oecd council working party on shipbuilding (wp6) … 2.2 hda conseil_- impact of ship...
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OECD COUNCIL WORKING PARTY ON SHIPBUILDING (WP6)
WORKSHOP ON SUPPLY AND DEMAND IN THE SHIPBUILDING INDUSTRY
Ship Finance and its possible impacts on excess capacity
Henri d’Ambrières
HDA Conseil 9 November 2015
The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 1
Agenda_______________________________________________________________________________________
1. What’s new since 2008 ?
2. Is Aircraft Financing a benchmark ?
3. The Drivers of the Financing of the Shipping Industry A. The fleetsB. Pricing of the assetsC. Drivers of the financingD. Possible sources of financing
4. Global Shipping FinancingA. Global VolumesB. Sources
5. Trends
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What’s new since 2008 ?_______________________________________________________________________________________
A new paradigm in worldwide Trade
Before 2008, growth in Trade was the double ofthe GDP growth
Since 2012, both growth are similar
Source WTO
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The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 3
What’s new since 2008 ?_______________________________________________________________________________________
The bank crisis : more equity but a similar volume of loans
Source Basel Committee for Banks Supervision
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Aircraft Finance and Shipping Finance_______________________________________________________________________________________
Common points - LT assets moving worldwide- Asset based financing (possibility of mortgages)- A limited number of countries of productions- LT financing more complicated with commercial banks
But…
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Aircraft Finance_______________________________________________________________________________________
The market is driven by passangersA regular growth, resilient to crisis (cf Gulf Crisis, 9/11, Lehman,…)
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The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 6
Aircraft Finance_______________________________________________________________________________________
The fleetWill double over the next 20 years (being almost fully renewed)
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Aircraft Finance_______________________________________________________________________________________
A regular growth of the total financing (source Boeing)
With less ECAs support and more capital markets
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The Drivers of the Financing of the Shipping Industry_______________________________________________________________________________________
Drivers of a financing : cash-flows
1. Operating cash flows
2. Sale of the assets
The fleet
New orders, orders book, deliveries, total fleet
The financial products
The financial actors
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The Drivers of the Financing – Cash flows_______________________________________________________________________________________
Operating cash flows are unstable, mostly for pricing reasons
Seabourne world transport decreased by 5% in 2009 but recoveredin 2010. It is almost growing like Global Exports. (Source UNCTAD)
BDI divided by 7 in 5 years
Source : BRS
While unit prices vary a lot.__________________________________________________________________________________________________
The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 10
The Drivers of the Financing – Cash flows_______________________________________________________________________________________
Asset value : sharp variations over the time
both for new-built and for second-hand
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The Drivers of the Financing – Cash flows_______________________________________________________________________________________
Future asset value very difficult to predict : second-hand over newbuilding in 2008 !
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The Drivers of the Financing : the Fleet _______________________________________________________________________________________
2004-2014 : A growing (+ 84%) and younger fleet (<10 years in 2014 vs >12 y in 2004)
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The Drivers of the Financing : the Fleet _______________________________________________________________________________________
A more reasonable order book (< 20% of the fleet)
Representing 3,2 y of deliveries (vs 6,0 in 2008 and 1,5 in 2012) (impact of delayed deliveries) Source BRS
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0%
10%
20%
30%
40%
50%
60%
0
100
200
300
400
500
600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Order books (M tpl)
New Orders Deliveries Order Book Orders/ Fleet(%)
The Drivers of the Financing : the Fleet _______________________________________________________________________________________
The fleet expanded more rapidly than seabourne trade from 2007 until 2011
and the gap has not reduced since then (1,27 for 4 years) Sources : IHS, UNCTAD
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The Drivers of the Financing : Providers_______________________________________________________________________________________
The providers : an evolving market with multiple and new players
