Ship : owning as an asset class that deserves investment grade ratings perspective from the capesize sector

• Main Author: Chen, Yu Fan
• Other Authors: Soh Woei Liang
• Format: Final Year Project
• Language: English
• Published: 2015
• Subjects: DRNTU::Engineering::Maritime studies::Maritime management and business
• Online Access: http://hdl.handle.net/10356/64111
• Institution: Nanyang Technological University

To study whether the Capesize market deserves the huge investment influx in the past decade, and whether it is a worthwhile investment in the near future, this research is divided into 3 Volumes. Volume 1 – analyzing the investors’ decision to enter Capesize market between 2004 and 2008, Volume 2 – discovering the reasons of contentiously injecting money from 2009 to 2013, and Volume 3 – evaluating the worthiness of investment in Capesize sector in the next five years. With the objective of this paper, Volume 2, the operating environment for market participants and industry financial performance is assessed to determine the favorability of investment. The market average cash flow and change in working capital were analyzed to identify fund-channeling mechanism of the Capesize industry. It is found out that from 2009 to 2013 the industry had been operating in extremely hostile market environment. The excessive Capesize vessel new order and unceasing slow-down in vessel demand triggered ever-lasting market oversupply in Capesize sector. Consequently, a continuous decline in freight rate and high operating cost lowered market profitability. Furthermore, the market participants were unlikely to demonstrate the timeliness of assets acquisition and utilization strategy. This is because vessels were ordered and delivered when market was filled with young vessels and vessel revenue generation ability is weak too. Although the market participants maintained an average of 50% debts weightage in capital financing structure, the industry financial performance was degraded by the overall declining trend in Return on Equity. Moreover, it was found out that despite the unfavorable market condition, extensive funds were flowing in mainly for the purpose of cash obligation from 2011 to 2013.