“FEDERAGENTI”
FEDERAZIONE NAZIONALE AGENTI RACCOMANDATARI MARITTIMI
E MEDIATORI MARITTIMI
______________________
Roma, 02/03/2009
CIRCOLARE N. 015 /2009
Prot. n. 88-MP/cc
ALLE ASSOCIAZIONI FEDERATE
E AI LORO ASSOCIATI
HAMBURG SHIP EVALUATION STANDARD
Per opportuna conoscenza, e per la diffusione a tutti gli Associati, si trasmette
quanto ricevuto da FONASBA.
Distinti saluti.
Il Segretario Generale
Marco Paifelman
00144 ROMA – Viale Asia, 3 – Tel. 06 5806635- Fax 06 5800946
16121 GENOVA – Via Cesarea, 11/7 – Tel. 010 590019 – Fax 010 590025 – E-mail: rosanna@federagenti.it
cod. fisc.: 80044490102
Dear All,
On behalf of Klaus Bültjer and the Hamburg Shipbrokers Association, (VHSS), we have pleasure in
circulating herewith information on the recently unveiled Hamburg Ship Evaluation Standard. As
the attached letter points out, this is an initiative designed to take a fresh approach to the
valuation of ships in the light of the current financial crisis. All member associations are
therefore asked to circulate the information amongst those of their members that operate in the
ship sale and purchase sector. Further information on the Standard can be obtained directly
from Klaus at the German Shipbrokers Association (ZvDS) on: klaus.bueltjer@dihla.de
Best regards,
JONATHAN C. WILLIAMS FICS
GENERAL MANAGER
FONASBA
85, GRACECHURCH STREET
LONDON EC3V 0AA
Hamburg Shipbrokers' Association (VHSS)
Schopenstehl 15
D-20095 Hamburg
www.vhss.de
Circular letter to all members of FONASBA
VHSS initiates creation of new
"Hamburg Ship Evaluation Standard"
Responding to the present standstill in the main ship sales and purchase market segments, the Hamburg Shipbrokers' Association has successfully initiated the creation
of a new value assessment, the "Hamburg Ship Evaluation Standard". Aiming to determine the value of a ship on the basis of its long-term earnings potential, the new
value assessment has been tailored specifically to dysfunctional markets and irregular
market conditions. Developed in close cooperation with ship value appraisers as well
as owners, banks and brokers, the "Hamburg Ship Evaluation Standard" was first presented before German and international media in Hamburg on 20 February 2009.
The global financial crisis has caused a virtual standstill in the main segments of the ship sales and
purchase markets. Ship valuators, sales and purchase brokers as well as value appraisers were virtually forced to halt valuations of vessels in various market segments. The very few transactions concluded in these segments were mainly forced sales and could thus not be used as representative
transactions in accordance with traditional determination of a market value. Similarly, charter rates –
which in some vessel segments are just on the level of the required operating expenses – are presently unsuitable as basis for a projected Earnings analysis.
These extraordinary market conditions motivated the Hamburg Shipbrokers' Association (Vereinigung
Hamburger Schiffsmakler und Schiffsagenten e.V., VHSS) to initiate the creation of a value assessment (Long Term Asset Value, LTAV) describing the value of a ship beyond short-term market fluctuations. Within few weeks the new "Hamburg Ship Evaluation Standard" was developed by the Association's Evaluation Board in close cooperation with ship appraisers and brokers as well as representatives from shipping banks, ship owners and finance houses. Through a specific formula the LTAV of a
vessel is determined on the grounds of its long-term earnings potential, using a present value respectively DCF method customised to account for the requirements of vessel valuation. In order to incorporate the volatility of the shipping cycle in this assessment, a conservative, statistically proved and
transparent approach was used.
The LTAV-approach chosen by the new "Hamburg Ship Evaluation Standard" does by no means aim
to replace the standard evaluation methods based on rules of shipping banks or governing legislation
which are used during normal activity. Instead, the LTAV-approach can be used as an additional value
assessment method during times of a working shipping environment with normal market conditions.
