BIMCO Presentation

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Danish Ship Finance
Committed to Shipping
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Agenda
Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Appendix DSFs transformation
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Disclaimer
Whilst every effort has been taken to represent
as reliable information as possible, DSF does not
represent the information as accurate or
complete, and it should not be relied upon as
such. Any opinions expressed reflect DSFs
judgment at the time this presentation was
prepared and are subject to change without
notice. DSF will not be responsible for the
consequences of reliance upon any opinion or
statement contained in this presentation. This
presentation is based on information obtained
from sources which DSF believes to be reliable,
but DSF does not represent or warrants its
accuracy. DSF may have financial interests in
transactions involving these markets. This
presentation is confidential, and may not be
reproduced, in whole or in part, without the
prior written permission of DSF. The contents
hereof are intended for the use of non-private
customers and may not be issued or passed on to
any person and/or institution without the prior
written consent of DSF.
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Agenda
Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Appendix DSFs transformation
5
Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• Playing the Devils advocate
• Are current ship prices and freight rates
  sustainable in the longer term?
• Will it be a hard or a soft landing?

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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
The macro economic perspective
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• Claims
• The current shipping boom is to a large extent
  driven by low interest rates!
• Thus, the Chinese economic boom is also partly
  driven by low global interest rates

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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• Consequences of low interest rates and a world
  awash with cash
• Lower propensity to save, higher tendency to
  borrow
• more consumption now, that has to be repaid
  later.
• Search for yield
• depressed credit spreads,
• unnaturally low long-term interest rates,
• investment in more risky projects, e.g.
  shipping, China and emerging markets.
• Global rally in house and fixed asset prices
• the consumer is led to believe he/she has more
  wealth, consuming more.

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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• High US European private consumption
• Capital, investments manufacturing moving to
  emerging countries / China

Flourishing world trade
Low interest rates
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
What happens to growth in house prices, savings,
investments, consumption, and finally to world
trade when interest rates once again are
normalized?
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• But, why should interest rates rise if GDP growth
  is slowing?
• General wish from Fed to normalize interest rates
• Widening U.S. current account deficit
• Fear of lower USD may lead to higher interest
  rates in order to attract foreign funding to the
  U.S.
• Revaluation of the Chinese Renminbi (same effect
  as above)
• Rising inflationary pressure in OECD (and China)

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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
In 07/08 Inflation is up by 2-3 -points!
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• What about China?
• WTO membership
• catch-up in exports for a couple of years,
  followed by steady export growth.
• Investment pushed rather than demand pulled
• Recently, significantly falling FDI growth
• may signify a slowdown in industrial production
  growth.
• GDP growth is heavily reliant on US consumption
• is that sustainable going forward?
• Looking ahead A shift in expenditure priorities
• from urban, commodity and capital intensive,
• to rural, service and labor intensive.

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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
When the U.S. catches a cold, Asia gets pneumonia
Including intra-European trade Sources OECD
Chinas National Bureau of Statistics
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
The shipping perspective
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
What determines freight rates? Its about the
level of utilization But much more about demand
growth I.e. despite high fleet utilization, the
low freight rates will indeed return when demand
growth falters (but the bad times may not last
as long as before)
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Increased utilization gt increased volatility
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
High utilization gt high freight volatility gt
shorter periods of low freight rates gt higher
ship prices
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Where does all of that leave shipping?
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Shipping is not in a long-lasting super
cycle! Prices and earnings will indeed come
down when the global monetary stimulus are
reversed
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Watch out for

• Continuously high(er) oil prices
• Rising world inflation
• Higher interest rates
• Slowdown in house price growth
• Higher credit margins (higher risk aversion)
• Chinese Renminbi revaluation

US EU consump-tion slowdown
Slowdown in world trade
Slowing FDI growth to China and other emerging
markets
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• Dont start worrying until 2006
• The inflationary pressure is not yet high enough
  for investors to demand higher interest rates.
• It takes time from an interest rate hike to a
  clear change in the consumption/investment
  patterns.
• Chinese and other Asian federal banks are still
  leading a neutralization policy toward the USD
  (buying dollar debt).
• Chinese exports/imports are still making a
  catch-up from the recent Chinese WTO accession.
  

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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• Hard or soft landing?
• Ship prices will probably not be as low as
  before, but
• Freight rates are probably in the event of a
  global recession again to test historic lows!
• If the American and European consumers and their
  house prices are hit too hard by rising interest
  rates and oil prices, the shipping recession will
  indeed be hard!

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Agenda
Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Appendix DSFs transformation
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Shipping finance opportunities
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
135 billion USD of newbuildings in 2005-2007...
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Shipping finance threats
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
The older the ship, the larger the downside
Fall from current price to 1998-2002 average
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Will the search for yield continue to depress
credit margins?
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
What steps are the financial institutions taking
to ensure a soft landing?
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Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?

• Flight to quality
• Large balance sheet,
• Secure/long-term employment.
• Accelerated repayments at the early part of the
  loan.
• Lower loan to value advance ratios in some cases.
• No loose covenants.
• Non-recourse is increasingly regarded as high
  risk.
• Only do syndicated deals with other banks
  experienced in shipping.

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Thank you for your attention
Danish Ship Finance
Committed to Shipping
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Bo Jagd, managing director Danish Ship
Finance Sankt Annae Plads 3 DK-1250 Copenhagen
K Denmark Phone [phone] Fax 45 33
33 96 66 Email danish_at_shipfinance.dk Homepage
www.shipfinance.dk
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Agenda
Is shipping in the midst of a long-lasting super
cycle?
How to finance ships at current record prices?
Appendix DSFs transformation
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Appendix DSFs transformation
DSFs business model is simple and convincing
One product only - mortgage financing of ships
Strong domestic funding based on
issuance of gilt edged bonds
Commitment to shipping laid down by law
Low cost base 1 office, 53 employees
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Appendix DSFs transformation
Expectedly DSF will be transformed into a
limited liability company in 2005
Unchanged business model
Ownership structure
Ties to Danish maritime Industry strengthens as
they become owners
Legislation etc. to be passed in 1st half 2005
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Appendix DSFs transformation
DSF comes out strengthened from the
transformation
Modernization of legal framework which will
create a more level playing field for DSF
More flexible capital structure and easier
access to additional equity
Alignment of interests will stimulate further
growth
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Appendix DSFs transformation
What can the market expect of DSF in the future?
Commitment to shipping - now even stronger than
before
Focus on Denmark and international blue chip
names
Low risk is more important than high yield
Diversification through international growth
Direct approach to customers
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Appendix DSFs transformation
Key success factors are
Commitment to shipping by law
Constant lending policy
Speed of decision
In-depth knowledge of the industry and our
customers due to low employee turn-over
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Appendix DSFs transformation
The unique features of DSFs business model
Mono-line approach
Strong funding
Low costs
will continue and be sharpened as DSF
demonstrates its commitment to the Danish and
international ship owners!