Container - Shipping Slump Stings German Investors

TIN news:   Hanjin Shipping Co. and its customers aren’t the only victims of a global cargo rout. The damage also is washing up with German investors.
The country’s banks and retail investors have been big investors in shipping over the years and now own more of the world’s container-ship capacity than investors of any other country—about 29%, according to the German Shipowners’ Association. The weakness in the global industry has left many of those investments underwater.
Much of the money is tied up in so-called Kommanditgesellschaft funds. Banks and asset managers in past years hawked shares in the closed-end funds to wealthy private investors such as doctors and lawyers.
Hundreds of thousands of Germans signed up, pumping money into 1,800 KG funds focused on shipping. BSI, an association for German closed-end funds, said its members had the equivalent of about $17.5 billion invested in shipping assets last year.
Now, the plunging fortunes of the container-shipping business are punishing those bets. Almost one-fifth of the 2,200 ships owned by the funds are insolvent, research firm Deutsche Fondsresearch estimates.
“The number of emergency sales and/or insolvencies will rise,” predicted DF manager Marcel Wodrich. “Fresh money from banks or investors is not in sight.”
The KG debacle also has hit several big German banks that provided KGs with debt financing to leverage investor equity. HSH Nordbank of Hamburg, once the world’s largest shipping lender, was bailed out earlier this year because of soured shipping loans. Other German banks, including Commerzbank AG, have stopped lending for ships.
Germany was once one of the world’s top shipbuilders, and Hamburg was among the world’s busiest ports. Even after its industry declined, Germany’s expertise in ship financing remained strong, and its investors bankrolled contracts for ships to be built as far away as East Asia.
Shipping KGs operate like mini companies. They would raise as much as €100 million ($112 million) in equity from investors, supplement it with money borrowed from banks and buy one or more ships. Investors and lenders were promised repayment from the ships’ income and the eventual sale of the asset.
The government encouraged the investments with tax breaks intended to support the shipping industry. Investments in the funds don’t incur Germany’s common 27% tax rate on financial income, but instead a much lower rate that depends on the size of a ship.
Plunging cargo rates gutted KG funds’ revenue base. The ClarkSea index for vessel earnings fell from $47,244 a day in May 2008 to $9,926 a year later. Last month it was below $7,500.
Among battered private KG investors is Berlin resident Jan-Peter Wulf, who said a financial adviser at Commerzbank subsidiary Comdirect recommended in 2007 that he invest €10,000 in a fund offered by Lloyd Fonds AG, one of the biggest players in the shipping KG market.
The “Ship Portfolio III” fund was established in 2007 to invest €194 million in three container ships. Lloyd Fonds forecast the fund would make two payouts annually that would provide a 229% return over its lifetime, meaning clients would get back more than twice their investment by 2025.
But the fund’s share value has fallen 95% and Mr. Wulf said he hasn’t received a payout in years.
“I got so frustrated that I threw away most letters from Lloyd Fonds,” he said.
Lloyd Fonds spokeswoman Susanne Maack said Mr. Wulf’s fund is now using its income to reduce debt and stockpile cash rather than pay shareholders. Several other Lloyd Fonds shipping funds have become insolvent in recent years, she said.
Comdirect spokeswoman Ullrike Hamer said the bank had shut the business unit that sold Mr. Wulf his fund and no longer sells closed-end funds.
Some insolvent funds have managed to provide shareholders with a modest payout from selling off ships. But others were so indebted that they had to claw back payouts from fund holders