By Wu Juanjuan
China Securities Journal (Reporter Wu Juanjuan) Recently, the bankruptcy restructuring case of Dongguan Fenghai Shipping Co., Ltd. (“Fenghai Shipping”) was settled, and the restructuring investor eventually ended up with the well-known domestic distressed asset investment specialist-DCL Investments. After the implementation of the reorganization plan, Fenghai Shipping Company will be wholly-owned by the fund managed by DCL Investments, which means a “reborn” for Fenghai. The largest private shipowner in China’s domestic ocean liquid cargo transportation officially announced the change of ownership.
Investing in distressed enterprises, and reversing the difficulties to obtain profits is a relatively common way of making profits among foreign special situation investors in developed markets. Due to the high professionalism in the shipping sector, there are relatively limited number of special situation funds who is capable of complicated deals in this kind. DCL’s investment in Fenghai Shipping is the largest deal in related fields in recent years.
From various sources and interviews, we found that DCL Investments was established in 2015. At present, their AUM is nearly 10 billion RMB, and has invested more than 10 billion RMB of distressed asset through various investment methods such as asset acquisition, bankruptcy restructuring, and debt-to-equity swap.
“After the reorganization of Fenghai Shipping, turning its management back on the right track and re-achieving stable operating cash flow, DCL Investments will continue to leverage its capital advantages, its distressed asset restructuring capabilities and resources in the shipping industry, strive to expand Fenghai Shipping capacity again within five years. We will become the leader of domestic liquefied goods transportation by acquiring or constructing more domestic ocean chemical vessels. “Selina Zheng, chairman of DCL Investments, said.
Reorganization plan and subsequent acquisition approved
On January 3, the fourth meeting of the creditors and the second funder group meeting of Fenghai Shipping was held.Afterwards, each group of creditors successfully passed the reorganization draft submitted by DCL Investments. On February 3, the Third People’s Court of Dongguan formally ruled to approve Fenghai Shipping Reorganization Plan.
It is understood that Fenghai Shipping is the largest private shipowner in the field of liquid cargo transportation in China, and has a 10% market share of the domestic coastal chemical transportation.It also has a certain influence in the “Far East-Southeast Asia-South Asia-Middle East” shipping service market. Fenghai Shipping currently has 28 operational vessels with a total gross tonnage of 298,700 tons, including 5 oil tankers, 11 foreign trade chemical vessels and 12 domestic trade chemical vessels. However, because it was unable to repay its debts on time, Fenghai Shipping declared bankruptcy in September 2018.
DCL Investments believes that due to the technology-intensive and capital-intensive characteristics of the liquid cargo shipping field, the industry has shown a trend of concentration to the leading large-scale enterprises in recent years. At the same time, with the improvement of China’s standards for environmental protection, safety and operations, the supply gap in the industry has expanded significantly, and leading companies in the industry have development prospects.
Optimistic about liquid cargo shipping business
In DCL Investments’ opinion，with a large number of large-scale refining and chemical enterprises landing one after another, the domestic coastal liquid chemical transportation volume will increase greatly, and the capacity of supply and demand will be seriously inverted, creating a huge gap. This is also the main reason why DCL Investments continues to be optimistic and increase its investment in this specific field.
On the demand side, the surge in domestic refining and chemical production capacity has steadily increased the demand for the liquefied goods shipping. According to statistics from the Ministry of Transportation, the volume of domestic trade chemicals shipped in 2018 was 26.8 million tons. Large petrochemical projects, including Zhejiang Petrochemical’s 40 million tons and Dalian Hengli (Changxing Island) 20 million tons of oil refining integration projects, have been put into production around 2020. DCL Investments expects that the demand for liquefied goods shipping will grow significantly.
In terms of shipping capacity supply, as of the end of 2018, there were only 288 ships operating in coastal chemical industries across the country, with a total capacity of only 1.129 million deadweight tons.In addition, the shipowner market in this area is highly fragmented and the ship sizes are relatively small. Among them, more than 27.3% of the ships are more than 12 years old. Most ships are small ship types with a capacity of about 4,000 tons. The ship ages of Fenghai Shipping are mostly under 10 years, and the ship type are larger ones from 8000 deadweight tons to 27,000 deadweight tons.
DCL Investments stated that they have the ability to help Fenghai Shipping achieve all-round improvement in technology, quality, cost control and efficiency, thereby further enhancing its core competitiveness. By leveraging DCL Investment’s resources in shipping finance to develop domestic trade capacity, increasing the scale of the fleet, DCL is aiming to reshape Fenghai Shipping’s leading domestic liquefied goods shipping company at an early date.