Stolt-Nielsen: Equity funds could start new crisis

Not that long ago, the shipping industry's biggest problem was the lack of financing. Now there is too much financing from players who do not necessarily care about shipping, says CEO Niels G. Stolt-Nielsen.

CEO of Norwegian chemical tank carrier Stolt-Nielsen, Niels G. Stolt-Nielsen, is now warning - in surprisingly straight-forward terms - against the development that is taking place in shipping, with an increasing number of equity funds entering the industry by acquiring carriers.

Not that long ago, the biggest challenge for the industry was a lack of financing, but according to Stolt-Nielsen's critique, the problem now seems to be too much - or wrong - financing.

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"Unfortunately, just as we are beginning to see a tiny profit from our tanker division, news of newbuilding orders are being announced, not by traditional operators, but by new entrants with private equity and hedge fund backing. The amount of money entering into shipping is extremely worrisome. The orders for new ships are being driven not by increased demand for logistical services, but by the overflow of capital available in the market" says Niels G. Stolt-Nielsen in the carrier's annual report, adding:

Fees behind new orders

"Also of concern is the acceptance of fee structures where the managers of these new "shipping companies" get fees up front when ordering ships, or for managing the ships they order, without having any equity stake themselves in what is being ordered. Despite how conservative and restrictive the banks say they are in lending to shipping companies, they still do and are contributing to a potential new shipping crisis," says the Norwegian shipowner.

However, this development will not keep Stolt-Nielsen from ordering more ships itself, he says.

The discussion about the entry of private equity funds into shipping has become increasingly topical in recent years in light of the financial crisis. Many struggling carriers have been saved by money invested partially - or completely - by equity funds. These include Eitzen Chemical and Torm. Nordic Tankers is also owned by an equity fund. Hafnia Tankers has capital from funds as part of its ownership. And several more are underway. Thus ShippingWatch recently reported how one of the biggest investors and equity fund owners in the world, Wilbur Ross, last week predicted that equity funds will play a substantial role in relation to consolidating the industry - a matter that has similarly been talked about for years.

Funds consolidating

"Over time, the private equity funds will help kick-start a consolidation in the industry. The funds are looking to contribute to existing businesses, and there is no natural reason that the shipping industry should be so fragmented," said Ross, who complained that the industry remains focused on too many hands.

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Wilbur Ross: Equity funds bring consolidation

Operating profit at Wilbur Ross' Navigator soars

Eitzen Chemical replaces banks with equity funds

Nordea sold its Torm debt at a low price 

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