Ness, Risan & Partners KS Financing This document is for the use of the intended recipient only and should not be copied or distributed to any other person. Marine Money London 20 th January 2010

Ness, Risan & Partners What is a KS? 1 Purchase of a vessels into a single purpose vehicle company Usually a long term lease to a shipping company Credit focused, not tonnage focused Very flexible structure Short transaction time Not tax focused Uncalled capital Usually 1-20 investors per project with one shipping company as lead investor

Ness, Risan & Partners 2 The advantages of ”Sale lease back” for shipowners Up to 100% financing Share issues are expensive when shares are valued at below NAV Release of funds to expand/ order new ships ”Off balance” financing Cost and time efficient Risk reduction Flexible structures, i.e. put/call options

Ness, Risan & Partners The KS market is returning from low levels 3 Sum of the 4 major Norwegian KS houses

Ness, Risan & Partners 4 Examples on a recent transaction Project name:UACC Ross/Bergshav Tanker DIS Project type:Bareboat – 7 years Vessel: 2 x 2009 built LR 1 Product Carriers Projected return16% p.a. Options:Put & Call (12%/19%) Charterer: United Arab Chemical Carriers Ltd. (UACC)

Ness, Risan & Partners 5 The right financing is found only by a fundamental evaluation of the needs and objectives at hand Straight Equity High Yield Bonds KS financing Bank loans AdvantagesLimitations No cash cost (except dividends) “Eternal” in nature Dilutes owners’ control High demand on return No tax shield Provides good flexibility No ammortisation Expensive coupon Costly to issue Off balance sheet Flexible No dilution Competitive leverage due to uncalled capital May limit company’s upside in assets appreciation Limited asset control Low costs Flexible maturity and depth Requires collateral/guarantees Cost of covenants Limited availability Convertible Debt Inexpensive cash component Potential to issue stock at premium to current price Split owners’ upside Sum of interest and conversion may be expensive Typical Cost Level 6-12% 8-14% 8-12% 6-8% 10-12%

Ness, Risan & Partners Appendix 6 Return potential – historical evidence from tanker and dry bulk

Ness, Risan & Partners Historical lesson from the dry bulk and tanker market Second hand prices versus newbuilding parity* of a 5 year old vessel, 7 (*the normalised newbuilding price less 20%, 25y vessel life time) Attractive entry points Source: Clarkson database, NRP Asset Management ASA USDm Source; Clarkson – web database for data points, NRP Asset Management ASA calculations

Ness, Risan & Partners Illustration of return potential from asset appreciation 8 Change in vessel value over the 5 year period following entry using following investment rule;  Acquire vessel 20% below normalised newbuild prices  Exit after 5 years Vessel value appreciation potential easily exceeds 50%, rarely losses Source: NRP Asset Management ASA Source; Clarkson – web database for data points, NRP Asset Management ASA calculations

Ness, Risan & Partners Illustration of return potential from asset appreciation and charter income 9 Change in vessel value and aggregate profits from 5 x 1y time charter contracts over the 5 year period following entry (unleveraged “yield”) using following investment rule;  Acquire vessel 20% below normalised newbuild prices  Exit after 5 years Return potential before financial leverage exceeds 125% if timing is right Source: NRP Asset Management ASA Source; Clarkson – web database, NRP Asset Management ASA calculations

Ness, Risan & Partners NRP – Financial track record on equity contributions for investors 10

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