Too Much Private Equity Funding in Shipping: Stolt-Nielsen

Stolt-Nielsen said investment is driving new ship orders

New private equity and hedge fund financing for shipping could add to excess capacity in the industry, Niels G. Stolt-Nielsen, CEO of Norwegian chemical tank company Stolt-Nielsen told industry news site ShippingWatch.

"Unfortunately, just as we are beginning to see a tiny profit from our tanker division, news of newbuilding orders are being announced, not by traditional operators, but by new entrants with private equity and hedge fund backing," he said.

"The amount of money entering into shipping is extremely worrisome.

"The orders for new ships are being driven not by increased demand for logistical services, but by the overflow of capital available in the market."

Stolt-Nielsen warned that managers of the new financial firm-backed shipping companies get fees for making orders without having an equity stake in the ships.

"Despite how conservative and restrictive the banks say they are in lending to shipping companies, they still do and are contributing to a potential new shipping crisis," he said.

Private equity is becoming an increasingly significant factor in the industry, providing backing to companies including Eitzen Chemical, Torm, Nordic Tankers, and Hafnia Tankers.

Private equity investor Wilbur Ross told ShippingWatch that financial firms will promote consolidation in the shipping industry.

"The funds are looking to contribute to existing businesses, and there is no natural reason that the shipping industry should be so fragmented," he said.

In January, UK private equity fund Talis Capital said it would increase investment in shipping, which it said can produce yields of more than 15 percent.