Renewal of Turkish Coaster FleetOctober 2015

• The Project is well known among Turkish shipping society and an acknowledged necessity. It is also mentioned under the 8th five-year development by the government planning agency (now Turkish Ministry of Development)

• The State (Republic of Turkey) supports the idea citing following:

– A young fleet is mandatory for sustenance of Turkish Short Sea Shipping. – Turkish Coaster fleet must remain competitive. – Older fleet can not easily enter Paris MoU ports thus its commercial capabilities

are greatly reduced.– A new fleet will boost market share.– The Project is a new business opportunity for domestic shipyards.– A sustainable model could pave the way for continual competitiveness.

TURKISH COASTER FLEET RENEWAL PROJECT

‘TURKISH STAR’

A number of meetings took place between foreign Lenders and the Turkish delegation and important distance has been taken led by development and economic cooperation agencies of prominent shipping nations.

Currently, various alternatives are still under development yet the existing financial situation hinders the process of laying out principals of financial infrastructure for such a Project.

TURKISH COASTER FLEET RENEWAL PROJECT

‘TURKISH STAR’

An important milestone of the Project was the signing of a Non-Disclosure Agreement between Netherlands and Turkey.

TURKISH COASTER FLEET RENEWAL PROJECT

‘TURKISH STAR’

PROJECT FOUNDATIONSTurkish Fleet is aging and thereby losing its competitiveness. According to ISTFIX statistics, among the 1.800 Coaster/general cargo vessels trading within Mediterranean & Black Sea:- 545 units are over 30 years old (abt. 2,3 mln dwt),- 263 units are over 25-30 years old, (abt. 1,3 mln dwt)- 207 units are over 20-25 years old (abt. 1,0 mln dwt)

Average age profile of the 2.000 unit fleet is 21,9 years where 1.015 units (abt 4,3 milyon dwt of 9,5 mln total fleet) is over 20 years old.

Kaynak: ISTFIX, İstanbul Navlun Endeksi

205292

121

204207263

545

1-5 yrs6-10 yrs11-15 yrs16-20 yrs21-25 yrs26-30 yrs30+ yrs

Turkish controlled fleet population active in the region fell from 34 percent in 2008 to about 28,6 percet in 2013 but last year recovered to 32 percent.

Source: ISTFIX, Istanbul Freight Index

PROJECT FOUNDATIONS

34%

66%

2008

Turkish Owned Other

31.9%

68.1%

2014

Turkish Owned Other

Total active 1.000-12.000 dwt coaster fleet within the Mediterranean & Black Sea basin shrunk from 12,3 mln dwt in 2009 to 9,4 mln dwt as of end 2014.

PROJECT FOUNDATIONS

Source: ISTFIX, Istanbul Freight Index

2009 2010 2011 2012 2013 2014

12.31 mln dwt11.45 mln dwt11.01 mln dwt10.84 mln dwt

9.96 mln dwt 9.42 mln dwt

22.4 22.8 23.421.6 21.6 21.9

Total Fleet Average Age

Between 2009 and 2014, 685 units ceased to operate in the region, generally due to scrapping and partly due to sales to other regions. This suggests a fleet meltdown of 100 units per annum.

PROJECT FOUNDATIONS

Source: ISTFIX, Istanbul Freight Index

2009 2010 2011 2012 2013 2014

12.31 mln

11.45 mln

11.01 mln 10.84 mln

9.96 mln

9.42 mln

2,522

2,358

2,2352,176

1,980

1,837

Total DWT No. Of Vessels

Turkish owned fleet has been shrinking between 2011 and 2014. Fleet fell from 733 units to 655 units losing 230.000 dwt. However in 2014, the fleet registered a net growth first time since 2010 and rose to over 3 million dwt.

PROJECT FOUNDATIONS

Source: ISTFIX, Istanbul Freight Index

2011 2012 2013 2014

3,078,159.00 mln dwt 2,987,503.00

mln dwt2,853,081.00

mln dwt

3,007,476.00 mln dwt

733

697

655

669

Regional Economy

Between 2009-2014 GDP growth (current basis) was slow but persistent, yet the fleet has been shrinking substantially. Regional GDP rose from 9,8 trl USD in 2009 to about 11 trl USD (excl. Libya and Syria) in 2014.

