An Overview of Chinese Ship-Finance Market

Transcription

1 Keen Maritime Services Inc. An Overview of Chinese Ship-Finance Market Zhongyi (John) Su Keen Maritime Services Inc. Mare Forum - 9 th May 2011, Sorrento

2 The Robust Chinese Economy and Her Substantial Maritime Power In 2010, China surpassed Japan as the 2nd largest Economic Power of the world. As world s manufacture center, contributing about 30pct of world s containerized cargo flow World s 2nd-largest consumer of oil behind U.S.A, and the 3rd-largest net importer of oil after the U.S.A. and Japan. World s No. 1 steel producer and No. 1 Iron Ore, Coal and Soybean importer, dominating over 50pct of world s seaborne trades World s largest shipbuilding nation in terms of orderbook and delivery in Owning No. 4 largest merchant fleet of the world, representing over 20pct of world s drybulk fleet and 10pct of container fleet

3 The booming Chinese economy has been accompanied by a fast-growing banking sector In China, bank loans have been the predominant channel for fund raising, accounting for about 80% of capital raising, almost 6 times more than that through equity offerings. Chinese Banks by the Numbers in comparison with USA counterparts The total assets of the Chinese banking system were 94.3 trillion RMB, or $14.4 trillion in USD, at the end of The BIG-4 State-owned commercial banks controlled 45.9 trillion RMB, or approximately 48% of the total assets. The U.S. banking system had total assets of $13.3 trillion at the end of These assets were even more concentrated than China, with the four largest U.S. banks (Bank of America, JP Morgan, Citigroup, and Wells Fargo) controlling $7.6 trillion or 56% of these assets.

4 Chinese banks are already on worlds top list in terms of total assets and profitability

5 The Chinese Banking System The Central Bank: Since 1983, People s Bank of China (PBOC) remains the authority for monetary policy and regulatory functions; Until 2003, the China Banking Regulatory Commission (CBRC) was established to take over the regulatory functions from PBOC; The 3 Policy Banks of China: China Development Bank (CDB), the Export-Import Bank of China (Cexim), and the Agricultural Development Bank of China (ADBC), were established in 1994 as the government-oriented spending functions, financing economic and trade development of state-invested projects. The Big-4 state-owned commercial banks, namely, ICBC, CCB, BOC and ABC are still the biggest players, still accounting about 50pct of total China s bank assets, though their dominance is in gradual decline. The 13 joint-stock commercial banks, represented by Bank of Communications, China Merchant Bank, SPDB and Minsheng Bank etc, as the second tier commercial banks, are the most dynamic force in China s banking sector, and generally healthier in terms of asset quality and profitability and have much lower non-performing loan ratios than the big-four. Over 140 City commercial banks, initially established and influenced by local governments, like Bank of Beijing, Bank of Qingdao, Bank of Dalian, etc, have recently extended their business beyond their home regions.

6 A Glance at Ship Finance Market in China Still not (yet) a transparent market; Very much influenced by the Central Government Monetary and lending policies; Roughly judge the total bank loans portfolio to be approximately RMB 800 bn (USD 123 bn); Bank s market focus: still on supporting credit/loan on newbuilding (in Chinese yards) related projects, not really active for 2nd-hand ships through bilateral loans. Chinese Banks are NOT dedicated only for Chinese owners but also open for selected foreign owners who are building ships in China, as an effort to facilitate the country s shipbuilding industry.

7 The major sources of ship-finance in China 1) Policy / Institutional Banks: both China Exim Bank and China Development Bank are mainly newbuilding-oriented, i.e. yards export credit, issuing R/G letters and also buyers' credit loans etc. 2) Commercial banks: 2.1) State (central-government) owned banks: ICBC, BOC, CCB, BANKCOMM, etc, who are active for both newbuilding and 2nd-hand ship financing through bilateral loans, syndication loans, etc and open to International clienteles. 2.2) 2 nd Tier and Local government owned banks: CMB, Shanghai Pudong Development Bank, Fujian Development Bank, Guangdong Development Bank, etc, have more enthusiasm/ knowledge to finance the local and national shipping customers. 3) Financial Leasing institutions: the leasing arms of ICBC, BOC, CCB, BANKCOMM, CMB, Minsheng Bank, CDB, etc, who have financial lease models with 7-15 years period bareboat to top Chinese state-controlled owners/charterers, with purchase obligations at maturation of the period. 4) Private Equities: Chinese KG are quite active in rural areas of Fujian and Zhejiang provinces. more basis asset-play for vintage tonnages and now facing difficulties at the downturn market.

8 The Top Ship-Financing Banks in China Source: Bank of China, Marine Money But rest of commercial banks like, CDB, CCB, BOCOMM, CMB, MB, SPDB, ABC are also expanding dramatically in the past 5-years, especially during h/2010 period.

