UDS announced today that the DSV Lichtenstein has floated and is off to Asia. No huge surprises there.
Just to be clear the vessel is the old Mermaid Ausana. UDS haven’t commissioned or paid for this (the IMO number still with the yard), the vessel is available because Mermaid and the yard cut a deal. That is: a major and experienced Asian DSV operator didn’t think they could get work for the vessel and therefore wrote off millions to extract itself from the contract. Now admittedly the vessel was ordered at close to the market peak, so it is probably true that at old pricing levels it would have been hard to get an economic return, but the yard paid those costs as well proportionately.
To be honest I don’t blame UDS, nobody at the moment needs to buy a DSV, you can charter one for substantially less than the economic cost of owning one. Which makes it all the more suprising that UDS seem committed to three more DSVs they have ordered as the keel laying ceremony for the DSV Andy Warhol was also revealed today.
There is no reason to believe that UDS haven’t cut some clever, risk-based, charter with the yard over Ausana/Lichtenstein (just as Bibby appear to have done with the Volstad (bondholder) owned Bibby Topaz). The yard wants some money from an unsellable asset and UDS have the skills to deliver the vessel and potentially find some work for it. V-Ships are clearly being paid and a load of kit to equip the vessel from the bell out appears to be arriving. So far so good.
But where is the vessel going to work? No won work has been announced? The market is so competitive at the moment that no one is sole awarding work? How much work if any have UDS got? How long can their working capital last while ostensibly having commitments to USD 500-700m in CapEx for the two SALT design DSVs and the Andy Warhol (also an MT design)? The sort of capital needed to fund that sort of expenditure is institutional and yet no one seems to have heard anything about a fundraising? It would be major news one would have thought because its the ultimate contrarian strategy: DSVs are the most overbuilt tonnage in the world with some of the highest relative running costs.
Who is taking the risk with this deal? Are they yard putting in for OpEx? The Nor vessels claim that it costs USD 370k per vessel per month on marine crew and USD 109k for the dive system (which seems outrageous to be honest for the dive system and must include spares etc), and this vessel is a near identical spec. That doesn’t include commissioning costs, wet bell run trials, etc. These are likely to be in the low millions for a new DSV. Much will go to the yard account I suspect (if not originally contractually simply as a reality now), but I would be stunned if they wrote a blank cheque for vessel operations? Even in this market you should only take risk you can control…
Kruez don’t want to take delivery of their new build DSV and rumour has it UDS have been trying to strike a deal with the yard there as well. A DSV consolidator at the right price has something going for it, but only with investors committed to extremely high OpEx until the market recovers – whenever that may be. The pool of institutions large enough, and committed enough, to such a play is limited to say the least. I would have thought getting take-out financing for the final yard payments would be near impossible without a long-term charter, and they don’t exist at the moment?
Just at a time when Toisa went bankrupt as one of the largest owners of DSV tonnage, outside SS7 and Technip, UDS has arrived on the scene. The scale of the committed funds means sooner or later details are going to come out about this. There are only two alternatives: either there are some large institutional investors who have made an extraordinary counter-cyclical investment, at peak build prices nearly; or, a vast amount of credit has been extended to a start-up with good technical skills and vision, but without a balance sheet appropriate for this degree of risk. Cash flows are always the hard financing constraint that cannot be hidden forever… I’ll put my impatience to one side because the final story is likely to be very interesting here.