Though challenges abound in the world of ship finance, it looks as if all players will have the opportunity to participate, according to a recent Marine Money panel
When it comes to shipping and offshore financing, credit appetite from traditional banks has assuredly decreased. But while the attractiveness of the sector has diminished, regulation has also had an important role to play.
“I think the fact that there is reduced credit appetite from the traditional banks, at least, for the shipping and offshore sectors is well-documented and everybody has been talking about it,” said Elias Sakellis, chief investment officer at Borealis Maritime, on a panel looking at debt and lease finance sources for shipping at the 10th Anniversary Marine Money London Forum in the UK in January.
Similar sentiment was felt by the panel’s Paul Taylor, Societe Generale Corporate & Investment Banking’s global head of shipping and offshore.
“Credit appetite among banks is probably not at an all-time high, and you can’t really blame our banks for not having unlimited capital for the sector because if you look at the history since the turn of the century, not many banks have made huge profits in this sector,” he said, discussing discipline and responsibility. “So stability of earnings would be nice to see across the sector for our banks to allocate the capital that we need to actually grow our businesses, and there’s very few banks today that are looking to grow their lending book. So credit appetite is one challenge we have at the moment.”
There seems to be space for everybody, now and taking it forwards
The other challenge, according to Mr Taylor, is regulation.
“With Basel IV coming on, our pricing model in the traditional banks is going to get stretched, and we’re going to have to pass some of that price across to our clients in order to make a return on capital because ultimately, making a return on capital is why we are in business. That will be hard to do. I still think there is room at the top tier, the top end of the sector, for traditional banks, for lending banks, to make very good profitability, but we have to be sure of what our business model is. It has to be sustainable. We have to do more than just lend at cheap margins to actually have a role going forwards, and that is going to be a real challenge for many banks in this market.”
Following his own comment about lowered credit appetite, Mr Sakellis said: “I do think that if you look at … the top tier of owners globally, you would not notice it, and therefore there’s definitely an opportunity opening up in the market for small to medium-sized owners, who at the same time, however, are tremendous commercial and technical managers of their vessels, of all of their fleets. By and large, they’re very, very focused. They do only one thing and they do it very, very well, and the only thing that they lack is balance sheet size and strength, and that is something that alternative financing platforms … can probably take a view on and underwrite credit in that perspective.
“If you look away from the type of borrower, the other way to think about this opportunity in this market is to think about the type of projects. The other way that alternative financing can clear all in this industry is to fill the gap in terms of, obviously, stretching leverage and replacing part of the equity. The second one is financing assets which, for a variety of ways, are not easy for banks to finance — be it because of segment, size, age, etc., etc. — and then the third one is potentially — it’s not always the case, but potentially — is to underwrite risk when time is very valuable. So if it’s a special situation, if time is short, if you need an underwriting decision really quickly, then again, that’s an opportunity.”
Mr Taylor felt that discipline, responsibility, sustainability and profit are all important for banks today and new challenges for the future are the environment and responsibility.
“There’s IMO 2020 clearly coming up, and we as banks have a real risk-management responsibility here, not just partnering our clients but actually looking at it from a risk-management perspective and being comfortable that they’re approaching it in the right way so that we all succeed from IMO 2020. But beyond that, in relation to the climate issues, I can see, going forwards, banks [having] to pay much more attention to climate-related issues, relating to our clients, relating to the ships that we finance, looking at the emissions and being far more aware and responsible of the assets which we’re financing, and that’s going to be a big issue over the next few years.”
Though Friday Wang, head of the Greek/UK team in the shipping leasing department at CMB Financial Leasing, said that his organisation’s perspective is that leasing houses will see more challenge in the future, panel moderator Dora Mace-Kokota, Stephenson Harwood Partner, mentioned “the mutual reliance of the different sources on each other”.
“I think what we’re all hearing this afternoon is that there seems to be space for everybody, now and taking it forwards,” she said.
“I think as ABM AMRO, we actually welcome the alternative capital providers,” said Andre Lockhorst, executive director/head of transportation for north Europe and the Middle East at the bank. “I think if you look at the shipping world, there’s really a need for financing for all clients or shipping companies around there.”
The message seems to be that there are opportunities for all to get involved in the ship financing sphere, as long as regulatory hurdles can be overcome and CSR goalposts can be hit.
The Baltic Exchange will hold its next Ship Finance Executive on May 13 and 14 in London in the UK. More information can be found here.