finance shipping

7/30/2019 Finance Shipping

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Shipping Finance in a Swiftly Changing MarketRodricks Wong, Marine Money Asia

4th Annual Hong Kong Ship Finance Forum 18 March 2011


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Global Ship Finance in Transition A Mixed Bag of Signals

A few Green Shoots of Recovery in the Industry

- The worlds largest ship financer, HSH Nordbank, remains fully committed to shipping

and returned to profit territory in 2010. The bank generated earnings before

restructuring of EUR 545 million (USD 722 million)

- The bank is now ready for new shipping loans with new or existing clients of up to

EUR 1.5 billion (USD 2 billion)

- Transport finance specialist bank DVB reported the best year of its history in 2010,

having posted consolidated net income before taxes of EUR 131.1 million, a 51.4%

increase over the previous year's figure of EUR 86.6 million

- The bank repaired 88 loan facilities of USD 2.4 billion with over USD 300 million over

the past two years and grew its ship lending book 4.6% to USD 13.7 billion in 2010 from

USD 13.1 billion

- Deutsche Banks ship-financing business generated income before income taxes of

EUR 76.5 million, 30.1% higher than in 2009


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A few Green Shoots of Recovery in the Industry

- Standard Chartered Bank may have only re-entered the shipping finance market in

recent years, it has been actively growing its shipping book estimated to be around

USD 1.5 billion

- At the end of last year, the bank established its ship leasing division, which has inked

up to four deals around USD 400 million in less than six months

- In June 2010 Standard Chartered Bank also closed a RMB 150 million (USD 22 million)

facility for Shanghai Greenland Energy (Group) Co Ltd to provide it with post delivery

financing for the acquisition of two handysize newbuildings as part ofthe companys

overall expansion into the energy sector

- This was the first RMB denominated, Chinese flagged, Chinese-documented shipping

finance transaction undertaken by a foreign bank in the Peoples Republic ofChina

since the global financial crisis


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Negative News from the European Lenders:

- Many banks had stopped doing ship financing business and have not returned yet

- In Britain, Lloyds Banking Group and Bank of Ireland have reportedly put their shippingportfolios up for sale. The two banks have a combined shipping loan book of over USD

17 billion at the end of 2010

- WestLB, once the Germanys third-largest lender, is currently going through major

restructuring. Reported market rumours suggest that its shipping book could be up for

sale

- According to Lloyds List, Spanish bank Santander has moved the old Alliance &

Leicester (estimated to be between USD 2 3 billion) shipping loan book into the non-

core part of the bank, a move that could lead to the portfolio being sold


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Some Observations

- Prevailing uncertainty of bank debt financing supply will continue. Charter rates will remain affected by the rising

supply of new ships, against the backdrop of excessive orderbooks across all major shipping segments

- Even though lending activities of some banks may have declined, but that does not necessarily mean they have

financed fewer ships. Ships cost lesser than what they used to be

- Harsh reality for ship owners. Gone are the days when owners could get loans for 7-8 years or even longer, and

loan spreads were less than 100 basis points

- Typical Loan Structure Today

- Lower Advance Ratios: Typically around 60%, but that can vary between 50 70%.

- Shorter Terms: 5 - 6 year Tenor with 10 - 12 year Loan Profile

- Higher Pricings: 200 400 bps, but can even go as low as 80 bps for sought-after clients

- US and UK banks dominated the global ship finance industry in the 70s and 80s. European banks subsequently

dominated in the 90s and 00s. And now there have been a lot of chatters on the rise of Asian banks and their

rising prominence in global ship finance. But are the Asian banks ready?


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New Sources of CapitalAsian Banks???
http://oceanbank.vn/trangchu/index.html


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http://www.busanbank.co.kr/english/index_english.aspxhttp://www.solomonbank.com/eng/index.htmhttp://www.cimb.com/index.php?tpt=cimb_grouphttp://www.rhb.com.my/index.htmlhttp://www.affinbank.com.my/home.htmhttp://www.axisbank.com/personal/index.asp


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Global Ship Finance in Transition Asian Banks

Asian Banks are still not Major Ship Financiers (Yet)