Deliveries in 2014 : 63% of the peak reached in 2011 Souces SAJ, IHS
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Global Shipping Financing - Products_______________________________________________________________________________________
The different financial instruments requested for the financing of a ship
Equity of the owner- Through retained earnings or capital marketsBy investors (including PE, family offices,…)
Debt for the shipyard (pre-delivery) or the owner (post-delivery)- Through loans- Through capital market instruments- Through leasingBy public institutions, commercial banks or capital markets
+ derivatives (Interest rate swap – cross currency swap)
Technical Guarantees for the shipyard (pre-delivery)By public institutions, commercial banks or insurers
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Global Shipping Financing - Providers_______________________________________________________________________________________
Public institutions (Development banks, ECAs,…)(very) long-term view, low expectations in terms of returns, possibility to absorb lossesCan provide, mostly for new-built :- Equity- Pre-shipment financing- ECA loans regulated by SSU (Direct lending)- Untied ECA loans (direct lending)- Technical guarantees- Guarantees for bond issuances or banks’ loans- Insurances for banks’ loans
Commercial banksMedium-term to long-term view (5 to 10 years), mid-level expectations in terms of returns, possibility to absorb some lossesCan provide for new-built or second-hand- Pre-shipment financing- Funding for ECA loans regulated by SSU or Untied ECA loans (with large
durations)- Unsecured loans (with shorter durations)- Technical guarantees_____________________________________________________
The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 18
Global Shipping Financing - Providers_______________________________________________________________________________________
Pension fundsLong-term view (> 10 y and dependent on operating income), mid-level expectations in terms of returns, no possibility to absorb losses (need for regular cash-flows)Can provide funds for new-built or second-hand- loans, - bonds (with or without an ECA cover)
Equity Investors, PE funds, Hedge Funds,Short to Medium view (< 6-8 y and highly dependent on asset-value for rapid returns), high-level expectations in terms of returns, possibility to absorb losses, Can provide- Equity- Loans or bonds (usually without any ECA cover to maximize returns)Could in theory fund new orders but in practice today focus on second-hand (in distressed portfolios or not) ships to boost returns through future disposal of assets.
Hedge FundsShort-term oriented, they prefer short-term volatility rather than long-term variations
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Global Shipping Financing_______________________________________________________________________________________
Global Volumes now at 80/90 bn USD
(Marine Money)
With banks covering 60%
(and not 90% as in 2008
after the Lehman choc !)
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Global Shipping Financing_______________________________________________________________________________________
Global Shipping Portfolio League Tables 2008 & 2013
(Marine Money)
The 27 largest banks hold less assets (-9%)
Some banks disappeared (Llyods, Natixis,..)
or might disappear (RBS)
Most actors still active reduced their portfolio
(by more than 25% for 7 banks)
Only 3 increases > 25% (ICBC, SEB, SMBC)
Entrance of new actors often coming
from Asia (SMTB, CBA, Stand Chart)
the public sector (EksportFinans/Kreditt)
the Asian Public Sector (BoC, Kexim, Cexim, CDB, KDB)
+ other new comers : DBS, Clifford Capital,…
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2013 200838Bank of Ireland 0,6 -67%
37CIC 1,8
36Dekabank 2,0
35CBA (Australia) 2,3
34SocGen 2,5
33Helaba 2,7 -23%
32Alpha Bank 2,8 4%
31KDB 4,0
30Bank of America 4,0
29EksportFinans 4,9
28Swedbank 5,3
27Standard Chartered 5,5 1,8JP Morgan
26ICBC 6,9 #### 1,8Bank of Ireland
25Unicredit 7,1 -37% 2,0Piraeux Bk
24Danske Bank 7,5 -9% 2,2ICBC
23Deutsche bank 8,1 -28% 2,7Alpha Bank
22SEB 8,2 26% 3,5Helaba
21Bremer LB 8,2 -18% 5,0Natixis
20ABN Amro 8,3 ND 5,1Fortis (BNPP)
19Danish Ship Finance 9,0 -20% 6,5SEB
18HSH Nordbank (Non Core) 9,6 8,2Danske Bank
17Citibank 10,2 7% 9,5Citibank
16SMTB 11,6 ND 9,6SMBC
15SMBC 12,0 25% 10,0Bremer LB
14Nord LB 12,7 ND 11,2HVB (Unicredit)
13CDB 12,8 ND 11,2Danish Ship Finance
12BNPParibas 12,8 -25% 11,3Deutsche bank
11China Exim 14,4 ND 12,0BNPParibas
10RBS 15,0 -50% 12,2Llyods/ HBOS
9DVB 15,1 3% 13,0BTMU
8Kexim 15,5 ND 14,6DVB
7Bank of China 17,0 ND 18,7CA CIB
6CA CIB 18,0 -4% 19,5Nordea
5Nordea 18,3 -6% 20,7KfW Ipex
4HSH Nordbank (Core) 19,3 -50% 30,0RBS
3KfW Ipex 19,7 -5% 36,0DNB
2Commerzbank 19,8 -56% 44,8Commerzbank (DSB)
1DNB 24,0 -33% 58,0HSH Nordbank
Top 27 347 -9% 381
Global Shipping Financing_______________________________________________________________________________________
Detailed data (Marine Money))
The loan syndication market is recovering
With larger durations (but below 2007 levels)
With reduced pricings (100 to 300 bps, still
above 2007 levels)
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Global Shipping Financing_______________________________________________________________________________________
EEEquity markets remain aactive
s and some operations are still possible in the bond market !
