HVB_ShipyardConsulting_07.09.07

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Shipyard ConsultingServices

SEPT 2006


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CONTACT PERSONS

HypoVereinsbank

Ingmar LogesHead of Shipyard Consulting

Phone +49 40 36 92 17 79

Fax +49 40 36 92 22 44E-Mail: [email protected]

BOHN, DOMAZET & ASSOCIATES GMBH

in co-operation with HypoVereinsbank

Dean DomazetPhone +49 89 32 19 58 61

Fax +49 89 32 19 58 63

E-Mail: [email protected]

HypoVereinsbankAlter Wall 22

D-20457 Hamburg

www.HVB.de/shipping

Domenik NizetShipyard Consulting

Phone +49 40 36 92 22 92

Fax +49 40 36 92 36 96E-Mail: [email protected]

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BACKGROUND INFOR MATION

Shipyards in Europe vs. Shipyards World-

wide

In view of labour cost differences (inclu-

ding indirect labour costs), worldwide

shipyards continue to benefit from cost

advantages in comparison with their

Western European counterparts. In most

cases, the quality of vessels built is similar.

Increasingly, rating problems are leading to

delays in the completion of new vessels

as supplies and wages are no longer able

to be pre-financed. As a result, problems

ensue with the timely delivery of new

vessels.

Vessels built outside of the core shipping

markets

In order to help the yards with their cash

flow, ship owners and their banks are

being confronted with a higher volume of

pre-financing allowing for the disburse-

ment of funds at an earlier stage.

In shipyards, the disbursement of pay-

ments once transferred by the ship ownersis less transparent; the payments are not

always used for the project in question.

Investors looking to purchase shipyards

Investors are now presented with the

opportunity to take part in the privatisation

of shipyards. Even though many yards in

Eastern Europe (with the exception of the

former East Germany) face bankruptcy,many are waiting for the chance to be pri-

vatised.

Some potential investors may have a lack

of knowledge regarding shipyards.


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Resulting Deficits

Financing banks are more and more often

the risk takers. Should a new contract

be cancelled, the bank as well as the ship

owner are in for a loss of business. The

problem lies in having little influence on

the distribution of capital once the bankhas approved a loan and transferred the

money to a shipyard. Is the money used

on the project for which it was intended

or for other purposes?

Most banks, ship owners, and investors

do not usually have the necessary insider

know-how to properly evaluate a shipbuil-

ding facility. Therefore, it is difficult for

them to evaluate and assess risk.

Our Involvement

We offer competent support and sound

advice in the following areas:

accurate evaluation

risk reduction

coordinating the various business aspects

optimising solutions

HypoVereinsbank (HVB) specialises in solving

problems related to shipbuilding and ship-

yards. Once the key players have been

chosen, we help to orchestrate the complex

relationship among banks, ship owners,

public authorities, and investors, worldwide.

Our clients continue to enjoy the benefit of

our knowledge in the industry.

WHAT WE PR OVIDE

Monitoring of the entire shipbuilding processin order to ensure timely delivery and tominimise the risk of increasing costs

Evaluation of the technological and economi-cal production standards of shipyards toassist banks intending to finance a shipyard

Evaluation of the technological and organisa-tional quality standards of shipyards prior tothe financing of a new vessel

Coordination of technical controlling andproject management functions related toshipbuilding projects on behalf of the client

Technical and organisational services:

A potential client no longer needs to

sort through the jungle of insider mar-ket knowledge, finance, and navalengineering. We provide the means tosuch knowledge enabling our clients tomake sound investments and minimisepotential risk.


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EXAMPLES OF OUR PROJECTS

For the benefit of the client, we monitor the

shipbuilding process from start to finish

in order to ensure timely deliveries of new

vessels and to minimise increasing costs.

Example: Timely Delivery

1. In order to ensure a timely delivery of the

new vessel 001, we, acting as representa-

tives of the ship owner, immediately took

part in and examined all aspects of finan-

cing, management, and production.

2. For the mid-term delivery date of vessel

002 in our example, we installed a pilot

project management team to oversee the

shipyard. The team was accompanied by

a representative of the ship owner.

3. Taking advantage of the long-term delivery

dates of vessels 003 and 004, we used our

experience gathered in pilot project 002

to set up a qualified project management

team determined to fulfil our commitment

to the investors.

Each of our actions was carefully plannedand discussed with the shipyard manage-

ment. The result was that all deadlines

concerning the delivery of the new vessels

were met, and, in some cases, the vessels

were even ready to sail ahead of schedule.

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Monitoring the shipbuilding process not only

ensures timely delivery but also minimises

the risk of increasing costs.

Example: Project Liquidity Gap

For the future liquidity assessment of new

ship construction, the ship owners instal-

ments generally formed the basis for the

corresponding forecast. However, should

miscalculations of costs have occurred at

the beginning of a project, liquidity deficits

can easily follow not only for one vessel but

can also start to accumulate from one ship

to the next.

The liquidity gap in respect to the vessel

shown below was caused by considerable

delays during its construction as well as by

higher costs than originally were expected.Under these circumstances, a timely delivery

of the vessel was certainly not possible. How-

ever, after having ascertained the causes for

the delay, it was still possible to expedite the

vessels delivery earlier than what one was

beginning to fear.

Subsequent to the investigations carried out

by HVB, negotiations were conducted leading

to the ship owners agreement to making

scheduled instalments at a later date and toallowing for state entities to provide loans.

The delay in instalments allowed for better

tracking of the distribution of capital, and the

state loans helped to avoid future delays in

the shipyard.

