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Our Valuation Methodology Helped Lenders Efficiently & Effectively Dispose Off Ships

By June 21, 2022July 12th, 2022Case Studies2 min read
Our Valuation Methodology

Our Valuation Methodology helped lenders efficiently & effectively dispose off ships & recover debt during a dip in the general economy.

BACKGROUND

We were assigned to evaluate the reputed shipyard under IBC. In addition to various plants and machinery, the shipyard had many under-construction ships in its inventory.

All these ships were being made to order & custom-built for specific purposes like cargo ships, patrolling vessels for defence, RIGs for oil exploration, etc.

THE CHALLENGES WE FACED

  • Some of the ships are custom-built & hi-tech in nature & require a statutory license to construct.
  • As a number of these ships belong to defence, selling them outside requires approvals, which are unlikely to be obtained.
  • There was a slump in the general economy, particularly in the Ship Building sector.

PROBLEMS LEADING TO VALUE IMPAIRMENT

  • Any bidder who takes over the company has to deal with statutory approvals, terminated contracts & invoked bank guarantees.
  • Alternative buyers are hard to find in the open market, even for cargo ships.
  • Renewal of foreign technology collaboration

OUR APPROACH

Considering that ships would not find ready buyers in the open market, a valuation approach had to be adopted to arrive at valuations that could be practically used to fetch maximum value for the lenders.

THE SOLUTION WE OFFERED

  • Valuation of these ships taking into account the impairment of value because they cannot be sold to the original customer & under the original contract.
  • Valuation of some ships in pieces i.e. equipment installed in the ships and available in the inventory and also hull of the ships separately.

Due to this clear-cut approach, the lenders were able to decide to dispose of these ships in the best possible way to recover debts.

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