What's Next for Ship Finance?
At last week’s Immediasea Ship Finance Press Conference in London, there was much talk of the dilemma facing shipping companies these days. Major banks simply don’t have the same appetite for financing ships as before the crash. While top-tier companies can still get the money they need, small shipping concerns are getting squeezed out, according to Norway’s DnB Bank.
The likes of Maersk, Teekay, Frontline and Euronav “can get all the money they want at practically the price they decide,” says Bern Blikstad, Director of Shipping Client Coverage for DnB Bank in Oslo. Banks and investors alike seek well-established names and “compete like crazy to lend to these guys.”
Medium-sized companies in the 10+ fleet range should be able to get financing going forward, but at a much higher price, he says. The bank will not take on companies that do not have “a certain critical mass” in terms of size, which effectively rules out single-ship companies or those with fleets of fewer than 10 vessels.
That said, Blikstad believes there is a huge opportunity in this smaller segment. But bearing in mind issues like compliance, regulations and fixed costs, it is not attractive for banks, which need to be in a position to lend and also do ancillary business. There are companies that operate in this niche market, offering asset-based lending against vessel values. Maritime & Merchant Credit, for example, provides secured lending, syndication, hedging products, and payment services to its clients.
With banking’s share of ship financing declining, other forms of assistance are becoming more popular, Blikstad explains, although the specialist and niche nature of shipping requires a very thorough knowledge of the business and creates fairly complex ways of investing. A higher degree of skepticism means less money has been coming into shipping. While there are increasingly diverse sources of money available, at the moment the high-yield market is basically closed to shipping as is the equity market, and there is little new money on offer although add-ons with existing companies to recapitalize and make them strong “can be done at the right price.”
As the proportion of ship financing provided by private equity has increased while bank debt has declined, does Blikstad see a return to bank lending at any time in the future? Although banks face challenges with increasing capital requirements and compliance issues, they will not disappear from shipping altogether, he states. That said, the days when banks were providing 70 percent to 80 percent of financing “will take a while to come back.”
He maintains there is money out there ready to be invested, and capital will come into the industry sooner than people think because there are a lot of distressed debt specialists who are likely find the current conditions attractive.
Although it is harder to start a shipping company from scratch because it is so capital-intensive, funding should be available for existing players going forward. Chinese financing, for one, looks to be increasing. Shipping has a lot of similarities with the airline industry, Blikstad says. He also believes an Uber-style model will develop for shipping in the future.
U.S. and U.K. banks no longer dominate tables of leading shipping lenders. The profile has now changed with not only participation from banks like DnB but also Asian and Dutch banks like ING. Transactions arranged by the top 10 banks totalled $10.1 billion in the first quarter of 2016.
Eirik Høiby Ausland, Director of the Shipping List at the Oslo Stock Exchange, Europe’s largest for shipping firms, hopes to see some new listings soon. There are some companies considering going public but nothing final as yet, he says.
Allon Groth, Head of Communications at the Norwegian export credit agency GIEK, says the agency believes current market conditions are likely to continue until at least 2020. That means any solution found for a distressed company has to be a sustainable one. “Short-term relief does not work anymore,” he states. – MarEx
Sandra Speares is a U.K.-based maritime journalist.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.