Who will step into the funding gap created by European shipping banks?

Transcription

1 Who will step into the funding gap created by European shipping banks? Janos F. Koenig, Managing Director Eurofin Group of Companies 1

2 Who we are EUROFIN: Independent, privately held advisory group 28 Years 200 years Flexibility Recognition Commitment US$ 20billion Strong Relationships Global Coverage Presence and Commitment in the Ship-Financing Industry Cumulative Ship-financing experience Tailor made ship-financing structures Representatives of KfW IPEX-Bank in Greece Team of 15 professionals dedicated to the shipping industry Successfully arranged Ship-Financing Transactions (globally) With all major ship-financing Providers and many key Shipowners Presence in major shipping centers Eurofin Group offices London Athens Singapore Eurofin Group is the oldest, largest, specialized ship-financing investment boutique with global coverage 2

3 The present challenging ship-financing landscape Mismatch in the global ship-financing industry Shipping cycles are not new. We have been through them before and will do so again OVERSUPPLY LOW FREIGHT RATES DEPRESSED VALUES But now there is a new killer More dangerous than before BANK FINANCE IS NOT AVAILABLE IN ANY SIGNIFICANT QUANTITY Horseman Number four THIS HAS NOT OCCURRED SINCE THE 1930 S, AND IT WILL NOT CHANGE ANY TIME SOON

4 The present challenging ship-financing landscape Mismatch in the global ship-financing industry Ship-Finance DEMAND for Debt remains strong Estimated Debt Required for the Shipping Industry ( : Newbuildings Only) Orderbook stands at: US$247bn Ship-Finance SUPPLY of Debt continuously decreases Global Debt Ship-Financing Advanced [by Volume], ( ) Syndicated and Significant Bilateral Shipping Transactions Includes Re-financing Debt Requirement (at 60% leverage): US$ 99 bn. Source: Clarksons Source: Dealogic 4

5 The present challenging ship-financing landscape Capital Markets: considerable help but not any more Big number of rights issues in (follow on listings / ATMs commonplace), but subject to window of opportunity Bond issues served already listed companies, all in the form of non-investment grade with high yields Source: Marine Money 5

6 The present challenging ship-financing landscape The impact of risk migration on bank capital An example: 5,300 TEU containership delivered in 2009 and financed with a US$ 71m loan 18 US$m Oct 06 June 08 April 09 Aug 09 Jan Vessel Value Rating 9 (BBB) 10 (BBB-) 12 (BB) 14 (B+) 20 (D) LGD 16.1% 13.5% 25.2% 26.7% 28.6% Bank Capital (EURm) Capital Costs (EURm) Internal ratings downgrades have an exponential effect on bank capital Reduced collateral values also increases capital requirements Bank internal rating Source: ING 6

7 The present challenging ship-financing landscape Pressure on bank finance availability Pressure Effect Provisioning Risk costs increasing as borrowers come under financial pressure. Several banks still struggling Risk Migration Increased capital costs with limited portfolio growth Moderate demand outlook Massive orderbook Poor market outlook Oversupply remains; demand recovering from a low base Internal competition for capital Exits Other sectors (eg offshore) currently have better risk/reward characteristics Well-known shipping banks have exited the market or scaled back Limited availability for ship-owners 7

8 The present challenging ship-financing landscape European banks capacity issues Top 12 account for 76% of the current global shipping finance portfolio But how many of them are still lending? Where funds are available they are reserved for: - Solving Re-structuring problems - Existing clients Those few banks that can do new business target only the best names effectively freezing out most shipping companies 8

9 The present challenging ship-financing landscape Banks have problems funding themselves The price of Credit Default Swaps is a clear indication Source Marine Money Freshly Minted 29 th Sept

10 The present challenging ship-financing landscape Shipping viewed as a non-core business The limited financing options currently available for shipping was outlined clearly by Jerzy Majewski, Deputy Head, Origination Europe, at HSH Nordbank. He pointed out that several leading shipping banks have indicated they are reducing dollar-denominated lending to shipping. Banks are currently facing sharply higher liquidity costs, resulting in less bank debt capacity available for shipping and at a higher cost, which are likely to move higher still in the coming months. Lloyds List 25th Oct 11 German ship finance giant HSH Nordbank will have to shrink its shipping business by a further 4bn ($5.8bn) by the end of 2014, according to an agreement with the European Commission, the bank announced today. Lloyds List 26th Aug

