How Private Equity/Finance/Finance modeling like LBO or DCF can play role in maritime industry

Paper (20 percent of overall grade): A class paper is due by the end of the semester. Our goal of the paper is for you to think more deeply about what you have learned in the class and apply it to a topic of your interest. Good papers will satisfy the following five criteria in order of importance (i) analytical rigor (e.g. supported by data, numbers and models) supporting the paper thesis (30%), (ii) references to original data sources (e.g. interviews with practitioners, collected data) (30%), (iii) clarity of exposition, persuasiveness of argument (20%), (iii) originality of paper topic (10%) and (iv) references to class materials/discussions (10%). Given that there are many different paper topics, ranging from very specific to more broad topics, there is no paper length requirement (although we expect that any topic would require at a minimum 10 pages double spaced). The guideline is that good papers discuss their thesis in sufficient detail so that a reader familiar with the class materials will have a solid understanding after reading a paper. For the benefit of students, papers will be posted to the class website after the submission deadline. A limited number of students will be selected to present their paper during the last class meeting.Paper topic – How can you leverage Finance or PE (LBO) in maritime shipping industry? Paper description – How much role / responsibility / weight does Finance play in the maritime shipping industry – In what area of the maritime shipping industry requires the most finance? – Can DCF or LBO be leveraged into the industry? – What is the future of Shipping finance? – How can I become successful in the maritime shipping industry by leveraging my finance backgroundBelow is what chat gpt said just to give some sense of how to structure your paper.

Private Equity

1. Investment in Shipping Assets: PE firms often invest in shipping companies or fleets during downturns when asset prices are low, aiming to sell them during peak cycles.
2. Fleet Expansion: They provide the capital required for acquiring new vessels, modernizing fleets, or entering new shipping markets (e.g., LNG carriers).
3. Operational Efficiency: PE firms often restructure shipping companies to improve operational efficiencies, reduce costs, and boost profitability.
4. Exit Strategy: After adding value, PE firms exit through IPOs, strategic sales, or mergers.

Finance

1. Ship Financing: Traditional banks and maritime-focused financial institutions provide loans for ship purchases. Alternative financing options, like bonds or mezzanine financing, are also common.
2. Working Capital: Financing is critical for managing operational cash flows, especially given volatile freight rates and fuel prices.
3. Restructuring: Distressed shipping companies often rely on finance solutions to restructure debt and avoid bankruptcy.

Leveraged Buyouts (LBOs)

1. Acquisition of Shipping Firms: LBOs allow investors to acquire shipping companies using a combination of equity and significant debt. This is often used for undervalued companies with stable cash flows.
2. Debt Repayment: LBO strategies in shipping often involve leveraging predictable earnings from long-term charters or contracts to service debt.
3. Asset Play: LBOs are attractive in shipping because vessels can serve as collateral, mitigating lender risk.

Discounted Cash Flow (DCF)

1. Valuation of Shipping Companies: DCF is a preferred method to value shipping companies, as it accounts for projected cash flows from charters, freight rates, and operating expenses.
2. Asset Investment Decisions: Shipowners and investors use DCF to evaluate the profitability of purchasing new vessels or entering new markets (e.g., offshore wind farm support vessels).
3. Risk Assessment: Shipping is highly cyclical, so DCF models incorporate risks such as fuel price volatility, demand-supply dynamics, and geopolitical factors.

Examples in Practice

1. Dry Bulk Shipping: PE firms invest in bulk carriers during down cycles and capitalize on rising freight rates during market recoveries.
2. LNG and Tankers: Specialized vessels with long-term charters are popular LBO targets due to predictable cash flows.
3. Shipbuilding: PE or structured financing supports shipyard operations during low-demand periods.
4. Green Shipping: PE funds are increasingly financing the transition to green technologies (e.g., LNG-powered ships, wind-assisted vessels).

Also attached is Hyundai Glovis’ business report.