Review: Corn Rising Ltd Shipping EIS
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
Exclusive opportunity to access a tangible and asset-backed investment usually restricted to ultra high net worth, family offices and large corporates.
Shipping is a cyclical business and has had a torrid time since 2008. However, experts believe it has now reached an inflection point. Demand is on the rise but supply is contracting.
It is to exploit this opportunity that experienced ship owner and broker Charles Gamon has launched the Corn Rising Shipping EIS, available exclusively through Wealth Club.
- Co-invest alongside highly experienced shipping professionals
- Shipping cycle at inflection point according to experts
- Second-hand asset prices close to a 10-year low
- Access to shipping market usually restricted to ultra high net worth or large corporates
- £5 million from EIS fundraise is sufficient to buy the ship with no debt
- High second-hand / scrap value of vessels
- Advance Assurance received
- Min investment £10,000
- Target returns – mid-point 2.1 x money (not guaranteed)
- Closing date 15 March 2018
- Pay no direct initial or ongoing charge through Wealth Club
Shipping may well be the largest industry most people know nothing about.
Almost 90% of everything we buy arrives via ship. The shipping industry contribution to the UK economy is staggering. It is worth an estimated £15 billion a year and supports 250,000 jobs. It accounts for more of the UK GDP than restaurants, takeaway food, and civil engineering combined.
But why should investors take notice? The reason is simple. Shipping is a cyclical business and has had a torrid time since 2008. However, experts believe it has now reached an inflection point.
Demand is on the rise but supply is contracting. Manufacturing ships is not a fast-turnaround business, so the fortunate asymmetry of demand and supply is not likely to change overnight. To top this up, second-hand vessel prices are close to a 10-year low. So, it is now possible to acquire a good second-hand MPV ship for £5 million, which conveniently is also the maximum a company can raise under EIS.
Corn Rising Ltd is seeking £5 million from EIS investors. The management team will invest up to a further £500k.
The capital will be used to acquire and operate a second-hand ship.
This comes at a time of increased government support and investment. “Brexit Britain will be the best country in the world to do maritime business, thanks to more trade opportunities, more jobs and more investment in new technologies”, Transport Secretary Chris Grayling said (11 September 2017). The government has committed to doubling the spend on maritime training and is working with the industry to deliver an ambitious post-Brexit export plan. This could maximise new trade opportunities so the UK’s maritime sector could become a global front-runner in innovation and technology.
A tangible investment
There are two potential sources of earnings: cash earnings and asset price appreciation.
Cash earnings should be generated through chartering the ship. Currently the average daily rate for a ship of this kind on a long charter is $6,250 (the shipping industry works in USD).
So, over five years the ship should generate cash earnings of $1.9 million to $4 million. At the end of the period, its resale value should be $6.8 million to $9.2 million.
After five years the ship could be sold and any cash returned to investors. The base-case target return is 2.1x money invested. The low case is 1.7x and the high case is 2.4x. Please note, these are forecasts. Earnings, returns exit options and and timings are not guaranteed. Capital is at risk.
Additional buffer if things don’t work out
Like all EIS investments, tax relief can help mitigate risk. It can magnify the impact of any gains and soften the blow of any losses.
This EIS offers an additional buffer. Whatever happens, the EIS company will still own around 5,000 tonnes of metal which could be scrapped. The scrap value of the vessel is estimated to be in the region of $2 million.
By and large, long-term demand for shipping is driven by the growth in global population and GDP.
In the 2000s the shipping industry experienced record highs in levels of trade and profitability, fuelled by increased demand from the emerging economies of China, Brazil and India. Undercapacity allowed ship owners to command higher charter rates and caused the value of their assets to rise accordingly. Meanwhile, banks were lending indiscriminately, so many ship owners geared up to expand their fleets.
All this changed when the financial crisis struck in 2008, causing a sharp downturn in the shipping sector, a rapid decline in the demand for shipping services and plummeting charter rates and vessel values.
As a result , over-geared companies had to sell off assets and in some cases had their assets repossessed; the number of demolitions exceeded new builds, causing fleet sizes to significantly decline.
Now, almost 10 years on, the sector is starting to show signs of recovery. Indeed, fleet numbers are currently below what is demanded by global trade.
Increasing global trade combined with a contracting supply of ships is supporting a recovery in charter rates on major dry bulk shipping routes (as opposed to liquid cargoes ,which use different ships). However, traditional financing from banks is now largely unavailable and the number of new ships being built is below demand.
Arguably, the cycle is now at inflection point as demand for dry bulk continues but there is negative fleet growth, which is forecast to lead to higher charter rates, profitability and ultimately vessel values. Second-hand vessel prices are close to a 10-year low.
The management team has done it successfully before
The management team is led by Charles Gamon, who has 38 years’ experience in broking, managing and owning ships. He has been a Member of the Worshipful Company of Shipwrights since 1988.
Mr Gamon started as a ship broker in 1979, becoming a ship owner in 2000. Over the following 11 years he bought and sold 14 ships. At the peak, in 2007, his company owned a fleet of nine ships valued at $70 million, achieving peak daily charter rates of $22,000. Unlike many competitors, Mr Gamon weathered the recession, divesting of the last ship in 2011. Since then Mr Gamon and his company have been running repossessed ships for banks. Please note, his past success may not be repeated.
Mr Gamon believes now is the right time to buy ships again, hence this EIS. Indeed, companies and Greek families sitting on cash have already begun deploying their capital to pick off good second-hand assets.
The management will invest £250,000 to £500,000 so their interests are aligned with those of investors.
What to consider
This is a high-risk single company investment: capital is at risk. Please ensure you read the report and the Information Memorandum carefully. You should not invest money you cannot afford to lose. Returns are not guaranteed. The value of tax benefits depends on circumstances and tax rules can change.
In our opinion, this is a remarkable opportunity to access a market normally restricted to large corporates and high net worth families. The entry point is relatively modest – £10,000. The market dynamics appear extremely favourable. The target return is attractive and if things don’t work out the ship should have a decent scrap value. The management team has the right experience to carry out the plan. Nothing is certain in life, and this single-company EIS, like any EIS, carries significant risks. That said, in our view, this is one of the strongest offers we have seen in some time.
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