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Karatzas Marine Advisors & Co. Shipping Finance Advisory & Shipbrokerage „Four Challenges for Shipping” 2 nd Naftemporiki Shipping Conference Athens, January 26 th, 2016

‘Safe Harbor’ Statements ‘And seas but join the regions they divide’ Alexander Pope ‘In Sea affairs, nothing is impossible, and nothing is improbable’ Admiral Lord Nelson, writing from HMS Victory in 1804 ‘If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea’ Antoine de Saint-Exupéry KARATZAS MARINE ADVISORS & Co. Page 2 / Web: www. BMKaratzas. com January 2016

Agenda Brief Shipping Market Overview A Shipping Cycle Not “A Crisis Is a Terrible Thing to Waste” KARATZAS MARINE ADVISORS & Co. Page 3 / Web: www. BMKaratzas. com January 2016

Shipping Market Overview Anemic Freight Markets Weaker than expected or foreseen Great repercussions for a broader number of shipowning companies worldwide Timing is unfortunate Many a shipowning company had believed in market recovery, post 2011, and had invested in growth (newbuildings) World economic growth is weak, while Chinese economic growth is decelerating Precarious Financial Markets Heightened uncertainty (interest rates, FX, commodities, etc) Emerging markets (BRICS no more) Most private equity investments in shipping are underwater Exit risk, liquidation, etc Minimal additional interest to invest in the industry, especially for market related projects Capital markets in de-risking mode Risk premium Risk-off Defaults in related industries (drilling ashore, etc) KARATZAS MARINE ADVISORS & Co. Page 4 / Web: www. BMKaratzas. com January 2016 Page 4

Shipping Banking Market Overview Shipping banks have been the industry’s most reliable source of capital throughout business cycles A great deal of shipping banks have either left the industry (i. e. Lloyd’s TSB, etc or in the process of exiting the industry (i. e. RBS, etc) For shipping banks remaining in the industry, it’s a new seascape: “Shipping” is not a core industry for banks any more Strong focus on credit quality, corporate finance and strategically important clients Heightened regulation (Basel III, etc) renders asset-backed financing (including ship mortgages) too costly for banks Despite low interest rates, banks still prefer to hoard cash instead of lending A funding gap left by shipping banks, to be filled by “credit funds” and other “alternative funds” at a substantially higher cost of capital Shipowners will be forced to evolve financially by a) preparing consolidated statements and balance sheet, b) manage fleets of vessels with critical mass (>20 vessels), c) set proper governance and management structures and d) financial sophistication KARATZAS MARINE ADVISORS & Co. Page 5 / Web: www. BMKaratzas. com January 2016 Page 5

Agenda Brief Shipping Market Overview A Shipping Cycle Not “A Crisis Is a Terrible Thing to Waste” KARATZAS MARINE ADVISORS & Co. KARATZAS MARINE ADVISORS Page 6 / Web: www. BMKaratzas. com Page 6 January 2016

The “Typical” Business-cycle in Shipping is notoriously volatile industry with average seven-year business cycle Shipping is also a capital intense business, thus capital availability has always been a major driver / constraint for the industry Shipping is often a proxy for other industries and market trends such as post-WWII world rebuilding, development of middle class & urbanization first in the western economies and mostly recently in China, etc Bad markets in shipping recur with metronomic regularity since trade records have been kept from the age of clipper ships; since the establishment of the Baltic Exchange indices (BIFFEX and BDI) in 1986, a typical shipping business cycle of strong freight is followed by increased wave of newbuildings, which due to time lapse delay of backlog and vessel construction, getting delivered past the peak of the freight market KARATZAS MARINE ADVISORS & Co. / Web: www. BMKaratzas. com January KARATZAS MARINE ADVISORS October 2016 2015 With the exception of the trough years of the 1980’s when trade had Page 7

Why the Present “Crisis” is not just Another bad Market in Shipping ? China, the main driver of the boom years, has also brought a huge expansion of shipbuilding capacity and credit liquidity, which will bring a permanent state of overhang over the market (tonnage oversupply), even during when the market recovers China has become major shipowner and player in shipping markets, with the ability of ‘shaving peaks’ in any future market recovery Chine to be an active player in shipping (i. e. merger between Cosco & China Shipping Group, dwarfing Maersk; education lesson for Vale with Valemax fleet) The market collapse post 2008 has brought too much money to the industry (institutional investors) with little vested interest in the industry and an eye for a quick exit; threat for tonnage oversupply and increased volatility cannot be ignored Institutional investors will favor larger shipowners with strong balance sheets Shipping banks will never be the same again; “relationship banking”, and spreads of fewer than 300 bps are foregone for the average shipowner Shipping banks will favor larger shipowners with strong balance sheets Shipowners will ever increasingly look at the capital markets for financing Capital markets will favor larger shipowners with strong balance sheets Regulatory environment gets more challenging (and costlier) by the day, necessitating proper management and governance structures Charterers are getting bigger, more sophisticated and demanding better performance and better cargo damage control KARATZAS MARINE ADVISORS & Co. / Web: www. BMKaratzas. com Page 8 October 2016 2015 January

Agenda Brief Shipping Market Overview A Shipping Cycle Not “A Crisis Is a Terrible Thing to Waste” KARATZAS MARINE ADVISORS & Co. Page 9 / Web: www. BMKaratzas. com January 2016

“A Crisis Is a Terrible Thing to Waste” Present business cycle is not an average market trough Shipping markets are at “inflection point” when a new rulebook will be required Now it’s the time to think strategically and set forth a new game plan Shipowners will have to have BOTH shipping expertise to run vessels expertly AND ALSO financial expertise to access cost-competitive vessels Fleets have to have critical mass (>20 vessels) to appeal to charterers and financiers and also allow for cost competitive management The financial department & Chief Financial Officer (CFO) of shipowner’s office will have to be as strong and knowledgeable as the chartering and technical departments and Chief Commercial Office / Port Captain and Port Engineer Capital markets likely will be the next big source of capital for shipping, but the IPOs of the past decade will never have another chance In time of greatest need, when BDI present below 300 points, it’s time to think broadly, big and with an eye for the next decade KARATZAS MARINE ADVISORS & Co. KARATZAS MARINE ADVISORS Page 10 / Web: www. BMKaratzas. com Page 10 January 2016

Karatzas Marine Advisors & Co. Shipping Finance Advisory & Shipbrokerage One World Financial Center, 30 th Fl 200 Liberty Street New York, NY 10821 USA Switchboard: +1 212 380 3700 Mobile (US): +1 713 545 5990 Email: INFO@BMKaratzas. com Web: www. BMKaratzas. com KARATZAS MARINE ADVISORS & Co. / Web: www. BMKaratzas. com Page 11 January 2016