Saturday, April 9, 2011

Box Ships: the ultimate in asset management business models

The Paragon Shipping offspring: Box Ships Inc. is the ultimate in the asset management business model. Michael Bodouroglou's private company Allseas serve as the managers, earning substantial fees and commissions for their services. Apart from vessel technical management, Paragon/ Allseas have no intrinsic value to offer as they have just recently entered the containership sector on a vessel provider basis. They have no special containership industry relationships.

The whole venture depends on speculative improvement in asset values in container vessels and charter rates levels from liner companies. The role that Paragon/ Allseas play in this matter as technical managers is no different than a V.Ships or Bernard Shulte Shipmanagement, except that their pricing for services is a lot higher than a normal third party ship management company.

Their technical management fees are in the order of US$ 310.000 per vessel per annum for investor-owned Box Ship compared to the US$ 150.000 - 160.000 that a third party professional manager would normally charge. They will also earn an address commission of 1,25% on any charter party that they negotiated and 1% on any vessel sale and purchase transaction, which are normal going rates by industry standards.

Paragon's only existing liner company relationship is currently with CMA-CMG. After the IPO and acquisition of the additional units, they will add charters to CSAV Valparaiso for three units and one unit to Maersk. CSAV holds a purchase option in one of the charters. Bodouroglou is purchasing the new tonnage thorough Paragon and his private companies and the two existing Paragon containerships will be dropped down to Box Ships.

Basically, Michael Bodouroglou is the ultimate vessel asset manager for shareholders in this containership venture. His companies earn substantial fees for their services. He gets to decide what vessels to buy, sell and how to charter for them and is nicely compensated for this work with some skin in the game, but most of the risks on the shareholders. It is the dream of anyone in the shipping business!

UBS Investment Bank and Morgan Stanley are the lead underwriters and will be lining up the investors for this IPO. They will have to convince them why to place their money in a Box Ships as opposed to a solid liner company like Maersk, Orient Overseas or Neptune Orient Lines with far more added value in their cargo systems or vessel provider competitor Seaspan with Jerry Wang's China connections.

What will convince the investors that this is good deal beyond the asset speculation? Will they accept this sale pitch without asking for any discounts?

For that matter, investors could go out and buy their own vessels and hire V.Ships to run them with lower transaction costs. It might be cheaper and more effective to hire an ex-liner company CEO to run the operation for them than Bodouroglou.

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