Shipping Finance in a Swiftly Changing Market
Rodricks Wong, Marine Money Asia 4th Annual Hong Kong Ship Finance Forum 18 March 2011
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
Global Ship Finance in Transition A Mixed Bag of Signals
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 of the 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 of China since the global financial crisis
Global Ship Finance in Transition A Mixed Bag of Signals
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 shipping portfolios 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 noncore part of the bank, a move that could lead to the portfolio being sold
Global Ship Finance in Transition A Mixed Bag of Signals
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?
New Sources of Capital
Asian Banks???
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
Global Ship Finance in Transition Asian Banks
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 Arab Shipping 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 in RMB, 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 monetary policy
Global Ship Finance in Transition Asian Banks
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
Global Ship Finance in Transition Asian Banks
Chinese ECAs and Government Supported Shipping Funds to Provide Massive Liquidity
China Exim Transactions in 2010 Shipping Company Amount (USD M) Europe Danaos 203 Comments
Diana Shipping
Angelicoussis Group InterOrient Navigation Bourbon Africa and Middle East Ethiopian Shipping Lines Oman Shipping National Iranian Tanker Company South America Vale
83
111 65 400 235 Undisclos ed 1,112
Greek owner secured approval for a USD 203.4 million Sinosure backed credit facility from Citi and China 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 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 Financing of Chinese built dry bulk carriers 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 12 year credit facility for the construction of vessels ordered at Sino-Pacific Shipbuilding 80% financing for 7x multipurpose vessels and 2x product tankers at China's Taizhou Kouan Shipbuilding with Sinosure Financing of 4x 400,000 dwt VLOCs to be built at Jiangsu Rongsheng Heavy Industries. The ships reported cost USD 483 million 90% financing with other Chinese banks for the financing of 12 Chinese built VLCCs
1,230
13 year term loan together with Bank of China to provide 80% financing of the construction of twelve VLOCs ordered at Jiangsu Rongsheng Heavy Industries
Global Ship Finance in Transition Asian Banks
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 to over 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 Assets Operation 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
Global Ship Finance in Transition Asian Banks
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
Global Ship Finance in Transition Asian Banks
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
Remarks Largest regional ship financier that focuses more on corporate finance First regional bank to complete a syndicated shipping transaction
First regional bank to established a specialized shipping division Completed its first syndicated shipping loan in 2006 for Tanba Kisen Building up its shipping loan portfolio by reaching out to domestic owners in Oita and Ehime Prefectures
Regional Japanese Banks Active in Ship Financing Regional Bank Outstanding Shipping Loans Lending Preferences Iyo Bank JPY 424.1 billion (USD 5.16 Mainly regional established billion) as at 31 March 2010 shipowners in Japan Ehime Bank JPY 255 billion (USD 3.11 Domestic Owners on billion) corporate finance basis Hiroshima Bank Chugoku Bank JPY 229.5 billion (USD 2.79 billion) as at 31 March 2010 Currently around JPY 100 billion (USD 1.22 billion) Currently around JPY 100 billion (USD 1.22 billion) Domestic Owners will be given priority Domestic Operators and shipowners who have fleet replacement needs Domestic Owners
Fukuoka Bank
Source: Marine Net, Marine Money
Global Ship Finance in Transition Asian Banks
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
New Sources of Capital
Capital Markets?
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
Asian Shipping Bond Issues by Country China Japan Korea Hong Kong Taiwan Singapore/Malaysia Thailand Indonesia Vietnam
Source: Marine Money
USD 7.6 billion the 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
Asian Shipping Bond Volume Falls 46% in 2010 from USD 7.6 billion to USD 4.1 billion
2,908
2009 2,401 1,838 2010 Figures in USD millions 1,780 1,188
230
350 386 170
75 123
53 125
52
Source: Marine Money
2010 Shipping Bond Issue Korea
Company Hanjin Shipping Date of Issuance 24/05/2010 Amount