11 The present challenging ship-financing landscape Shipping viewed as a non-core business The aggregate shipping portfolios of European banks are likely to continue to fall because there are fewer banks able to engage in new loans, costlier funds and tighter lending conditions. Dagfinn Lunde at DVB Bank told Lloyd s List there were now only a handful of European banks actively undertaking new lending to shipping. Lloyds List - 20th Sept 2011 Kjartan Bru, DnB NOR Senior Vice-President Shipping, Offshore and Logistics, DnB Nor.. lending volumes in the first half of 2011 were high, but activity has stopped abruptly in the third quarter. We came back from our summer holidays and everything had almost stopped. And it is still getting worse.. Lloyds List 29 th Sept 11

12 The present challenging ship-financing landscape Shipping viewed as a non-core business Lloyds Banking Group in the UK has confirmed that its head of ship finance is leaving the bank amid speculation its shipping portfolio is up for sale. Lloyds List 20 th Jul 11 We will not rule out that market participants will execute vessel workout measures to a larger extent than in the past, says Holger Janssen, head of ship financing at UniCredit/Hypovereinsbank. Lloyds List 7 th Oct 11 12

13 Financing alternatives from Asia/Australia Financial institutions from Asia/Australia 30 Biggest Banks (by market cap, $ billion) Source: FT (November 2011) 13

14 Financing alternatives from Asia/Australia Financial institutions from Asia/Australia Axis Bank Bank of India Bank of Baroda State Bank of India ICICI Bank of Ayudhya Kasikornbank Krung Thai Bank Thanachart Bank PT Bank ICBC PT Bank OCBC PT Bank UOB Bank of China ICBC China Construction Bank Bank of Communications Minsheng Banking Corp The Export Import Bank of China China Development Bank Sinosure Busan Bank Solomon Financial Group Korea Export Import Bank K-Sure CHB Chinatrust Mega Bank Land Bank Mizuho BTMU SMBC JBIC NEXIA Affin Bank AmBank Group CIMB Group RHB Maybank 14

15 Ship financing environment What happens next? Financing alternatives from Asia/Australia Is it a lifesaver? Or an empty promise? 15

16 Financing alternatives from Asia/Australia Asian governments actions to aid shipping in Asian economies Comments on Shipping sector Malaysia MYR 3 bn ($! bn) shipping fund, managed by Bank Pembangunan BP disbursed MYR 800 million ($267M) of loans in 2009 and remaining in 2010 Ships had to be managed by Malaysian companies and carry national cargo Taiwan Plans for new tonnage tax system in 2010 Results in a decrease in tax burden by up to 90% Singapore IFS scheme Government took 80% share of default risk for loans of up to SGD50m ($40M) extended to Sgp based companies (overseas acquisitions or working cap) Withholding tax exemption for shipping companies extended by 5 more years Korea Korea Asset Mgmt and KDB set up US$ 4.8bn fund for distress ship acquisitions KDB Shipping fund acts as additional buffer on top of senior and junior loans Hanjin and HMM were the first beneficiaries of government intervention China Provide more financial support to shipowners (with buyer s credit and incentives) Introduce policies to expedite vessel replacement via competitive bank loans Encourage state owned enterprises to pick up cancelled shipbuilding orders Source: Marine Money 16

17 Financing alternatives from Asia/Australia Export Credit Agencies role in ship-financing JAPAN NEXI: Nippon Export and Investment Insurance JBIC: Japan Bank for International Cooperation KOREA K-sure: Korea Trade Insurance Corporation Korea Exim Bank CHINA Sinosure: China Export & Credit Insurance Corporation China Exim Bank 17