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Evaluation of the technological and econo-

mical standards of shipyard production for

banks intending to finance a yard

Example: Project Ship repair yard

A repair yard is heading for insolvency. A

technically complicated project could not be

finalised. Mismanagement led to high liqui-

dity losses during the shipbuilding process

which were not compensated by the client.

Simultaneously, debt increased arising from

the need to finance an ambitious expansion

programme.

A detailed restructuring plan is dependent oneconomic forecasts, and, accordingly, on the

survival chances of the yard.

A survey on the premises of the yard, ana-

lyses of the regional yards capacity, and dis-

cussions with representatives of potential

clients led to the conclusion that, from aneconomic point of view and under certain

preconditions, it would be justifiable to

continue the development of the shipyard.

Furthermore, an analysis of the assets of

the yard showed that there was sufficient

collateral to allow for a restructuring pro-

gramme.

Concentration on the main areas of a busi-

ness is advisable and offers better survival

chances.The services provided by HVB assist banks in

analysing risk factors and the chances for an

eventual restructuring programme.

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Evaluation of technical and organisational

quality standards of shipyards prior to finan-

cing a vessel

Example: Productivity Analysis

Based on a comparison of the productivity

development and the corresponding recalcu-

lations, it is possible to forecast the expected

cost development and, therefore, the future

level of the yards liquidity.

HVB has the financial tools to make precise

forecasts both as far as the general develop-

ment of productivity and also the planned

individual yard productivity in respect tovessel manufacturing. The factors which

play an important role are the level of used

capacity and the degree of difficulty in the

construction of a vessel.

The influence of productivity on cost as well

as the influence of liquidity on the timely deli-

very of a vessel allow for the evaluation of the

technological and organisational competence

of a yard even before shipbuilding orders

have been placed. Such information is

obviously of great interest to a financing

bank.

After HVB had discovered the reasons forthe drastic fall in productivity regarding the

vessel in question, the shipbuilding contract

was, in fact, not cancelled, and the vessel was

delivered. It had later become apparent that

the particular problem experienced with this

vessel was exceptional for the shipyard and,

therefore, not typical.

Projectphases 001 Productivity hrs./CGT

Assumption for offered price 32,1Yard standard for 2001 48,6

Ex-Post calculation (02.05.2002) 76,8

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Handling of technical controlling and

project management in regard to ship-

building projects

Example: Controlling

Instalment payments transferred from the

ship owner to the yard may only partly or not

at all be used for the project in question as

general liquidity problems arise. A controller

from HVB appointed by the ship owner over-

sees the task of ensuring that payments are

used according to plan.

Example: Project Management

Coordination

The multi-tasking involved in overseeing

complicated shipbuilding projects requires

the talent of an experienced and competent

team. We, at HVB, provide a network of pro-

fessionals who can dive in to any necessary

positions that may need to be filled.

As the nature of modern shipbuilding lends

itself towards per-project employment, it

could make more sense to employ qualified

managers on a temporary rather than on apermanent basis.

Example: Restructuring a Yard

HVB is in a position to arrange for the entire

technical and organisational work processes

and eventual restructuring of a yard; HVB can

also handle legal coordination, if required.

HVB has a network of first-class experts from

leading management positions within the

shipping industry and, therefore, has thenecessary experience and expertise to ensure

complete project quality.


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SHIPYARD ASSESSMENT FOR BANKS/OWNERS

Our objective is to assess the following targets:

Quality Focus on the agreed quality

Quality assurance using flexible internal standards

Supervision /Quality Verification as required

Timely Delivery Adhering to the agreed Milestones and Deadlines

Optimising the overall flow of Deliveries

Incorporation of Contingencies in regard to Planning

Keeping the Budget Identification of potential Cost Overruns

Implementation of Budget System

Control of Cash Flow

Based on a 2-3 day visit to the shipyard + general know-how

SHIPYARD CONSULTING WHAT YOU CAN EXPECT FROM OU R SERVICES :

Know-How and Competence

in Shipyard Restructuring

Creation of Transparency

Definition and Implementation of Operational,

Structural, and Strategic Solutions

Structuring and Support of Financial Concepts

Development of Transparent Liquidity Management

Rewards of a Long-Term Relationship + a First-Class

Track Record within the Shipping Industry

A Comprehensive Network of Customers, Banks,

Public Authorities, etc.

Transparency

Restructuring of Proposals

(incl. support, upon request)

Financing Concept

(incl. support, upon request)

Liquidity Management

ADDED VALUE

FOR THE CUSTOMER


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Shipping: Setting the Course for Success

We offer the full range of shipping financing services from one single source. With a proven ability

to get things done quickly, we have the expertise in handling all requirements. Our aim is to comply

with your objectives.

Taking prompt action in meeting your needs without getting caught up in endless paperwork and

procedures explains how we have managed to earn such an enviable international reputation for

sound advice and outstanding service.

SHIPYARD ASSESSMENT CHECKLIST

Production Facilities, Equipment, Shops,

Logistics

Current Order Book

Track Record, Experience, and Output

Product Mix

Human Resources and Organisation

Planning and Design

Production Process and Controlling

Procurement Procedures

incl. Subcontractors

Quality Assurance

Energy Flow

Safety, Health, and Environment

Relations to Unions

Financial Status

ADDRESSES AND CONTACTS

Hamburg Head Office

Shipping International Markets

Alter Wall 22

D-20457 HamburgPhone +49 40 36 92 17 79

www.hvb.de/globalshipping

Oslo Office

HypoVereinsbank

Representative Office Oslo

Haakon VIIs gate 1N-0161 Oslo

Phone +47 22 01 74 80

www.hvb.de/globalshipping

Piraeus Office

Shipping Unit

Notara 62

GR-18535 PiraeusPhone +30 210 410 05 06

www.hvb.gr

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