In an unscripted presentation at the Asian Tanker Conference, AG Shipping & Energy’s global head and head of trading, Mangish Kakodkar, shared his 18-month journey to tanker ownership
In an unscripted presentation at the Asian Tanker Conference, AG Shipping & Energy’s global head and head of trading, Mangish Kakodkar, shared his 18-month journey to tanker ownership to show how “normal people like me, my brother and cousin” can in challenging times “come out of our comfort zone at an established company, set up on our own, raise US$50M and purchase three tankers.”
AG Shipping & Energy was founded in November 2017 by Mr Kakodkar, his brother and cousin, with no intention of buying vessels. "The original vision was to trade vessels on time charters and do forward freight agreements along the lines of what I had been doing when working for Koch Supply & Trading.
“On our first day we were offered the opportunity to take a vessel on a bareboat charter and lined up a big oil major interested in a long-term charter,” Mr Kakodkar recalled.
The vessel owner wanted an especially large cash deposit from AG Shipping & Energy as a new entity with no track record. “We raised the deposit, however at the last minute we decided to let the opportunity go as the vessel was not in a good condition. At the time it was a tough moment for the company but in hindsight it was probably the best decision we could have made as the cost of capital involved in raising the funds needed to purchase a vessel was less than the bareboat charterer was asking.”
“We learnt of a vessel that was for sale and approached the vessel’s end customers – with whom I enjoyed a long standing working relationship – and emerged with a three-year charter. We took this to the world’s biggest private equity group in the US and asked them to fund the vessel purchase, and after three months’ due diligence, they did.”
Realising the company had to grow its fleet, the company scoured the market, and in September 2018 identified a five-year-old LR2 they wanted.
“The sellers initially refused our bid as we were unknown, too small and would only deal with a big organisation. We had to think creatively. So instead of promoting us we promoted our financiers. The vessel at that time was indexed for US$29M. We told our financiers we would buy it for US$26M. The financiers’ response was that if we could buy a vessel worth US$29M for US$26M, they would leverage us 99%.”
At the first attempt AG Shipping & Energy’s offer was rejected. The seller was adamant that it wanted to sell to a large, proven entity. However around 10 pm, when the seller asked its preferred buyer to complete subjects, the buyer wanted to delay until the morning. “I was offered the vessel on the spot and given 10 minutes to decide. I picked it up," recalled Mr Kakodkar.
AG Shipping & Energy bought the LR2 tanker for US$25.4M; at the time it was indexed at US$28M, and is now indexed at US$32M. The upshot, in Mr Kakodkar’s words is "every other financial institution is now at our doorstep wanting to either refinance the vessel or use the additional equity we have in the vessel to buy more ships.
“We bought our third ship, a 10-year-old MR, in what was probably an even more interesting deal because that was on a bareboat with a purchase option.
“This meant I did not have to commit any money upfront and in two years’ time I have the option to buy at a price that was decided today, a point when asset prices are low.
So, from a modest start in November 2017 we now own three tankers that are all chartered out to big oil majors. Our ambition is to take on a few more – ideally on bareboat charter with purchase options.”