18 Financing alternatives from Asia/Australia Chinese Banks, an emerging ship financing power? Total Portfolio estimated* at: RMB 600 bn700bn (US$ 88bn -102bn) Market Share to finance ship owner and shipbuilder Others, 25% ICBC, 25% Leaders: BoC, CEXIM, ICBC CDB, CCB, CMB, MB, SPDB, ABC and SINOSURE CEXIM, 25% BOC, 25% * Estimate of BoC 2009: (includes shipping, shipbuilding, as well as refund guarantees) Source: BoC 18

19 Financing alternatives from Asia/Australia Past transactions with Chinese Financial Institutions Borrower Arrangers/Buyers Amount (US$ M) Pricing/Purpose/Remark Toisa Limited Citigroup, CExim year loan 3 x AHTS & 1 PSV Angelicoussis Group DnB NOR, CExim x Chinese Mini Capesize vessels Diana Shipping DnB NOR, CExim 83 Costamare DnB NOR, CExim - Danaos Citigroup, CExim, Sinosure % financing for 2 x 206,000 Dwt dry bulk carriers (China Shipbuilding Trading Company and Shanghai Jiangnan-Changxing Shipbuilding) 3 x 9,000 teu newbuildings (Contract price $95 million per unit - Shanghai Jiangnan) 3 x 8,530 teu newbuildings (Shanghai Jiangnan Changxing Heavy Industry) Cardiff Marine CDB, Sinosure 74 1 x VLCC newbuilding, (Shanghai Jiangnan yard) Safe Bulkers Citi, JBIC, NEXI x 95,000 Dwt post-panamax bulkers 19

20 Financing alternatives from Asia/Australia Past transactions with Chinese Financial Institutions Borrower Country Arrangers/Buyers Amount Purpose (where applicable orders in (US$ M) CHINESE shipyards) NWS Transport HK BoC, Calyon, HSBC & SC year club deal OSG USA China Exim Bank year loan for 5 x tankers Noble Group HK Schulte Group Germany Bank of China Agricultural BoC, CDB & other Non-Chinese banks 2,400 Secured & Unsecured Revolving credit facilities 149 Credit Line for 9 x Tankers STX Pan Ocean Korea Bank of China x 176,000 Dwt Chinese Bulkers FH Bertling Germany Bank of China,Sinosure China 40 2 x GC Newbuilding orders NITC Iran CExim& other Chinese Banks 1,112 90% financing for 12 VLCCs Bourbon France CExim year loan (Sino-Pacific yard) InterOrient Cyprus CExim, Sinosure 65 2 x Chinese built Mini Capes Ethiopian LinesEthiopia CExim, Sinosure J. Lauritzen Denmark BNP Paribas, SocieteGenerale, Bank of China, Sinosure % loan for 7 x MPP & 2 x Tankers x MR Tankers and 2 x LNG tankers ordered in China Peter Döhle Germany China Development Bank 1,000 Cooperation framework agreement for vessels to be built at Yangzijiang Shipbuilding 20

21 Financing alternatives from Asia/Australia Requirement of Asian/Australian lenders When considering a European shipping client, it is very challenging to assess counterparty risk, requiring therefore: Best in Class Household name (note that big is not necessarily beautiful) Easily credit scored Local links: Shipyards, Charterers Security: Time charter long enough to cover loan term If successful Non preferential terms and conditions More expensive pricing 21

22 Financing alternatives from Asia/Australia Significant slowdown & increased pressures (1) Substantial inflationary pressures: 4.1% (yty in December) Continuous wages increases / Labor force shortages Strong bank lending in from the PRC Banks and a rising money supply Despite the visible drop in official figures on net new loans from PRC Banks, in reality lending has not moderated; it was diverted into/through other channels Chinese CPI Index (%) Source: National Bureau of Statistics of China (February 2012) 22

23 Financing alternatives from Asia/Australia Significant slowdown & increased pressures (2) Gradually tightened monetary policy to curb excessive lending through 12 increases and one decrease of reserve requirements over the past 24 months Chinese Reserve Requirements Ratio Source: National Bureau of Statistics of China (February 2012) 23

