Harlingen – JR Shipping Group has informed a large group of investors/limited partners about the now irreversible loss of their financial interest in one or several sea-going vessels. The losses had been hanging in the air for some time and they hardly come as a surprise for the investors. Obviously, they are disappointed, and so is the shipping company. Over recent years, its staff have made continuous efforts to limit the loss of invested capital.

Among the most significant efforts was the realisation of JR Fleet Fund in 2012, which was intended to create a crisis-proof starting position for eleven container feeder vessels. For a long period of time, this solution seemed to open up new prospects for the mainly private investors who have interests – ship participations – in one or several vessels subsumed in this fund.

Since market recovery failed to materialise, though, the situation became precarious once again in 2017. The expiry of agreements made about the suspension of interest and repayment obligations became imminent. This would inevitably lead to working capital problems in 2018, once again. With the knowledge of the limited partners concerned, the shipping company entered into consultation with the bank with the aim of developing a new restructuring plan together and of reducing the high debt burden.

English investor takes over debt burden

Technically, JR Fleet Fund had been in default for a long time then. The debt burden was so high that refinancing initiatives taken by the shipping company itself would not be feasible. The shipping company managed to stir interest in a British credit investor though, when the bank appeared to be open to a solution in which it would no longer be involved itself. In late 2017, the consultation process gained momentum and the bank agreed to the debt burden being taken over by the British investor. Consequently, the shipping company managed to ward off JR Fleet Fund being terminated and prevented the vessels being sold by the bank.

At the time of the transfer, the limited partners were informed that prospects were still quite slim and that future restructuring programmes still needed negotiating. In May 2018, the British investor expressed its preference for a new structure in which the limited partners would no longer be involved. The investor intends to subsume the eleven vessels concerned in another legal form, with JR Shipping remaining actively involved as the operational managing company.

Losses are irreversible

Given the debt burden of the eleven vessels, the new investor has the right to make this decision autonomously. However, they would prefer the limited partners’ approval. Investors have been, therefore, invited to attend a meeting on Tuesday evening, 17 July 2018. The invitation also informed them that the limited partners’ interest in the vessels will definitively be bidden farewell to. The total loss amounts to over €80 million.

In a final effort to provide some form of compensation – no matter how humble – to the limited partners, the shipping company persuaded the British investor to offer new, favourable investment opportunities for two vessels. These ‘opportunity investments’, which would involve taking a new interest considerably below market value in vessels with a realistic earnings outlook, will be discussed in more detail with the JR Fleet Fund limited partners on 17 July.

Market recovery marks the beginning of a new era

Quite unfortunately, the final bad news report coincides with an era which, for the first time in years, seems to boast a lasting rate recovery in the shipping markets which JR Shipping operates in. The shipping company, which celebrates its 25th year in business this year, envisages a new business era in which, in the long term, the fleet may even be expanded again. In early 2017, from that perspective, the shipping company successfully issued JR Shipping Opportunity Bonds with the provisional goal to buy one or several existing vessels in the second-hand market.

The eleven JR Fleet Fund vessels will be subsumed in a newly-founded company, in which event the British investor will ask our shipping company to remain involved as the ship management company. Involvement in the ship management of a number of other vessels is also a realistic scenario. As indicated in JR Shipping Anno Nu 2017, the shipping company’s Annual Report, the company will continue to focus on consolidating its container feeder and multi-purpose fleet, with controlled fleet expansion in the long term; deployment of crewed vessels and management expertise in the dynamic offshore wind energy market; and innovative ship management concepts for outside parties.

In the face of almost ten lingering and exhausting years of crisis which caused the shipping company and its limited partners to suffer considerable damage, the shipping company views the new era dawning in the shipping industry with optimism and confidence in its own course. This does not affect the fact that JR Shipping deeply regrets the losses which its limited partners are forced to accept. In the end, market recovery came too late for them to benefit from the huge efforts that were made to limit the damage caused by the crisis. The fact that, despite the disappointing course of events, limited partners continued to be loyal to the course charted by the shipping company, is an unparalleled sign of confidence.

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