- Asian banks tend to have a domestic or regional focus

with a relatively limited role in global ship finance

- Unless there is an intrinsic need to support the

domestic shipbuilding sector, Asian banks generally do

not perceive shipping as a key growth area

- They prefer to work with existing clients and finance

deals with Asian content. Not many Asian banks have

been actively seeking new clients

- The flight to safety continues. Banks appear to be

competing aggressively one another for the same high

quality, cash rich owners in Asia. There is a willingness

to accept lower returns on loans for better credits


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Chinese Commercial Banks

- Chinese commercial lenders are still very focused on financing Chinese

projects, although we note that some are more willing to take part in

international deals. For example, ICBC was a participant in United ArabShipping Companys recent USD 302 million term loan facility

- Chinese lenders adopt a Duality Approach when it comes to shipping

loans. For foreign names, they look at both the asset and corporate

strength of the borrower. But within China, it is still largely about

corporate lending (name lending)

- Chinese banks want to encourage foreign shipowners to borrow inRMB, as part of the countrys effort in internationalising its currency.

But will the foreign shipowners bite? Shipbuilding contracts in RMB??

Hyundai Heavy Industries is said to have started paying its Chinese

suppliers RMB. Samsung Heavy Industries is set to follow suit

- Policy risks, the shortage and reluctance to lend in USD will continue to

pose challenges for Chinese commercial lenders. Monetary policy in

China is finally normalising, after two years of very loose monetarypolicy


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Chinese ECAs and Government Supported Shipping Funds to Provide

Massive Liquidity

- China Exim, Sinosure and China Development Bank will continue to

support the domestic shipbuilding industry

- Sinosure for example closed its first ever European ship export

transaction with mandated lead arrangers BNP Paribas, Societe Generale

and Bank of China in November 2010. J. Lauritzen secured a USD 267

million ten year facility to refinance five MR tankers and two LNG tankers

- Chinese banks are also planning to provide Greek ship owners with as

much as USD 10 billion in financing to purchase Chinese built vessels

- But at the same time, there will be more focus on domestic ship owners.

China Exim plans to increase the proportion of its lending portfolio to

Chinese owners from 10% to 33% over the next two years.

- Chinese shipowners account for at least 40% of new orders placed at

Chinese shipyards today


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Chinese ECAs and Government Supported Shipping Funds to Provide Massive Liquidity

China Exim Transactions in 2010

Shipping Company Amount

(USD M)

Comments

Europe

Danaos 203 Greek owner secured approval for a USD 203.4 million Sinosure backed credit facility from Citi andChina Exim Bank. The funds will be ultilised for the financing of three 8,530 teu boxships, currently

under construction at Shanghai Jiangnan Changxing Heavy Industry

Diana Shipping 83 70% financing for the acquisition of two 206,000 dwt dry bulk carriers, to be built at China

Shipbuilding Trading Company and Shanghai Jiangnan-Changxing

Angelicoussis Group 111 Financing of Chinese built dry bulk carriers

InterOrient

Navigation

65 USD 64.7 million buyer's credit for the construction of two 115,000 dwt bulk carriers at Jiangsu

New Century Shipbuilding. Sinosure provided the export credit

Bourbon 400 12 year credit facility for the construction of vessels ordered at Sino-Pacific Shipbuilding

Africa and Middle East

Ethiopian Shipping

Lines

235 80% financing for 7x multipurpose vessels and 2x product tankers at China's Taizhou Kouan

Shipbuilding with Sinosure

Oman Shipping Undisclos

ed

Financing of 4x 400,000 dwt VLOCs to be built at Jiangsu Rongsheng Heavy Industries. The ships

reported cost USD 483 million

National Iranian

Tanker Company

1,112 90% financing with other Chinese banks for the financing of 12 Chinese built VLCCs

South America

Vale 1,230 13 year term loan together with Bank of China to provide 80% financing of the construction oftwelve VLOCs ordered at Jiangsu Rongsheng Heavy Industries


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Chinese ECAs and Government Supported Shipping Funds to Provide

Massive Liquidity

- Within one year, Chinas first shipping fund - China Ship Fund signed

shipbuilding contracts for 45 vessels with total investment amounting toover RMB 15 billion (USD 2.3 billion)

- The fund seeks to a) fulfill the countrys pressing need for self-sufficiency in

maritime transportation and b) assist domestic shipping companies to go

global and become international players

- Shanghai is also planning to launch its own shipping fund with Guotai

Junan Securities, China Shipping Group, Shanghai State-Owned AssetsOperation Co and Hongkou District State-owned Assets Operation Co

