EMM 102 – Remaining Competitive in a Changing Market – Strategic Financial Tools, Singapore

Assignment Details:

ABC Maritime Inc. is a traditional, privately owned, family-controlled, shipping company. Its principal owner, having sold all of his shipping assets, at the top of the shipping cycle, in 2008, is presently considering the possibility of re-entering the shipping industry. In order to establish a  critical mass in his operations, he is interested of acquiring a fleet of at least eight (8) vessels,
either in the Dry Bulk, the Container, the Medium Range (MR) Product Tanker or the Liquefied  Petroleum Gas (LPG) Tanker sector (the “Sector”).

In order to proceed with this shipping investment and as part of his efforts to reduce his equity capital commitment in this venture, he is considering the possibility of raising part of the necessary equity from institutional Private Equity investors.

The principal has retained you, as a third party shipping industry expert, to prepare an analysis to be communicated to the prospective Private Equity investors, analyzing the proposed shipping investment opportunity. The analysis should be based on one of the above shipping Sectors and should combine both a Discussion part (of approximately 2,000 words) as well as a Financial  Analysis part (of approximately 1,000 words).

For the Discussion part of this assignment, items 1(a) and 1(b) below, you are required to make use of publicly available research material, presenting tables and charts to support your arguments and suggestions.

Question 1. The Discussion part should analyze the following key elements for the Sector of your choice:
a. Economic fundamentals of the specific Sector and why these favor an investment in it.

b. Timing of the investment and how appropriate this is in terms of the shipping and finance business cycles.

c. Suggested Assets to be acquired and Employment strategy to be followed

d. Suggested financing strategy to be adopted for the investment

Question 2. The Financial Analysis part should include the following, for only one vessel, of the  Sector of your choice:

a. Break-Even Calculations: Estimate the minimum break-even time-charter rate required to cover debt financing cost, as well as operating expenses (OPEX).

b. Capital Budgeting process (investment appraisal): Estimate the Internal Rate of Return  (IRR) for the equity committed.