CQS Rig Finance Fund will be a new closed-end investment company which intends to invest primarily in the construction of new-build offshore oil and natural gas exploration and production infrastructure using secured bonds.
The Fund will be managed by CQS. CQS is a global asset management firm which manages absolute return and directional hedge funds. CQS has had a significant presence in the rig bond market since the expansion of the market in September 2005 and has developed a strong knowledge-base and network of contacts in the field.
The Fund's investment objective will be to provide shareholders with an attractive total return primarily from income with scope for capital appreciation.
CQS Rig Finance Fund will seek to generate a gross yield of 8% per annum on a growing capital base. Performance of the Fund is expected to be largely uncorrelated to mainstream securities markets.
Investment opportunity and strategy
CQS believes a market anomaly exists in rigs and other offshore infrastructure. A key investment area for the Fund will be in state-of-the-art "zero emission", 6th generation, harsh environment, ultra deep-water, semi-submersible rigs, where there is a supply bottleneck and where demand is expected to remain strong. While the cost of leasing a rig has trebled over the last five years, the cost of building a rig has not risen by anywhere near the same magnitude creating attractive margins. This means that on successful completion of a rig, its value tends to be at a substantial premium over cost.
CQS believes that the supply and demand dynamics are extremely compelling for off-shore energy infrastructure in general due to a long term construction bottleneck. This construction bottleneck is caused by very few shipyards having the capacity, technology, equipment and skill sets to produce the new 6th generation rigs. A combination of ageing offshore energy infrastructure and the trend towards harsh environment exploration exacerbates the situation.
The Fund will be managed by the CQS energy and resources team which is headed by Lawrence Tal and Mark Conway. The team has considerable experience of investing in the oil and gas exploration and production industry. Lawrence joined CQS as Head of Energy and Resources in 2005 after several senior roles at Shell where he led business teams in the development and execution of exploration and production and gas and power deals in the Middle East and South Asia. Mark Conway is a highly experienced credit analyst and trader who before joining CQS in June 2002, as Head of Credit Trading, was a Senior Convertible Bond Credit Analyst at CSFB.
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