- The shipping fund hopes to raise as much as RMB 5 billion (USD 760

million) in the first round of fundraising with an eventual target of RMB 50

billion (USD 7.6 billion)

- China is among the few countries in the world with the potential to build,

finance her own vessels and have her own cargoes to carry


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Japanese Regional Banks Are Stepping Up Ship Financing Activities

- Japanese mega banks have limited room for fresh shipping loans, having aggressively financed Japanese

owners during the boom

- Traditional lenders have become more cautious as a result of the sharp appreciation of Yen against USD,rising operating costs incurred by ship-owners and foreign charterer defaults

- These experienced lenders are now exploring the possibility of working together with other regional

banks that are unfamiliar to the industry on syndicated transactions

- BTMU, together with regional banks Chukyo Bank and Musashino Bank, recently extended a JPY 2.9

billion (USD 35.6 million) loan to finance the construction of a 58,000-dwt Handymax bulker


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Japanese Regional Banks Are Stepping Up to the Plate

- Five regional banks - Iyo Bank, Ehime Bank, Hiroshima Bank, Fukuoka Bank and Chugoku Bank have a

combined JPY 1.1 trillion (USD 13.5 billion)

- But again, liquidity is very much reserved for the domestic shipowners

Regional Japanese Banks Active in Ship Financing

Regional Bank Outstanding Shipping Loans Lending Preferences Remarks

Iyo Bank JPY 424.1 billion (USD 5.16

billion) as at 31 March 2010

Mainly regional established

shipowners in Japan

Largest regional ship financier that

focuses more on corporate finance

Ehime Bank JPY 255 billion (USD 3.11

billion)

Domestic Owners on

corporate finance basis

First regional bank to complete a

syndicated shipping transaction

HiroshimaBank

JPY 229.5 billion (USD 2.79billion) as at 31 March 2010

Domestic Owners will begiven priority

First regional bank to established aspecialized shipping division

Chugoku Bank Currently around JPY 100


Domestic Operators and

shipowners who have fleet

replacement needs

Completed its first syndicated

shipping loan in 2006 for Tanba Kisen

Fukuoka Bank Currently around JPY 100


Domestic Owners Building up its shipping loan portfolio

by reaching out to domestic owners in

Oita and Ehime Prefectures

Source: Marine Net, Marine Money
http://www.hirogin.co.jp/index.htmlhttp://www.himegin.co.jp/index.html


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Likewise, Korean Banks are Domestically Focused

- Shipping finance exposure of Korean Financial Institutions stood at USD 12 billion as at May 2009

- With the exception of Korea Development Bank. Korean banks are not major ship finance providers

2008 Shipping Portfolio League Table (Korea)

Source: KDB Survey Data


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New Sources of CapitalCapital Markets?


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Asian Shipping Bond Volume Falls 46% in 2010

- Total shipping bond volume in Asia has surprisingly

declined at a larger pace than expected, down by

close to 46% to USD 4.1 billion last year from

USD 7.6 billionthe year before

- The sharp decline can be attributed to the following

reasons:

1. 2009 was an exceptional year

2. The bond market can only be accessed by a limited

number of shipping companies in Asia. Many of them

replenished their balance sheets in 2009, and hence

there was less need for more bond issues

China

Japan

Korea

Hong Kong

Taiwan

Singapore/Malaysia

Thailand

Indonesia

Vietnam

Source: Marine Money

Asian Shipping Bond Issues by Country


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2,401

1,780

2,908

350

75 53

1,188

1,838

230 170386

123 125 52

2009 2010

Asian Shipping Bond Volume Falls 46% in 2010 from USD 7.6 billion to USD 4.1 billion

Source: Marine Money

Figures in USD millions


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Company Date of Issuance Amount Interest rates Tenor (years) Maturity

Hanjin Shipping 24/05/2010 KRW 250 billion 5.6% 3 24/05/2013



Hyundai Merchant Marine 22/10/2010 KRW 280 billion 5.2% 3 22/10/2013

Hyundai Merchant Marine 22/10/2010 KRW 170 billion 6.2% 5 22/10/2015Hyundai Merchant Marine 14/05/2010 KRW 200 billion 6.71% 3 14/05/2013