9 Chinese Banks focus today is still on Bilateral loans through traditional mortgage, instead of participating on international syndications

10 High Pricing makes Chinese banks disappeared from the top league of Shipping Loans in Full Year Ranks of 2010! Source: Dealogic

11 The leading financial leasing banks in China Bank Financial leasing company Register capital Shareholders CCB CCB Financial Leasing Company RMB 4.5 Billion CCB: 75.1% Bank of America: 24.9% ICBC Bank of Communications China Minsheng Banking Corp. Ltd CMB (China Merchants Bank) ICBC Financial Leasing Company Jiaoyin Financial Leasing Company Minsheng Financial Leasing Company China Merchants Financial Leasing Company RMB 2 billion RMB 2 billion RMB 3.2 billion RMB 2 billion Wholly owned by ICBC Wholly owned by Bank of Communications CMBC: 81.25%; Tianjin FTZ (free trade zone) Investment Co., Ltd.: 18.75% Wholly owned by CMB Bank Financial Leasing Company Register Capital Shareholders CDB Bank of China CDB Financial Leasing Company BOC Singapore Aircraft Leasing Enterprise RMB China Development Bank: 95% HNA Group, Xi an billion Aircraft Industry (Group) Co., Ltd: 5% RMB Wholly owned by BOC billion

12 Variable Factors influencing banking loans in China - Government policy: a moral risk but also bringing possible opportunities; - Currency (RMB / USD) exchange rates: All Chinese banks make their financial accounts/performance in RMB currency but not in USD! RMB still under huge so-called "under-valued" pressure from those leading debtor countries like USA, UK etc, claiming an unfair advantage to Chinese exports. But an appreciated RMB will not only slow down the trading activities, but also increase the loan cost on lending the USD. - Inflation pressure pushes up the interests rates: On 20th Oct 2010, China raised the benchmark deposit and lending interests rates for the 1st time since 2007, then consequently increased 4 times in the next 5-month time, so as to reduce the serious inflationary pressure. Now the one-year deposit interest rate climbs to 3.25pct whilst the one-year loan interest rate stands at 6.31pct! Though the main target of countering the overheating is for real estates sector, but ship assets investment is also seriously impacted as well.

13 New Challenges on possible nonperforming loans from some ambitious domestic customers for coming 2-3 years: will this discourage the future Shipping financing activities? Top Private Capesize Bulker Owners in China and their orderbooks Rank Name of Company No. Capes Total Dwt Avg Size Age Capesize Newbuilding orders 1 HOSCO (Hebei Ocean / NCS) 22 4,192, , x 180k to be delivered in 2011 by Beihai Shipyard + DISC 2 Sea Star Ships 11 1,930, , N/A 3 ZOSCO 7 1,213, , x 180k to be delivered in 2011 by DISC 4 Winning Group 7 1,175, , N/A 5 Cara Shipping (Rizhao Steel) 5 880, , x 180k to be delivered in 2011 by SWS and DISC 6 Grand China Logistics 4 700, , x 176k to be delivered in by Jinhai Shipyard 7 Guanhai Shipping 4 645, , N/A 8 China Ship Funds (Centrans) 2 344, , x 180k to be delivered in 2012 by Beihai Shipyard 9 Henghou Industries 2 353, , x 180k to be delivered in 2012 by HHIC-Phil 10 Five Stars Shipping 2 360, ,000 1 N/A Shandong Marine x 180k to be delivered in 2012 by Beihai Shipyard Total 66 11,795, , units of about 7,476,000 dwt on orders for dely Sources: various sources/data compiled by Keen Maritime Services Inc. Details given in good faith wog

14 Conclusions Chinese banks are still relatively new to the ship finance fields with focus mainly on bilateral loans, and there is certain potential to grow, with backup from the abundant domestic savings (RMB USD) of the Chinese banking system, but it gets quite expensive now (due to the appreciation of RMB against USD!) Chinese banks pay more attention on establishing relationships ( Guan Xi ) with ship-owners clients, though the main task is still to support domestic shipbuilding industries and always being in line with policy goals. Chinese banks become more and more selective on credit/risk ratings and the deals with certain Chinese element i.e. either the ships will have to be built at Chinese shipyards or the vessels shall be under period employment to Chinese blue-chip charterers (in case of 2nd-hand purchase), etc. We need to follow closely how the Chinese banks will pass the forthcoming downturn market and expect higher chances that banks will turn into owners in a passive way?

15 The Banks and owners will have to work more closely together for long-term projects instead of any speculative asset plays. The Y.K. Pao Model is proven as the Safest and everlasting in the long run.

16 Keen Maritime Services Inc. Thank you! Zhongyi (John) Su Keen Maritime Services Inc. Mob: Msn: