Ship Sale and Purchase Procedure

Ship Sale and Purchase

SP shipbrokers has just been engaged by OW bunkers (as shipowners) to carry out valuation on M/V SINGPOLY MR.

The primary purpose of the valuation is for the bank to carry out financing for the purchase, negotiation on the loan terms and most importantly bank would use vessel as security for loans and client facilities.(The bank is testing its security of the loan through the Minimum Value Covenant -MVC)

After purchase, the vessel will be insured according to their value basis and that’s the amount that the insurer needs to pay in the event of a total loss in accordance to the market value of the vessel.

OW bunkers being a public listed company they would need the vessel valuation for their annual accounts and audit. Before carrying out any valuation, the following should hold true “assuming the vessel to be in good working order and in the sound seagoing condition in hull and machinery which is to be expected of a vessel of its age, size and type, undamaged, fully equipped, with class fully maintained and with valid certificates, free from all conditions, charter free”

Special survey/dry docking are also taken into consideration as this would have a duration which the vessel is unable to trade before incurring the cost of survey. Physical inspection of the vessel is not necessary

From the database, we managed to find a vessel called Elka Glory (IMO: 9234484), deadweight around 44,598mt being sold at $14.50m 2 months ago.

This vessel is a good comparison to the SINGPOLY MR (IMO: 1234567), deadweight around 37,383mt as both vessels are trading out in the far east.

A quantitative method is being carried out on the outline specification of the vessel (i.e tonnage, dimensions, speeds, and pumping capacity) which is quite similar to the vessel we are carrying out the valuation.

After the mathematical approach, we will refine our comparisons by comparing, ship builder reputation, main engine, and flag of vessel and class society using the qualitative method, which would have significant effects on the value. (i.e if the vessel is built from Chinese ship yard instead of Japanese and with a more stringent flag and specialised engine which requires specific experience to carry out maintenance regularly would be less desirable to buyers and cost)

We would take into account demolition prices which would provide us with a good reference to the vessel ultimate residual value and we are able to use this to analyse on further trading potential and market sentiment and not forgetting that new building would also help valuer to guide the valuation of modern tonnage in respect of replacement cost.

Our valuation is as follows with Elka Glory sold at 14.5m. Price of sold vessel per deadweight ton would be at ($14.5m/44598mt) $325.12. Price of SINGPOLY MR to be bought at $1.32m ($325.12 x 37383), which is being round up. As the vessel is much smaller than Elka glory, it is natural that the value of the vessel will be lesser. Taking into consideration that the vessel is 1 yr younger than the sold vessel another 5% will be added to the value, which leads to $1.386m. Considering that both vessels are built from Korea ship yard and similar flag, which is a good comparison for the vessel.