During periods of dysfunctional markets or irregular market conditions it provides a conservative, unbiased and statistically proven approach helping to obtain representatives figures. Thus the "Hamburg
Ship Evaluation Standard" can help to avoid or overcome virtual market standstills.
The Hamburg Shipbrokers' Association hopes that its new "Hamburg Ship Evaluation Standard" will
gain wide international acceptance and suit as an approach to overcome the current market weakness
in ship sales and purchases. This Circular Letter issued to all members of FONASBA aims to give a
brief account about the "Hamburg Ship Evaluation Standard" and its advantages. National associations of ship brokers and agents are welcome to redistribute this information to their members.
I.
Advantages of the LTAV-method chosen by the "Hamburg Ship Evaluation Standard"
•
Determining a vessel's value on the basis of its long-term earning potential, the LTAVapproach can be applied in all market situations, even in dysfunctional or collapsed markets
as well as during irregular market conditions.
•
The LTAV-approach can be used for a wide variety of ship types.
•
The LTAV-approach incorporates the volatility of the shipping cycle, applying a conservative,
statistically proven and transparent approach.
•
The LTAV-approach does not replace conventional established evaluation methods. On the
contrary, it can be applied as a complimentary method during normal market activity.
•
The "Hamburg Ship Evaluation Standard" allows a fairly easy calculation of a vessel's LTAV
through a special formula.
•
The "Hamburg Ship Evaluation Standard" has been developed in close cooperation between
ship valuators, value appraisers, brokers, owners, banks and finance houses. This broad
stakeholder involvement ensures wide acceptance of the new Standard.
II. Market conditions suggesting value assessment according to the "Hamburg Ship
Evaluation Standard":
A dysfunctional or irregular market making conventional valuation impossible exists if at least two
of the following scenarios apply:
(1) An uncharacteristically low number of sales candidates – in comparison to the overall fleet
within a specific category of vessels over a period of at least three months – means that there
is a severe imbalance between willing sellers and willing buyers.
(2) Transactions in which either the seller or buyer are knowingly under time pressure, constraint
or in urgent need to conclude a deal, driven by personal or corporate distress. Prices do not
reflect the characteristics of transacted vessels.
(3) A difference of 30% between current transaction prices and the "Long Term Asset Value"
(LTAV) lasting for at least three months.
(4) An uncharacteristically low number of market participants, based on the total number of parties within a market over a three months period.
(5) The absence of essential, regular market conditions (e.g. unavailability of dept financing for a
large number of market participants).
III. Calculation of the LTAV according to the "Hamburg Ship Evaluation Standard":
The following formula has been derived for an easy computer-based calculation of the "Long Term
Asset Value" (LTAV) of a vessel:
LTAV =
T
t =1
(Ct − Bt )
RWt
+
(1 + i )t
(1 + ii =T )T
C1
= Current Net-TC-Rate in running year (Base: ConTex; Baltic Dry Index (BDI); other proven data etc.)
C 2−T
= Average-Net-TC-Rate of the past 8-10 years (if possible, otherwise shorter)
Bt
= Average-OPEX of the last 8-10 years (if possible, otherwise shorter)
i
= Discount rate
t
t
= period ( 1 current year;
T
= Remaining period until Age 20/25 Years
RWT
= Residual value, based on LDT, average USD scrap price/ldt and multiple (ldt in long tons, 1t= 0.9842 lt)
t 2−T : period end)
Special remarks are to be considered as follows:
•
Charter Income ( Ct ):
For a charter free vessel:
t1 = Using current indices (Base: ConTex; Baltic Dry Index (BDI); own date etc.)
t 2 =Average 10 year charter rate
In case of an existing charter:
With an existing charter fixed to a charterer with a reliable credit rating, the existing charter
should be considered until its completion. After completion of the charter, the income for
the remaining period should be calculated based on the 10 year average charter rate for
the given vessel type.