Source: Worldbank, ISTFIX, Istanbul Freight Index

2009 2010 2011 2012 2013 201400

1,000,000,000,000

2,000,000,000,000

3,000,000,000,000

4,000,000,000,000

5,000,000,000,000

6,000,000,000,000

7,000,000,000,000

8,000,000,000,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000Fleet (DWT) GDP (USD) MENA GDP (USD) BL SEA GDP (USD) S. EUROPE

Market

3.615

1.816

Source: ISTFIX, Istanbul Freight Index

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

USD

/ d

ay

Average daily earnings of 5.000 dwt coasters in the last 14 years stands at 3.615 USD per day while daily operational expenses (running cost) amount to 1.816 USD per day.

PROJECT DETAILS • Focusses initially on building ten (10) 5,200 deadweight tonne units.• Orders will be placed at Turkish Shipyard which meet certain criteria.• The Project will be funded by local/foreign finance institutions with a

previously agreed financial facility.• The lower (3,000 dwt) segment and upper (7,500-8,000 dwt) segment

newbuildings can also be incorporate based on demand.

• Turkish Star is designed to yield maxiumum commercial capability at minimum investment and operation costs.

• This is achieved by:– Reduced M/E power which lowers investment costs as well as fuel

consumption. A smaller engine also requires fewer crew.– Reduced GT and NT permits reduction in terms of port expenses.– Reduced overall length not only promotes manoeuvrability but also

helps mitigate SOLAS requirements stipulated by the IMO.

PROJECT DETAILS

Strengths:- Reduced running cost,- Long term finance,- Combined experience of individual Coaster owners,- Established trade and customers,- Reduced complement on board,- Reduced engine power,- Lower fuel consumption and flue gas emissions,- Reduced GROSS and NETT tonnages (at same hold

volume),- Reduced length, - West European equipment

Weaknesses:- Lack of cranes on board,- Vessels’ not being container fitted,

Opportunities:- Ageing coaster tonnage,- Increased scrapping activity,- Abundance of substandard vessels in the region,- Green concerns across Europe,- A young, capable and versatile alternative for

charterers,

Threats:- Substandard competition,- Potential political disarray in the

region,- Sluggish Euro-zone growth,

PROJECT DETAILS

CORPORATE STRUCTURE

• Coaster Investment A.S., will be a publicly listed private shipping incorporation.

• The incorporation will be the mutual owner of the Project and commence operations as a collective partnership of Turkish owners. Joining of additional shareholders from shipbuilding industry, marine equipment makers and state is considered ideal.

• The company will be responsible for:

– Placing orders at Shipyard and equipment purchases, – Coordination of newbuildings,– Operations & management after delivery, and,– Debt service

CORPORATE STRUCTURE

Financial Structure

A sustainable finance model for the renewal Project calls for:

Equity : Lowest possible contirbution, considering the circumstances Coaster owners are facing as they are still trying to recover from crisis.

Bridge Financing : Grace period for at least 1 year, during which vessels will be built.

Long Tenor : Longest term financing after delivery.

Collateral : 1st degree mortgage on newbuildings only.

Cost : Fixed financial cost throughout the repayment.

We continue sharing our own projections fulfilling the above with various financial institutions and getting feedback.

Conclusions• Analysis show that, over the medium and longer term, cyclical development pattern of

shipping business only allows newest tonnage to survive.

• Adverse market conditions boost scrapping. The longer markets remain depressed,

the stronger scrapping becomes. This eventually causes serious undertonnage and

rapidly soaring freigt rates in the event of a recovery whereby ship supply falls behind

tonnage recovery.

• This could lead to a rapid improvement in the coming years.

• Scrapping Policy can be considered as an integral solution.

• The crisis can be turned into opportunity if a design that meets regional requirements

and regional commercial patterns can be put to practice with a sustainable structure.

• The Project MUST be dealt with a financial model that is compatible with possible

incentive schemes.

Thank You…