 25 percent increase from this year, according to Alphaliner, a shipping-data provider. That could help boost the size of the global fleet by as much as 9.5 percent, taking into account possible delays and ships being scrapped, it said.

Shipping lines are now mainly looking to order vessels to replace older, less-fuel efficient models rather than to add capacity, Porter said.

“None of them are talking about growth other than moderate growth,” he said. The price of 380 centistoke bunker fuel used by ships has jumped about 20 percent in two years, according to data compiled by Bloomberg.

Tiger could eventually exit GCI Group through an initial public offering or stake sale, Porter said. He didn’t elaborate. The company, Seaspan and Tiger’s main shareholder, the Washington family, invested $150 million of equity in the fund. Tiger also owns bulk ships, chemical carriers and heavy-lift vessel through units including Seaspan and Greathorse Shipping.

Carlyle invested in GCI Group through Carlyle Partners V, a $13.7 billion fund introduced in 2007, and Carlyle Asia Partners III, a $2.55 billion pool started the same year, according to a March 2011 statement.