The New Normal in Shipping Finance Harris Antoniou. Capital Link Greek Shipping Forum 2010

Transcription

1 The New Normal in Shipping Finance Harris Antoniou Capital Link Greek Shipping Forum February 2010

2 Merchant Banking Energy, Commodities & Transportation 2 Table of Contents 1. Ship finance today 2. How to deal with it - alternatives 3. Fortis Bank Nederland d -committed to shipping i

3 Merchant Banking Energy, Commodities & Transportation 3 The Ship Finance Cycle High returns in shipping Current position in the cycle but with the unique difference that the financial crisis has limited the lending capacity of traditional shipping banks. Higher margins for counter cyclical lending Non-shipping banks leave the industry Ship Lending Cycle Non-shipping banks enter the market Increased competition Market Collapses Reduced margins Excess supply of tonnage Cheap debt leads to accelerated borrowing

4 Merchant Banking Energy, Commodities & Transportation 4 Traditional Sources of Capital for Shipping Bank Loans have traditionally satisfied approx. 75% of capital requirements A severe shortage of bank debt is currently constraining the shipping industry, an industry that is heavily dependent on the banking market Markets currently closed or extremely limited activity. Limited activity Closed Bilateral Lending Internal equity finance Shipyard finance Government Other 36.2% Syndicated Loans 40.2% 25% 2.5% 2% 60% 6.0% 50% 5.0% 80% 8.0% Equity funds Tax Lease investors KG / KS markets Bond & Public Equity Non ship mortgage loans

5 Merchant Banking Energy, Commodities & Transportation 5 Funding demand remains high Expected need for ship financing May 09 (60% leverage) 250 bln USD Equity Debt Source: Clarksons

6 Merchant Banking Energy, Commodities & Transportation 6 Credit tightness since mid In 2007 approximately USD 100 bln was lent to the shipping industry in the syndicated and non syndicated loan market 2008 showed a decline with a further sharp decrease in 2009 Global shipping loans by volume in USD bln Q1 Q2 Q3 Q4 Source: Dealogic, syndicated and significant bilateral transactions

7 Merchant Banking Energy, Commodities & Transportation 7.and shipping finance continued to decrease The high volume in 1Q09 was mainly driven by AP Moller Maersk s USD 6.5 bln debt restructuring Global shipping loans: quarterly volume/number of deals 35 USD bln Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 0 Source: Dealogic, syndicated and significant bilateral transactions

8 Merchant Banking Energy, Commodities & Transportation 8 Basically coming to a standstill in 2009 Global syndicated shipping volume refinancings / restructerings new money USD mln Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 Source: Dealogic

9 Merchant Banking Energy, Commodities & Transportation 9 Trends in bank debt Strict conditions Refocus on core clients & quality names Smaller facilities Little syndicated loan activity, bi-lateral and club deals Pricing increase Tighter covenants Declined appetite for LT debt; increased premium for LT funding Less Liquidity Many big players in ship finance have significantly reduced activity due to: pressure from governments to act more domestically, credit related problems due to aggressive lending during shipping boom, concentration risk resulting from recent mergers reduction of bank s balance sheets So today it s all about: Core clients Core regions Core sectors is this still shipping?

10 Merchant Banking Energy, Commodities & Transportation 10 Conclusion: Major Shift in Ship finance has occurred Financing shortfall is significant US$ Bn Annual Shortfall c. $13-30Bn Trends in Ship Finance Many big players in ship finance have significantly reduced activity This takes at least 50% of fthe lending capacity out of the market Assuming 70% Order book Delivery 38.0 Demand for capital is very high due to high new building order book. There is a big gap with the expected capacity in the banking market. 0 Est. Annual New Building Financing Need Est. Annual Lending Availability Source: Marine Money, May 2009 How to deal with this?

11 Merchant Banking Energy, Commodities & Transportation 11 Table of Contents 1. Ship finance today 2. How to deal with it - alternatives 3. Fortis Bank Nederland d -committed to shipping i

12 Merchant Banking Energy, Commodities & Transportation 12 Imbalance in capital supply and demand Europe: North America: Funding Clients Asia: Funding Clients Middle East: Funding Demand for and availability of capital are not necessarily at the same part of the hemisphere

13 Merchant Banking Energy, Commodities & Transportation 13 Alternative sources of debt increase in relevance New funds need to be sourced from pension & insurance funds, sovereign wealth funds, Islamic funds, bond and equity market, commodity producers and traders, etc. Part of the gap will be filled by DCM/ECM and private deals with institutional investors. Public equity & high yield bond markets open up again, also for Shipping