Source Marine Money
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Global Shipping Financing_______________________________________________________________________________________
A growing involvement of ECAs (x 2,5 in 8 years)
Total provided through export credits over 9 years $ 98 bn (OECD - ECG)
Total provided with an ECA over 9 years $ 93 bn (Dealogic)
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Global Shipping Financing – Export Credits_______________________________________________________________________________________
Can the Dealogic data be consistent with the data of the ECG which do not include Chinese data ?China Exim had a shipping exposure of $ 16 bn in 2014Sinosure supported projects for $ 24 bn from 2008 to 2014.And CDB – China Development Bank and ICBC ?
What about off-shore financings, supported by ECAs ?
Are interventions of ECAs other than Export Credits taken into account ?Where do untied loans appear ?Where do investment support appear ?What about pre-shipment financings ? Technical bonds ?
Where do appear other public supports granted by vehicles (development banks,…) other than ECAs? _________________________________________________
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Preliminary observations_______________________________________________________________________________________
A sector difficult to finance :• A growth in the fleet difficult to explain, creating prices volatilty• Difficult to predict cash-flows available to pay for investments• Hence a need for lower LTV ratios and more equity or Sub Debt• Probable need for a detailed analysis of some sub-segments(recognizing the fragmentation of the shipping markets, which has many asset classes vs three main types of large aircrafts)
Today, capital markets reluctant towards new-built and focused on existing vessels
New-built mostly supported by “operators” and public institutions
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What next ?_______________________________________________________________________________________
Fine tuning on sources of financing and other financial instruments
Future trends to be commented with existing stakeholders and new entrants with case studies
Links between available financings and expansion of the fleet
Impact of public policies
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Sources of information_______________________________________________________________________________________
Public data (BRS, Clarksons, Marine Money, SAJ, IHS, WTO, OECD, …)
First meetings in Seoul, Tokyo, Hong-Kong with public institutions, banks, ship-ownners
First meetings in London and Hamburg with brokers, banks, ship-owners
More meetings to come with public institutions, brokers, banks, ship-owners, shipyards,…
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Scope of the assignment_______________________________________________________________________________________• Generation of descriptive data on new forms of finance for the shipbuilding industry
• The providers of ship finance • The instruments used • The obligors • Potential particularities of certain market segments
The report will include information (volumes, trends and anecdotal evidence, including case studies) on:• The instruments and practices used to support the sale and financing of ships at the stages of
contracting, construction and post-delivery phases• The factors that have an impact on access to ship finance (financial regulation, situation of financial
markets,…)
• Identification of recent government policies having an impact on ship finance• The role played by Export Credit Agencies that has apparently increased in recent years, through
export credits or other instruments;• The role played by governments and other public financial entities, through financial support, other
than Export Credit Insurances, to shipyards for their export contracts;• Other policies that may have an impact on ship finance focusing
The report will also consider• How these public policies interact with overcapacity and market disruptions and whether they
decrease or even increase volatility;• Which measures cause significant market distortions in segments of the shipping market, for
shipyards and, if applicable, for the marine equipment industry;• Priority needs for action to address market distortions (in pre-delivery financing as well as post-
delivery).
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