Ships Come In As Deals Heat Up – Private equity firms buying into shipping industry

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August 1, 2011

By Gina Chon, The Wall Street Journal

Deal action is heating up in the shipping industry, which suffered during the financial crisis but has since proven increasingly attractive to investors world-wide.

Private-equity firm First Reserve Corp., Wilbur Ross’s investment shop and sovereign-wealth fund China Investment Corp. are part of a consortium expected to announce Monday a $1 billion equity investment in private shipping company Diamond S Shipping, which will use the funds to acquire 30 tankers, the companies said. Greenwich, Conn.-based Diamond is buying 30 medium-range carriers that transport oil-refined products from Hong Kong’s Cido Tanker Holding Co., also closely held, they said.

Since the financial crisis, the maritime transportation industry has largely been in a down cycle. But shipping assets have become an attractive investment for financial firms, as the industry becomes increasingly global to meet demands for goods and natural resources.

Furthermore, because of the large costs of building ships, consolidation in the sector is expected.

“This is our first entry into this sector but it’s by no means our last,” said Wilbur Ross Jr., chairman of WL Ross & Co., who had been looking for two years for investment opportunities in the shipping sector.

“There is growing demand in Asia for crude oil and oil products, and we’ll be in the middle of that,” said Timothy Day, a managing director at First Reserve. “Latin America will also be a factor for growth.”

In March, private-equity firms Carlyle Group and Tiger Group, shipping-container company Seaspan and other investors formed a joint venture focusing on maritime transportation. The group will invest $900 million in equity over the next five years to acquire $5 billion of containers, tanker vessels and other shipping assets.

The joint venture focuses on bringing together Chinese shipbuilders, state-owned companies and lenders to support China’s stated desire to increase the number of shipping assets it owns.

In another possible deal in the shipping industry, previously reported, Chinese company HNA Group Co. is in exclusive negotiations to acquire GE SeaCo Ltd., a shipping container lessor co-owned by General Electric Co. in a deal that could be worth as much as $1 billion, people familiar with the matter said.

HNA edged ahead of at least three other interested parties, including Textainer Group Holdings Ltd., a publicly traded container leasing company, and private-equity firm Kelso & Co., the people added. HNA’s businesses include air transportation, tourism, hotel management, logistics and other services.

Talks between HNA and SeaCo are continuing and negotiations could fall apart, the people said.

Diamond S Shipping was formed in 2007 by First Reserve, an energy-focused private-equity firm, and Diamond’s chief executive Craig Stevenson. He had been head of the OMI Corp.

Diamond already is set to own a fleet of ten tankers, which carry crude oil, that are being built by Hyundai Heavy Industries and Samsung Heavy Industries in South Korea.

With the acquisition of the 30 tankers, Diamond will have a fleet of 40 ships with an average age of 1.75 years, according to Mr. Stevenson.

Other investors in the Diamond deal include Canada’s Fairfax Financial Holdings Ltd., Chapel Hill, N.C.-based Morgan Creek Capital Management and Chicago-based PPM Capital Partners.

Nordea Bank Finland and DnB Nor Bank ASA are providing financing for the deal.

Clarkson PLC’s Clarksons shipping services and law firm Mayer Brown advised Cido Tanker Holding on the deal. Jones Day advised Diamond S Shipping.

(Copyright (c) 2011, Dow Jones & Company, Inc.)

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