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(Solved): Assuming we are standing at December 2019. A shipping company which already owns one Panamax (PMX) d ...

Assuming we are standing at December 2019. A shipping company which already owns one Panamax (PMX) dry-bulk vessel is about to complete the acquisition of one Capesize (CAPE) dry-bulk vessel. The acquisition of the vessel will be funded partly by a bank loan and partly by cash held within the company. SIGMA BANK has just provided a Commitment Letter with the main terms for the bank loan. Completion of the transaction (loan drawdown and vessel acquisition) is expected in the first week of January 2020. The vessel to be acquired is described below: Name Type Built Price ($) Vessel 2 CAPE size dry-bulk 2014 28mn The following files provide additional information: 1. Bank Commitment Letter; includes the terms of the debt financing for the acquisition of Vessel 2. 2. Company information: includes information on the company’s fleet, its Balance Sheet as of 31/12/2019 (note that Vessel 2 has not yet been acquired), and additional accounting information on the company’s fixed assets. 3. Market Data; includes historical market data on the vessel values, freight rates and fleet development on both vessels. By using your historical market data, you are required to perform a market analysis of the Capesize vessels in order to evaluate the new investment. Specifically, you are requested to address the following questions: a) In the specific market of the Capesize vessels, describe and explain how the 4 shipping markets (freight, sales & purchase, newbuilding, demolition) have historically evolved and how they interact among themselves. Make sure you discuss both ups and downs and how one provokes the other. Present the appropriate graphs with historical information to support your discussion. b) Comment on the specific timing in the shipping cycle that the particular investment takes place (end of year 2019). (Position in the shipping cycle). Discuss your expectations on the future course of the market value and freight rates of the CAPE vessel that you plan to purchase. Would you recommend proceeding with the investment? Justify your response. c) 6 months after the investment (summer of 2020) there is a geopolitical tension in the Middle East. Political analysts comment that a war is about to break out which will result into the closure of the Canal of Suez. Hostilities are expected to last for many months. Vessels will have to circumvent the continent of Africa as the Canal will be no more available for shipping. Demand for international trade is expected to remain stable. Explain how would you expect the freight rates for the vessels of our investor to be affected if the war really takes place? Discuss your expectations of this event on the impact on the four shipping markets in the long run.

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