•
Operating Costs ( Bt ):
The operation costs are derived using the average of the past 10 years, including a linear
breakdown of regular Class renewal and dry docking costs.
•
Discount Rate ( i ):
Currently the discount rate is at 6.6% and is defined as follows:
The cost of debt is defined at 10 year USD LIBOR average (4.036%) plus a 1.375%
bank margin, resulting currently in a rate of 5.411%.
The cost of equity consist of the 10 year average interest rate of the 10 year USgovernment bond (4.63%) further adding a risk premium of 3%, currently resulting in
7.63%.
For the determination of the internal rate of return, a typical Ship Finance model was assumed and consequently weighed with 70% debt and 30% equity. To reflect the overall
conservative approach, a 0.5% risk premium was added, bringing the current discount
rate to a total 6.6%.
•
Residual Value ( RWT ):
Two methods are offered to calculate the residual value. Up to a vessels age of 15 years
Method A should be used, for vessels older than15 years Method B should apply.
A: 20 Years Period:
Using an investment horizon until the vessels has reached 20 years of age, the residual
value of the relevant vessel should be determined by the scrap value (ldt*Avg.-10 year
scrap value) multiplied by a coefficient. The coefficient for different vessel types is based
on proven statistical data of market transactions for 20 year old vessels respectively scrap
prices. Available statistical data currently leads to the following coefficients:
Container Ships…….....… 3.7
Bulk Carriers………….......3.45
Tankers…………………… 2.0
If statistical data is not available for certain special vessels types, a conservative coefficient
of 2 should be used.
B: 25 Years Consideration Period:
Using an investment horizon until the vessel has reached 25 years of age, the residual
value of the relevant vessel should be evaluated on the average scrap value of the past 10
years. For earnings during the vessels 21st to 25th year of age the average charter rate
should be reduced by 30% for bulk carriers and by 15% for container vessels and tankers.
It is recommended that a ship appraiser should use Method A for vessels up to the age of 15
years unless in his best judgement and expertise he considers an earnings projection up to an
age of 25 years reliable on the basis of available data. Annual earnings are calculated on 360
running days, except in years of class renewal (every 5 years) when only 345 days are to be
counted.
Further information about the new "Hamburg Ship Evaluation Standard" can be obtained from the
Hamburg Shipbrokers' Association:
VEREINIGUNG HAMBURGER SCHIFFSMAKLER UND SCHIFFSAGENTEN e.V.
(The Hamburg Shipbrokers' Association, VHSS)
Managing Director Mr Klaus Bültjer
Schopenstehl 15, D-20095 Hamburg
Telephone:
Telefax:
Email:
Internet:
+49 (0)40 / 32 60 82
+49 (0)40 / 32 19 95
info@schiffsmakler.de
www.vhss.de
Hamburg, 25 February 2009
Background information: VHSS – The Hamburg Shipbrokers' Association
The Vereinigung Hamburger Schiffsmakler und Schiffsagenten e.V. (VHSS) was formally established
upon a constitutive gathering of 44 shipbrokers on 08 January 1897. Traditionally calling on its members to observe the principle of good faith above all and at all times, the VHSS today – 112 years after
its foundation – represents the interests of about 200 ship brokers and agents as a voluntary organisation. In particular it promotes the exchange of information and experience between its members regarding both commercial and technical matters. It also represents membership interests towards trade
unions, government, public administration and other companies of the transportation and logistics
sector. A continuing success is the Association's traditional "Eisbeinessen", the world's largest shipping networking event hosted on the first Friday in November each year. 2008 saw this event celebrating its 60th Anniversary with a record participation of some 5,600 shipping professionals from more
than 50 countries all around the globe. VHSS is the largest regional member of the German Shipbrokers' Association, Zentralverband Deutscher Schiffsmakler e.V. (ZVDS), which is in turn a full member
of FONASBA and ECASBA.