Case Study Analysis and Solutions

Case ID: 210058

Abstract:
Case Solution & Analysis for Vereinigung Hamburger Schiffsmakler und Schiffsagenten e.V. (VHSS): Valuing Ships by Benjamin C. Esty, Albert Sheen
After booming for more than five years, the global shipping (maritime) industry experienced a dramatic crash in late 2008 as the global financial system froze and the global economy slid into recession. Ship charter rates (revenue) fell by as much as 90% causing prices of used ships to fall by as much as 80%. As ship prices (values?) fell, ship owners began to default on loans and new purchase contracts while banks holding loans secured by ships faced the possibility of increasing defaults (violations of loan-to-value covenants), foreclosures, and write-offs. In the midst of this crisis, VHSS, the German Shipbroker's Association, introduced a proposal to value ships using discounted cash flow analysis (to determine a long-term asset value, LTAV) rather than market prices from comparable transactions. Thomas Rehder, the Chairman of VHSS, argued this approach was necessary because market prices did not reflect fundamental values in the current environment. After announcing the alternative valuation methodology in September 2009, he must convince industry participants--ship owners, appraisers, and bankers--to adopt the new valuation methodology and bank regulators and auditing firms to approve its use.

Keywords:
Capital investments, Efficient markets, Financial crisis, Global business, International business, International finance, Valuation, Vereinigung Hamburger Schiffsmakler und Schiffsagenten e.V. (VHSS) Valuing Ships Case Solution

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