Shipping Deal May Be First Of Many For Wilbur Ross

Target: 30 vessels

Price: $2 billion, including $900 million equity

Sponsors: First Reserve Corp., WL Ross & Co., China Investment Corp., Fairfax Financial Holdings Ltd., Morgan Creek Capital Management, PPM America Capital Partners

Seller: Cido Tanker Holding Co.

Financial Adviser: Sponsor: Nordea Bank Finland, DnB Nor Bank ASA; Seller: Clarksons

Fresh off his firm’s first investment in the shipping business, turnaround guru Wilbur Ross said his firm isn’t done with the sector.

WL Ross & Co. joined a consortium of investors that has agreed to help Diamond S Shipping buy 30 vessels that carry refined oil, adding to its fleet of 10 tankers under construction in Korean shipyards from Cido Tanker Holding Co. The energy industry-focused First Reserve Corp., Diamond S Shipping’s founding investor, is leading the sponsor group that also includes China’s sovereign wealth fund, China Investment Corp.

The firms are committing a total of about $900 million of equity, of which WL Ross is committing “a little over a third,” or $300 million, Ross told Buyouts. Nordea Bank Finland and Norway’s DnB Nor Bank are providing $1.1 billion in debt financing, Ross said.

Ross said his firm had been looking at shipping opportunities for a few years now, drawn to the gap between rising demand for oil and a shortage of vessels.

“This industry has a history of going from shortage to over-supply and it keeps vacillating between the two,” Ross said, adding that he also likes the recurring revenue aspects of the business, with oil and gas companies often signing shipping contracts lasting several years.

WL Ross is also looking at deals in other shipping-related areas, such as containers or bulk carriers that carry iron ore, grain and other products, Ross said. Other big-name buyout firms have also been drawn to shipping in recent months.

In March, The Carlyle Group announced a joint venture with Tiger Group Investments and Seaspan Corp. to buy more than $5 billion of shipping vessels to capitalize on increased demand in the sector. The firm is currently looking at several opportunities and expects one to come to fruition soon, a source close to Carlyle told Buyouts.

And Leon Black told attendees of a recent conference that shipping is of major interest to his firm, Apollo Global Management, which bought a fleet of super tankers and contracted them out to oil companies, according to PE Manager, a trade publication for private fund CFOs, COOs and compliance officers.

WL Ross will make the investment out of its fourth fund, which raised $4.1 billion in 2007. The firm is our raising its fifth fund, expected to be a similar size. Ross said he expects it to take another several months to raise.

Ross, who cut his teeth in restructurings during a 24-year career with Rothschild Inc., has found success in other complex and often struggling industries such as American steel and Japanese banks. Most recently, he joined Canada’s Fairfax Financial (which is also participating in the Diamond S Shipping deal) and California’s The Capital Group to invest $1.6 billion in the Bank of Ireland.

Executives at First Reserve Corp. were not immediately available for comment.