14 Merchant Banking Energy, Commodities & Transportation 14 Investors looking for alternatives Instead of traditional investments Institutional investors are reducing exposure to traditional asset classes in particular equity Very low yields on government bonds and recent sovereign concerns reduce their attractiveness investors are looking for Long-term assets with a preference for higher yielding Inflation protected Low correlated risk Corporate bonds Infrastructure investments Other long-term and low-correlated investments

15 Merchant Banking Energy, Commodities & Transportation 15 High yield bonds attractive substitute for loan debt Structural benefits: More recession-resistant capital structure Longest-tenor debt in capital structure and junior layer of debt Diversify investor base and create trading liquidity for benchmarking and repeat issuance minimize or avoid expensive equity issuance and dilution Interest rates is the next Big Worry after this recession Borrowers looking to lock-in low fixed- rate coupons via bond transactions Allows larger / more conservative borrowers to raise acquisition currency Bond market is increasingly re-opening for acquisition related financings

16 Merchant Banking Energy, Commodities & Transportation 16 Fortis role in the new market (1/2) Establishing (Shipping) Funds Investors will benefit from: carefully selected and diversified portfolio of new shipping loans attractive risk - return profile. Limited risk exposure; financing of assets < 10 year historic average values; conservative leverage position of 0 45% of current market values. FBN s expertise in the global ship finance, its existing client base and its 200+ years of history in this sector. Direct participation in Fortis deals is also a possibility. FBN and Qatari Investment bank QInvest created a mezzanine fund aiming to fill the gap between what is available in the banking market and equity portion.

17 Merchant Banking Energy, Commodities & Transportation 17 Fortis role in the new market (2/2) Regional imbalance Asian surplus in liquidity and looking for investment opportunities. 95% of all vessel ship yards are in Asia, looking for: investment vehicles, co-sponsors experienced ship finance structuring parties Asian investors start entering alternative investments Asian yield requirements < US/EU yield requirements Capital Markets & Traditional banking FBN has access to the Debt and Equity Capital Markets through a co-operation with Sunrise Securities Corp. in New York. FBN will continue to find innovative solutions for Shipping Sector

18 Merchant Banking Energy, Commodities & Transportation 18 Table of Contents 1. Ship finance today 2. How to deal with it - alternatives 3. Fortis Bank Nederland d

19 Merchant Banking Energy, Commodities & Transportation 19 Fortis has a long track record the ECT Industries Energy Commodities Transportation Principal Finance Clients active from Clients active in: Clients active in: Direct investments upstream to Agri Deep sea shipping activities in ECT distribution: Metals industry industries Offshore Oil (field) Intermodal Portfolio of assets Energy and Gas services Aviation in projects related Power & Utilities to and companies Carbon Banking active in these Renewables Top 5 Top 3 Top 5 assets Shipping Oil field Commodity syndicated loan markets services industry bank worldwide

20 Merchant Banking Energy, Commodities & Transportation 20 We have come a long way since last year Some of our Transportation Group Milestones deals over US$ 800 mln Announcement of new strategy (May) T joins up with Forum of the Future (July) T together with Capital Link organises first ever Shipping Webinar (23 september) Opening Singapore office + booked our first deals (16 October) Q-Invest 12 November

21 Merchant Banking Energy, Commodities & Transportation 21 and we are moving forward fast One bank with AMBITIONS without PRETENTIONS Market leader in the Netherlands in wholesale banking International network with activities in 25 countries In the year ahead we will work together to create a new, strong Dutch bank under the brand name ABN AMRO A leading position in specific sectors/services, such as Energy, Commodities & Transportation and Brokerage, Clearing & Custody

22 Merchant Banking Energy, Commodities & Transportation 22 Strategic fit of Fortis Bank Nederland & ABN AMRO Conventional Bank (like ABN AMRO in NL) Fortis Bank Nederland Merchant Banking Sold to RBS Commercial Banking Private Banking Retail Banking

23 Merchant Banking Energy, Commodities & Transportation 23 ECT and the new organisation How will this affect you? Business as usual is top priority Client remains central ECT minimal affected by integration plan ECT is acknowledged as one of the growth pillars within the new bank New combination allows us to: Offer sufficient i product capabilities to cater for our clients Leverage on the combined International Network

24 Merchant Banking Energy, Commodities & Transportation 24 ECT presence - Where our clients lead us New York London Oslo Amsterdam Rotterdam * Athens Dubai Hong Kong Singapore Sao Paolo * Representative office scheduled to open soon

25 Merchant Banking Energy, Commodities & Transportation 25 Conclusion - What ECT can offer you Our capabilities: Strong Origination network Strong Structuring and execution capabilities Operational excellence in our Commodities and Shipping mid and back office Adequate capital resources to meet (some of ) your funding requirements Innovative approach to breach the funding ggap p( (if any)

26 Thank You