Banks have started to trade in the debt of their shipping customers, said Andy Georgiou head of global ship finance at Royal Bank of Scotland.
This does not need to mean that the long-term business relationship between the lender and its shipping company borrower will come under threat, he said.
“If you finance two or three vessels of the same owner each year, it will amount to quite a significant amount over five-six years,” he said at a seminar on ship finance in London arranged by Norton Rose Fulbright. “Trading the debt allows the lender to diversify its portfolio, it does not need to be harmful to long-term customer relationships,” he continued.
Bank finance, which accounted for about 80% of all ship investment just before the economic crisis, stood for 60% of the total in 2014, Georgiou said. The five largest lenders, which in 2008 had loaned a total of USD190 billion for shipping only had a total shipping portfolio of USD107 billion last year. This reflects not only reduced lending, but also lower asset values and also owners’ willingness to deleverage their business: some owners pay cash for their ships.
Bank finance would remain an important part of the ship finance landscape for years to come for both listed and privately owned companies, Georgiou said. “Leverage will be more conservative than it used to be – I don’t think we will see 80% bank finance for a USD150 million Cape [Capesize dry bulker],” he said.
The rise of Far Eastern lenders, such as export credit institutions, is being followed by some Chinese lenders that offer lease financing of ships, an alternative that some owners are keen to use.
Japanese financial houses have also started to become active in financing deals that European and Asian container ship tonnage providers enter into with major carriers by financing the required newbuildings, while on long-term time charter with the major carrier acting as security, Georgiou said, adding that he expects more such deals.
Moving on to the outlook in shipping, he said that in his personal opinion it remains unsure whether the recent recovery in dry bulk freight rates really heralds a turn in the cycle of the business which, earlier this year, has seen its earnings fall to a 30-year low. “The tanker sector appears strong, but MRs [medium range product tankers] may be overbuilt for the future unless the demand side really moves up,” he said.