Tufton, Shipping Hedge-Fund Firm, Buys Stake in Fleet

Tufton Oceanic Finance Group, manager of the world’s biggest shipping hedge fund, bought a 50 percent stake in a fleet owned by failed asset manager Allco Finance Group. The 14 vessels include oil tankers, container ships and a commodity carrier and are valued at $250 million, Tufton said in an e-mail today, without disclosing the transaction price. Separately, the company expects to raise $300 million to $400 million for its planned Oceanic Distressed Fund.  Charter rates for ships carrying commodities such as iron ore fell a record 92 percent last year and oil-tanker tariffs dropped 78 percent as demand weakened and fleets expanded. Shipping lines including Ukraine-based Industrial Carriers Inc. and Copenhagen-based Atlas Shipping Group sought protection from creditors as rental income fell below operating costs.
“Most shipping and many offshore market segments are being hit by a perfect storm of low or negative demand growth, supply growth of 30 to 50 percent over the next few years and limited access to the credit which is critical in these capital- intensive sectors,” Tufton Oceanic Chief Executive Officer Erik Lind said in the e-mail.
Tufton bought a 50 percent stake in Allocean Charters (Singapore) Pte., the rest of which is held by SIF Ltd., a closely held investment company. The unit owns nine ships designed to maneuver anchors and equipment for the offshore oil industry, two oil tankers, two container ships and a commodity carrier. Two of the vessels are still being built.  Rental Rates The cost of a second-hand capesize, the largest ship most commonly used to haul coal and iron ore, plunged 64 percent to $56 million, from a record $154 million last year, according to Baltic Exchange data. Rents for the vessels fell from $233,988 a day in June 2008 to as low as $2,316 in December.
The price of a second-hand supertanker, designed to ship 2 million-barrel cargoes of crude, fell 49 percent since July last year to $83 million. On the voyage from Saudi Arabia to Japan, the industry benchmark, supertankers are making $8,494 a day, down from $177,036 a day in July last year.
Commodity transporters with a carrying capacity of 289 million deadweight tons, equal to 67 percent of the existing fleet, are on order at shipyards, according to data from London- based Drewry Shipping Consultants Ltd.
The order book for oil tankers stands at 36 percent of the existing fleet, or 129 million deadweight tons, a measure of a ship’s capacity for carrying cargo, fuel and supplies.
The Baltic Dry Index, a measure of shipping costs for commodities, rose 7.3 percent to 3,324 points today, according to the Baltic Exchange.
‘Distressed Space’ The Allocean accord is the “first of many planned investments in the distressed space during this cycle and we see substantial value to be generated,” Lind said. Tufton Oceanic manages $1.8 billion of assets, including the $1 billion Oceanic Hedge Fund. It has 54 employees in Cyprus, Dubai, Hong Kong, Isle of Man, London and Singapore.  M2M Management Ltd., another shipping hedge-fund group, in January said it also planned to bid for vessels sold by owners hurt in last year’s record collapse in hire rates. M2M created Cayman Islands-based Global Maritime Assets Ltd. to handle the transactions. It has yet to buy any vessels, Tim Coffin, the fund’s senior manager, said by e-mail. Allco relied on credit to buy assets that also included wind farms and aircraft, emulating a model pioneered by Macquarie Group Ltd. The strategy backfired as debt markets froze and bankers forced it to sell assets as prices slumped.
Allco in August posted a A$1.73 billion ($1.5 billion at the time) loss, the biggest by an Australian company in five years. A meeting of creditors May 26 resolved that Allco would be wound up and a firm of liquidators appointed.

Source: Alaric Nightingale, Bloomberg