The impact on investment in the global shipping industry of a more volatile economic environment

Transcription

1 The impact on investment in the global shipping industry of a more volatile economic environment Mark Long Global Head of Shipping November 28

2 Impact of Credit Crisis Recent Central Bank and Government actions have reduced the risk of further bank collapses Government regulation and markets are forcing banks to de-lever, however this will take time Banks expected to return to a more traditional model to rebuild fundamentals Higher cost of capital and reduced leverage will impact corporate access to debt finance Lenders/investors more risk averse and more focused on credit fundamentals Prospect of market volatility and disruptions remains 2

3 Container ship deliveries reach all time high Total container ship deliveries TEU ( ) 4,5 4, 3,5 3, 2,5 2, 1,5 1, ,TEU 3-8,TEU 3,TEU 2-2,999TEU 1-1,999TEU Feedermax Source: Clarkson s Sin 3

4 Will newbuilding prices continue upwards? Container ship newbuild price $m ,5TEU 6-6,5TEU 3-3,6TEU 2-2,999TEU 1-1,999TEU Feedermax Source: Clarkson s Sin 4

5 Global Shipping ECM deals Global Shipping ECM deals $m No. 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, IPO FO CONV No. of listings Source: Dealogic 5

6 Global Shipping DCM deals Global Shipping DCM deals $m No. 7, 6, 5, 4, 3, 2, 1, Corporate High Yield ABS No. of issuances Source: Dealogic 6

7 Global shipping has traditionally had a heavy reliance on Bank Debt Global Shipping Loan Volumes by year $bn YTD Deal value No. of loans Source: Dealogic 7

8 Syndicated debt market getting tougher Margin bps AA 21 5yr Ave AA A 23 5yr Ave A BBB 26 5yr Ave BBB BB to 28 5yr Ave BB Relationship banking and clubdeals Pricing increases and re-pricing Tenor reduced Increased amortisation More conservative structures (lower LTV) Documentation tightening Source: Dealogic 8

9 Export Credit Agency financing has increased in popularity Overall Shipping business KEXIM: US$12bn over the period 23/27 KEIC: US$1bn over the period 23/27 28 KEIC estimates US$1bn of ship financing KEIC acts as a credit insurer: Up to 8% loan on contract value 12-year repayment period But there has been an upward pricing trend on all transactions 9

10 Old model Leveraged Bank Model Banks originating, structuring and selling Cheap long tenors / high LTV Debt Capital Markets Few companies with ratings Some High Yield issues Shipping Companies Improving financials Improving asset cover Strong internal bank ratings Equity Capital Markets Trend to yield stocks Model predicated on good markets continuing Hybrid/Convertible bonds Limited volatility 1

11 New model: more diverse capital structure Bank Model More conservative Deleveraged Debt Capital Markets Ratings provide additional market access High Yield market may take time to recover Conservative structure Shipping Companies Potential deteriorating asset values and performance Potentially weaker internal bank rating Equity Capital Markets Equity story will reflect shipping industry reality Other exchanges become more popular Hybrid/Convertible bonds Volatility creates opportunity 11

12 Conclusion Back to credit basics for banks with pricing moving up and a focus on relationships Equity capital markets remain challenging Windows of opportunity will arise across the capital markets When stability returns, markets will remain cautious New order book looks increasingly difficult to finance Delivery delays and cancellations likely to be inevitable 12

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