20.03.2008 - Tanker presence part of strategy

United Arab Shipping Co (UASC) has become the latest Middle Eastern shipping company to make a big push into tankers with plans to develop one of the largest products-tanker fleets in the region.

Subsidiary United Arab Chemical Carriers (UACC) was set up in 1986 as a joint venture with National Shipping Co of Saudi Arabia (NSCSA). But under this scheme, UACC did not progress beyond owning one ship.

NSCSA moved on in February 2007, selling its 50% stake to UASC. "It was then that we decided to really make something out of this company," explained UASC deputy chief executive Jorn Hinge.

The plan to build a fleet of modern chemical and products tankers was put into place. The initial phase will see the company acquire assets to the tune of $1.2bn.

A private-equity placement was launched, raising $370m from outside investors like Qatar National Navigation, which invested $50m in a 10.5% stake. Hinge declines to reveal the identities of other investors, saying they are shipping investors and pension funds.

UASC wants to keep its stake at around 38% to 39%. As it grows, UACC will raise further cash through either more private placements or an initial public offering (IPO).

UACC signaled its seriousness in wet tonnage at the end of last year, when it signed up for no less than 10 products-tanker newbuildings at SLS Shipbuilding South Korea.

The order is for 10 firm IMO-I tankers of 45,000 dwt reportedly costing $61m per ship. They are described as being built to very high specifications.

Newbuildings aside, UACC has also been active on the second-hand market, acquiring modern tanker tonnage.

Hinge reveals the company has purchased four medium-range (MR) chemical/products tankers and two long-range (LR) clean petroleum products tankers. He declines to reveal the names of the vessels but deals linked to the owner include the 47,200-dwt products tanker Overseas Aquamar (built 1998), purchased for $43m, and 49,500-dwt White Point (built 2003), purchased for $53.5m.

This is just the initial phase. Hinge hopes to have at least 26 to 27 ships within the next three years and hints that more orders will eventually be placed.

The development of UACC is based on the increase of downstream petrochemical refining in the Middle East. Experts say the annual capital expenditure on petrochemical projects for 2007 exceeded $25bn, overtaking spending on the oil and gas sectors. Reports indicate that over $100bn of petrochemical projects are either underway or planned.

Driving these projects is economic growth in Asia. That region is struggling to keep up with downstream demand. Refineries in the Middle East have an advantage because of easy access to crude, natural gas and naphtha but also when it comes to costs. The average production costs for ethylene and polyethylene is said to be about 50% lower in the Middle East than in northern and eastern Asia.

These factors should see demand for refined petrochemicals from the Middle East continue to soar.

It has also been the basis for the rapid expansion of existing products/chemical-tanker operators such as National Chemical Carriers of Saudi Arabia (NCCSA) and the emergence of growing newcomers such as Gulf Navigation and Gulf Energy Maritime (GEM), both of which are based in the United Arab Emirates.

UACC's current operating philosophy is to work with contracts of affreightment (COA) with both existing and new producers in the region. However, this could change depending on the market.

Meanwhile, UASC is recruiting a chief executive to head the company. The company says it is in no rush, preferring to wait for the right candidate to come along.

"If you get the right people who know how best to operate these ships, you can make a premium profit," said Hinge.


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