Modern shipping gobbles up capital, but luckily thats not been a problem. As demand escalated in the 1950s, owners from Greece, Norway and Hong Kong tapped into a wonderful new source of finance, the Eurodollar market. The first Euro bank deal was done in 1957 and by the 1960s the big commercial banks were busy tapping this lake of offshore dollars and lending it on to the shipping industry. Privacy Please
It worked like a dream, giving the (very) private shipowners the same access to capital as big corporations. Offshore flags offered cheap over-heads and a sound legal framework, whilst big oil and mineral companies provided charters as extra security. As the banks got to know the owners, "name lending" allowed them to combine financial flexibility with commercial privacy. Established shipowners got their loans with little hassle and for the next thirty years bulk shipping burned Eurodollars.
You Can't Bank On It
By 2008 shipping banks had portfolios of over $200bn, mostly financing the $420bn bulk and container fleet. But since 2008 this longstanding source of ship finance has been under threat. Eurodollars are still there but the laid back approach to debt, which gave very private shipowners the same access to finance as big corporations, is not. Meanwhile the KG market, which packaged up so much of the container finance, is in dire straits.
Public & Be Damned
Could going public fill the gap? 10 years ago this was a remote possibility. But the 2003-8 shipping boom caught the attention of equity investors and, for example, 50 new companies were floated in the US markets. Public companies now own 380m GT of ships, 38% of the world fleet over 5.000 dwt. So, for the first time in many years, public ownership has become a significant source of ship finance. Could it fill the debt gap?
Private Out, Public In?
The short answer is that although the statistics look good (ships worth $293bn are owned by listed companies) theres still a long way to go. Much of this tonnage is listed on exchanges not easily accessible to independents. For example, 98% of the ships owned by companies registered on the Tokyo stock exchange are Japanese (see graph ranking the 11 biggest exchanges). Only USA, Oslo, Singapore and London have a significant listing of foreign tonnage. The US is biggest, but even here the value of ships owned by all foreign public companies is only around $52bn.
Can Equity Do It?
So there you have it. At first sight the public fleet worth $293bn suggests that public listing is now a massive market, with plenty of potential to finance the future development of the fleet. But much of this is alien territory for independent owners who grew up on the Eurodollar market. So, although its definitely worth a spin, as a precaution, we suggest you keep taking your friendly banker to lunch. Have a nice day.