24 Financing alternatives from Asia/Australia Significant slowdown & increased pressures (3) Gradually tightened monetary policy to curb excessive lending through 5 increases of interest rates over the past fifteen months Chinese Basic Interest Rate for 1-year s Loan Source: National Bureau of Statistics of China (February 2012) 24

25 Financing alternatives from Asia/Australia Significant slowdown & increased pressures (4) Individual reserve requirement ratio CBRC(China Banking Regulatory Commission) ended its decades-old practice of announcing an overall annual system-wide credit lending quota and rather than operating within the constraints of an annual, industry-wide quota, Each bank will have its lending limits prescribed by regular reviews of its individual reserve requirement ratio Hedging against expected increases in bad loans Losses from bank loans to Local Governments (LGIVs) From US$ 220bn (FT) to US$ 400bn (WSJ) to US$ 600bn (The Economist) 25

26 Financing alternatives from Asia/Australia Significant slowdown & increased pressures (5) Continuous volatility in Global, Chinese, and Shipping Markets Closer examination of loan books Re-evaluation of recent transactions across segments and asset classes Continuous intervention from CBRC Purchase of foreign exchange with RMB in order to hold down its value has as a result the foreign exchange to end up in CBRC s reserves Sterilisation of much of the newly-issued Rmb by selling special bills to banks and requiring banks to hold more of their deposits on reserve with the central bank in order to manage liquidity in the Chinese economy Appreciation of Renminbi Shortage of USD Preference in Renminbi denominated loans 26

27 Financing alternatives from Asia/Australia Significant slowdown & increased pressures (6) Downgrading of credit rating of Australia's 'Big Four' banks Standard & Poor's put the credit rate to AA minus (December, 2011) Fitch ratings agency placed Australia's four major banks on review for possible downgrade (January, 2012) However: Australia is a country with large import/export requirements vital to their economy This may provide the stimulus for their banks to finance shipping 27

28 Back to Reality What do we do next? Chinese banks may be relevant, but let s not hold our breath in the short term. In the meantime Banks do not have capacity to fund the industry s normal capital requirements. They will not return in the near term. They have not left because of the shipping downturn All the major shipping banks have a proud history of supporting clients through the cycles. They have left because of external pressures e.g. Eurozone crisis; BIS II & BIS III increases in regulatory capital requirements; continuing industrial world economic stagnation If the Banks sell portfolios, it is likely to be to short term buyers with vulture fund mentality, which is of no help to the shipping industry. Banks are reluctant to accept the discounts that this implies 28

29 Back to Reality What is happening now? This slide deliberately left blank 29

30 Back to Reality What if the funding deficit is not resolved? Capital adequacy pressures on banks may mean they cannot continue to support owners through the cycle More distressed, unfunded assets will increase and prolong downward pressure on ship values Even top drawer shipping companies will struggle to renew and modernise fleets Most marine transportation does not need shiny, expensive new ships. Medium size owners with mid-aged units will be starved of vital loan capital for fleet replenishment, forcing older, unsafe vessels to continue trading beyond safe operating limits Future investment in modern, fuel efficient and environmentally improved ships will be curtailed (There may be too many orders now, but this is part of a normal cycle and will not last) But there may be some benefits: We may see greater transparency and more consolidation (but consolidation also requires funding) Small, inefficient owners with old ships may be forced out of business 30

31 Back to the Future What Can Be Done? Nature and Wall Street (Not a combination of words usually seen in the same sentence) hate a vacuum - air, and money should flood in when demanded At this low point in the cycle, lending and investment downside risk is limited, upside is enhanced Ship mortgages are tried and tested securities, enforceable quickly and easily in most jurisdictions globally. Lenders have priority over most creditors. Loan to value ratios are at historically conservative levels and are expected to remain so. A safer profile than an outright equity investment Loan pricing for solid, professional medium and large size shipping companies is at record highs Mortgaged backed ship loans provide a secure and predictable cash flow and are self liquidating The exit route is written into each deal! TIME FOR SOME NEW LENDING INSTITUTIONS Ship financiers are real sector experts and over many decades have a strong track record of profitability and excellent risk management 31

32 Thank You Janos F. Koenig, Managing Director Eurofin Group of Companies 32