China has been growing as an alternative source of financing, when it comes to shipping. The gradual exit of the ship financing market by traditional banks and the recent fall of the hedge fund frenzy which swept the industry a few years back, has left more than enough room to be exploited by other lenders. Chinese banks have exploited this opportunity to grab and increase their market share, mainly through refinancing deals. According to the latest weekly report from shipbroker Gibson, “the retreat of the traditional forms of ship finance since the financial crisis, prompted by the Lehman Brothers crash and subsequent turmoil since 2008, has forced shipowners to seek alternative funding methods in order to finance replacement tonnage. Since 2008 it has been well publicised that the traditional European and US banks have worked hard to reduce their exposure to the volatile shipping markets and ran down their portfolios”.
According to the shipbroker, “similarly, many of the recent IPO offerings have failed to attract strong levels of interest, often resulting in disappointing failure to reach target price. Next came the US hedge funds which for a while became ‘quite sexy’ for investors but lost their appeal as once again the volatile shipping markets put an end to earning a ‘fast buck’ for those seeking a quick return from that vehicle. Enter China!”, said Gibson.
The London-based shipbroker said that “many diverse ship owners have taken advantage of China’s enthusiasm to enter the finance market’ including several well-known tanker owners. Scorpio Tankers announced in its 2nd/Qtr financial results that in April it sold and leased back three 2013 built MR product tankers to an “unaffiliated third party” for a sale price of $87 million in total. Scorpio followed this up in September with a similar sale and leaseback for five more 2012 built MRs at $27.5 million each. The deal in both cases was through the Shanghai Bank of Communications Financial Leasing (BoComFL). Similarly, Teekay Tankers announced in their 2nd/Qtr results a $153 million sale and leaseback financing transaction involving four modern Suezmax tankers, again BoComFL were the financiers. But perhaps the biggest BoComFL deal to come to light so far is the financing (if not all, part) of the estimated $1.3 billion 32 tanker order announced by Trafigura in June. Full details of the project still need to be unravelled; however, many of the orders to build Suezmaxes, LR2s and MRs in yards in China and Korea announced so far, appear to have BoComFL financial backing”.
Meanwhile, as Gibson pointed out, “several Chinese financial institutions have sprung up over the past few years keen to fill the gap left by traditional lenders, in part to support domestic shipbuilders, leasing vessels back to international ‘blue chip’ owners. This has of course raised concerns about the ease of raising finance to build more ships for oversupplied markets. However, the ‘blue chip’ companies are less likely to default on loans. Even so, Chinese financiers are keen on the sale and leaseback deals because lenders are still worried about payment defaulting. Under this arrangement, the banks can more easily take control of the asset should the leasing company default on payments. Our records indicate that BoComFL currently finance around 5.2 million dwt tanker tonnage spread amongst refinancing existing tonnage and newbuildings, but precise data is difficult to obtain. The Industrial & Commercial Bank of China portfolio is estimated at 2 million dwt of existing tanker tonnage but this particular bank is more heavily involved in financing in a wide range of shipping sectors. However, Minsheng Financial Leasing, one of China’s largest lessors is reported to finance more than 300 vessels, more than doubling their portfolio in three years with tanker tonnage representing 15 percent of this total. Clearly, China has once again built a formidable challenge to the traditional western players, in yet another service sector of shipping, but this should hardly be viewed as a surprise”, the report concluded.
Meanwhile, in the tanker market this week, in the Middle East, Gibson said that “it was an active week for VLCCs, but the end result is that rates haven’t changed since last week’s report as availability continues to easily match demand. Into the second half of the November programme now and the near-term outlook is for more of the same. Rates to the East operate at around ws 70 for modern units with sub ws 60 seen for older vessels and rates to the West still hanging in the mid/high ws 20’s. Suezmaxes tightened steadily through the week, but never quite reached critical mass to allow the market to step higher than last week’s ws 87.5 East and ws 42.5 West levels. Kharg liftings were more prevalent however, and noticeable premiums for those are still to be paid. Aframaxes remained quite steady at 80,000mt by ws 140/145 to Singapore, but would have liked a little more interest to really bolt down rates for the next fixing phase”, the shipbroker concluded.
Source: Hellenic Shipping News.