Competing for capital

It is a time of challenges for ship financing. At a panel discussion at Marine Money’s London Ship Finance Forum 2018, held late in January, shipping bank bosses noted the challenges that the traditional ship financing sector has seen.

“We’ve had a lot of regulation,” said Michael Parker, global head for shipping at Citi, “… and a lot of it is actually much more to do with what I call ‘the big stuff’ around banks, particularly in US regulation, size of the balance sheet, and of course in particular behaviour of bankers and the broad issue of ethics and all the issues around money-laundering … Most of the regulation has been about how banks operate.”

However, he conceded that not much has really changed as the banks always have to keep pace with regulation: “It comes down ultimately to credit quality and to getting the right returns, and as long as we can continue to find good business to do with good shipping companies, we will do that. But of course, post the 2008-period, capital is expensive and rationed, so we have to compete for capital.”

Hans Christian Kjelsrud, global head of Shipping, Offshore & Oil Services at Nordea, said that the bank had not made any fundamental changes to its business as a result of regulation, but added that regulation today requires a lot more capital than it used to before the financial crisis.

He said: “At the same time, I think the credit profiles of a lot of shipping companies are a lot weaker than they were obviously during the boomtimes from 2004 to 2008 … It does become a question of profitability, and I think if anything that we and other banks active in the shipping business have seen is that there’s pressure on profitability in our business, and, like other industries that we back, we are fighting for capital internally.”

Societe Generale’s global head of Shipping & Offshore, Paul Taylor, talked about the importance of smart capital.

“You’ve got to justify it internally,” he said, adding that days of having a big portfolio are “long, long gone in this market”.

“It’s not a question of being the biggest, it’s a question of being the smartest, and I think what this new regulatory capital change will do is bring out the smart banks,” he said.

Different moves

A subsequent panel discussion on alternative financing, moderated by Stuart McAlpine, partner at law firm Clyde & Co highlighted the scope of different ship financing options available, aside from the traditional forms of funding. On the panel were Nick Roos from Maritime Asset Partners (MAP), Iraklis Tsirigotis from Amsterdam Trade Bank (ATB), Halvor Sveen from Maritime & Merchant Bank ASA (M&M), Jan William Denstad from Sole Shipping AS, Mark Kuchenbecker from Braemar Naves Corporate Finance and Morten Arntzen from Macquarie.

Established in 2017, MAP is a non-bank, specialised finance platform that focuses on secured lending, leasing and structured equity solutions for commodity and industrial shipping, plus the offshore oil and gas industries. ATB offers asset-based, pre-delivery and post-delivery finance for shipowners, while M&M, which opened in late 2016, provides tailored, first-priority lending to owners as well as joint ventures, project companies and medium-sized companies with a fleet of five to 50 vessels. Sole Shipping AS focuses on international shipping projects and investments, with the company stating its objective as developing “unique shipping projects of mutual benefit to the charterer and investors”, while Braemar Naves Corporate Finance has come about through shipping services provider Braemar acquisition of corporate finance adviser NAVES Corporate Finance in September. Finally, investment banking and diversified financial services group Macquarie offers a ship finance string to its bow.

The companies represented on the panel indicate what is on offer to shipowners right now when it comes to financing their vessels. In December, Baltic Magazine featured an article from Liana Miliotis, senior associate at global law firm Norton Rose Fulbright, highlighting that the last decade had seen significant change in the financing of ships. In the article, Ms Miliotis cited Norton Rose Fulbright’s The way ahead Transport survey 2017, which, despite revealing that a majority of respondents in comparison to the other options – 23% ─ predicted that bank debt would remain the industry’s main source of funding, 15%, 14% and 13% felt that private equity, shareholders and capital markets and bonds respectively would be the primary financing bases.

“As asset values gradually rise, banking regulation becomes ever more stringent and new participants enter the market, every sub-sector of the ship finance market, across banks, funds and individual investors, will continue to feel the impact of these changes, and no doubt be encouraged to evolve further,” the senior associate said as she looked ahead to 2018.

With less than a quarter of people surveyed viewing bank debt as the way forward for financing of ships, it seems likely that the different types of financing represented on the Marine Money panel will increasingly make headway to make up for the loss of traditional sorts of backing.