Total Shipping Bond Volume in 2010: USD 1.8 billion Total Shipping Bond Volume in 2009: USD 2.9 billion Top Issuer in 2010: Hyundai Merchant Marine
Interest rates 5.6%
Tenor (years) 3
Maturity 24/05/2013
KRW 250 billion
Hanjin Shipping
Hanjin Shipping Hyundai Merchant Marine Hyundai Merchant Marine Hyundai Merchant Marine
24/05/2010
17/02/2010 22/10/2010 22/10/2010 14/05/2010
KRW 100 billion
KRW 220 billion KRW 280 billion KRW 170 billion KRW 200 billion
6.6%
6.95% 5.2% 6.2% 6.71%
5
3 3 5 3
24/05/2015
17/02/2013 22/10/2013 22/10/2015 14/05/2013
Hyundai Merchant Marine
Hyundai Merchant Marine Korea Line Korea Line SK Shipping
14/05/2010
08/02/2010 30/11/2010 08/06/2010 06/07/2010
KRW 200 billion
KRW 260 billion KRW 40 billion KRW 50 billion KRW 70 billion
7.3%
7.0% 6.8% 7.45% 5.7%
4
3 1 2 3
14/05/2014
08/02/2013 30/11/2011 08/06/2012 06/07/2013
SK Shipping
STX Pan Ocean STX Pan Ocean
19/03/2010
27/10/2010 12/03/2010
USD 100 million
KRW 200 billion KRW 200 billion
Floating
4.9% 6.8%
3
3 3
09/03/2013
27/10/2013 12/03/2013
Source: Marine Money, DnB NOR Markets, Bloomberg
2010 Shipping Bond Issue China
Company
China COSCO Holdings China Shipping Group COSCO Shipping
Total Shipping Bond Volume in 2010: USD 1.2 billion Total Shipping Bond Volume in 2009: USD 2.4 billion Top Issuer in 2010: China COSCO Holdings
Interest rates
4.35% 3.87% 4.48%
Date of Issuance
06/09/2010 21/04/2010 28/04/2010
Amount
RMB 5 billion RMB 2.5 billion RMB 600 million
Tenor (years)
10 3 5
Maturity
06/09/2020 21/04/2013 30/04/2015
2010 Shipping Bond Issue Japan
Total Shipping Bond Volume in 2010: Total Shipping Bond Volume in 2009: USD 1.8 billion
2010 Shipping Bond Issue Singapore/Malaysia
Company Ezra Holdings Neptune Orient Lines Swiber Holdings Swiber Holdings Date of Issuance 21/5/2010 9/9/2010 31/8/2010 11/10/2010 Amount SGD 50 million SGD 280 million SGD 110 million SGD 80 million
Total Shipping Bond Volume in 2010: USD 386 million Total Shipping Bond Volume in 2009: USD 350 million Top Issuer in 2010: Neptune Orient Lines
Interest rates 4.78% 4.65% 5.75% 5.80% Tenor (years) 3 10 2 3 Maturity 21/5/2013 9/9/2020 31/8/2012 11/10/2013
Source: Marine Money, DnB NOR Markets, Bloomberg
2010 Shipping Bond Issue Hong Kong
Company Pacific Basin Shipping Date of Issuance 12/4/2010 Amount
Total Shipping Bond Volume in 2010: USD 230 million Total Shipping Bond Volume in 2009: Top Issuer in 2010: Pacific Basin Shipping
Interest rates 1.75% Tenor (years) 6 Maturity 12/4/2016
USD 230 million
2010 Shipping Bond Issue Taiwan
Company Shih Wei Navigation Yang Ming Marine Transport Yang Ming Marine Transport Yang Ming Marine Transport Yang Ming Marine Transport Yang Ming Marine Transport Yang Ming Marine Transport Yang Ming Marine Transport Yang Ming Marine Transport Date of Issuance 14/1/2010 20/5/2010 20/5/2010 20/5/2010 20/5/2010 20/5/2010 20/5/2010 20/5/2010 20/5/2010 Amount
Total Shipping Bond Volume in 2010: USD 170 million Total Shipping Bond Volume in 2009: Top Issuer in 2010: Yang Ming Marine
Interest rates Zero 1.42% 1.42% 1.42% 1.42% 1.42% 1.42% 1.42% 1.42% Tenor (years) 5 5 5 5 5 5 5 5 5 Maturity 14/1/2015 20/5/2015 20/5/2015 20/5/2015 20/5/2015 20/5/2015 20/5/2015 20/5/2015 20/5/2015
TWD 450 million TWD 500 million TWD 500 million TWD 1 billion TWD 500 million TWD 500 million TWD 500 million TWD 500 million TWD 1 billion
Source: Marine Money, DnB NOR Markets, Bloomberg
2010 Shipping Bond Issue Indonesia
Company Date of Issuance Amount
Total Shipping Bond Volume in 2010: USD 125 million Total Shipping Bond Volume in 2009: USD 53 million Top Issuer in 2010: Berlian Laju Tanker
Interest rates Tenor (years) Maturity
Berlian Laju Tanker
10/02/2010
USD 125 million
12%
10/02/2015
2010 Shipping Bond Issue Thailand
Company Date of Issuance Amount
Total Shipping Bond Volume in 2010: USD 123 million Total Shipping Bond Volume in 2009: USD 75 million Top Issuer in 2010: Thoresen Thai Agencies
Interest rates Tenor (years) Maturity
Thoresen Thai Agencies Thoresen Thai Agencies
9/7/2010 9/7/2010
THB 2 billion THB 2 billion
3.60% 3.82%
5 7
9/7/2015 29/6/2017
2010 Shipping Bond Issue Vietnam
Company Date of Issuance Amount
Total Shipping Bond Volume in 2010: USD 52 million Total Shipping Bond Volume in 2009: Top Issuer in 2010: Vietnam National Shipping Lines
Interest rates Tenor (years) Maturity
Vietnam National Shipping Lines
Aug-10
VND 1 trillion
14.5% for the first year and floating rates then after
Aug-13
Source: Marine Money, DnB NOR Markets, Bloomberg
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) rights issue - 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
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
Thank You!
Rodricks Wong, Financial Analyst Marine Money Asia [email protected] +65 6222 9456
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.