Korea Line 30/11/2010 KRW 40 billion 6.8% 1 30/11/2011

Korea Line 08/06/2010 KRW 50 billion 7.45% 2 08/06/2012

SK Shipping 06/07/2010 KRW 70 billion 5.7% 3 06/07/2013

SK Shipping 19/03/2010 USD 100 million Floating 3 09/03/2013

STX Pan Ocean 27/10/2010 KRW 200 billion 4.9% 3 27/10/2013

STX Pan Ocean 12/03/2010 KRW 200 billion 6.8% 3 12/03/2013

2010 Shipping Bond Issue

Korea

Source: Marine Money, DnB NOR Markets, Bloomberg

Total Shipping Bond Volume in 2010: USD 1.8 billion


Top Issuer in 2010: Hyundai Merchant Marine


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Company Date of Issuance Amount Interest rates Tenor (years) MaturityChina COSCO Holdings 06/09/2010 RMB 5 billion 4.35% 10 06/09/2020

China Shipping Group 21/04/2010 RMB 2.5 billion 3.87% 3 21/04/2013

COSCO Shipping 28/04/2010 RMB 600 million 4.48% 5 30/04/2015


China


Japan



Top Issuer in 2010: China COSCO Holdings

Total Shipping Bond Volume in 2010: -



Ezra Holdings 21/5/2010 SGD 50 million 4.78% 3 21/5/2013

Neptune Orient Lines 9/9/2010 SGD 280 million 4.65% 10 9/9/2020

Swiber Holdings 31/8/2010 SGD 110 million 5.75% 2 31/8/2012

Swiber Holdings 11/10/2010 SGD 80 million 5.80% 3 11/10/2013


Singapore/Malaysia

Total Shipping Bond Volume in 2010: USD 386 million


Top Issuer in 2010: Neptune Orient Lines



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Hong Kong


Pacific Basin Shipping 12/4/2010 USD 230 million 1.75% 6 12/4/2016



Top Issuer in 2010: Pacific Basin Shipping


Taiwan


Shih Wei Navigation 14/1/2010 TWD 450 million Zero 5 14/1/2015

Yang Ming Marine Transport 20/5/2010 TWD 500 million 1.42% 5 20/5/2015


Yang Ming Marine Transport 20/5/2010 TWD 1 billion 1.42% 5 20/5/2015Yang Ming Marine Transport 20/5/2010 TWD 500 million 1.42% 5 20/5/2015




Yang Ming Marine Transport 20/5/2010 TWD 1 billion 1.42% 5 20/5/2015


Total Shipping Bond Volume in 2009: -Top Issuer in 2010: Yang Ming Marine


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Thailand


Thoresen Thai Agencies 9/7/2010 THB 2 billion 3.60% 5 9/7/2015

Thoresen Thai Agencies 9/7/2010 THB 2 billion 3.82% 7 29/6/2017




Top Issuer in 2010: Thoresen Thai Agencies


Indonesia


Berlian Laju Tanker 10/02/2010 USD 125 million 12% 5 10/02/2015



Top Issuer in 2010: Berlian Laju Tanker


Vietnam


Vietnam National Shipping

LinesAug-10 VND 1 trillion

14.5% for the first year

and floating rates then

after

3 Aug-13



Top Issuer in 2010: Vietnam National Shipping Lines


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Shipping Equity Raised in Asia rose 36.8% in 2010

- Total shipping equity raised in Asia has rose by close to 36.8% to USD 3.9 billion last year from USD 2.8

billion the year before

- MISC concluded 2010s largest equity offering by concluding its mega RM 5.2 billion (USD 1.5 billion) rightsissue

- Moving forward, market sentiments are likely to remain fragile. From high oil prices and turmoil in the Middle

East to the euro zone crisis, a slowing Chinese economy and the disaster in Japan, shipping companies should

expect a bumpy ride in their quest for capital


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In conclusion

- There are signs of improvement in the banking market, but capital remains short in supply worldwide

- Asian bank are gradually playing a greater role in ship finance, but it will take some time before they become

significant capital providers for the shipping sector. Capital is largely reserved for their domestic clients

- Capital markets offer fund raising opportunities, but the outlook remains cautious


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Thank You!

The information and data in this presentation relating to the international ship finance industry are taken from Marine Money Internationals databases and other sources

available in the public domain. Marine Money Internationals methodologies for collecting information and data, and therefore the information discussed in this section, may

differ from those of other sources, and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the ship finance and maritime

industry.

Rodricks Wong, Financial Analyst

Marine Money Asia

[email protected]

+65 6222 9456
mailto:[email protected]:[email protected]

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