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Ship finance markets ‘wide open’

Shipping finance markets remain “wide open” in 2023, in sharp contrast to the post-2008 decade, according to a ship-focused financing platform.

According to Oceanis, banks today are looking to grow their portfolios and are highly competitive with each other in offering the best terms. And while base rates are currently high, they are expected to fall in the second half of the year.

Between these factors, improved earnings compared to the past decade across all sectors and margins being compressed by financiers looking to grow, now remains a great time to finance your fleet.”

In analysis of banking news, Oceanis said that while the collapse of Silicon Valley Bank (SVB) may not have had a direct impact on shipping, its demise demonstrates how banks can fold when forced to sell illiquid assets in a hurry at below-market prices. “While SVB had no direct impact on shipping, other bank failures over the past year affected many hundreds of shipowners. In many cases, these shipowners used banks not only for direct financing but for cash management and other functions which are more profitable for banks,” Oceanis said.

The platform also analysed the impact of the sale of Credit Suisse to UBS. The former is described as a “powerhouse” in shipping finance while the latter is “maritime agnostic”. What will this acquisition mean for future ship financing, Oceanis asked. “Our view is that, as UBS personnel have pledged to continue serving Greek wealth management clients, existing financings will likely be maintained for the time being with a possible end to new facilities. However, the long-held strategy of UBS to distance itself from direct asset financing will likely mean that new facilities are unlikely to be granted and shipowners will need to look for funding elsewhere.”

Financing choices

The loss of access to ship financing leaves owners with limited options. The simplest answer, said Oceanis, is to maintain account balances and financing sources between a number of lenders so that funds can be easily transferred if necessary. “This may not result in the overall lowest cost of financing in good times, but could avoid much greater losses in times of stress,” it said.

Owners could opt for commercial banks with a focus on asset financing, although they are likely to continue to provide their core service throughout the cycles, while non-banking institutions with low cost of capital are described as a “compelling option”.

Despite a recent resurgence in rates, financiers to the dry bulk sector are constrained by currently realisable earnings and this is, in several cases, leading to reduced financing amounts. “We see this particularly in the case of alternative debt funds, where the ability of these more expensive financiers to provide additional capital in comparison to conventional banks is limited by the need to maintain positive cashflows.”

Asset values for tankers, meanwhile, are tracking up – despite volatility – displaying a detachment from current earnings. This is leading financiers to reduce their maximum loan-to-valuation offerings both for tankers with and without long-term employment.

Oceanis noted that from a financing perspective the current tanker market is now similar to the container market of 2021, where the majority of the financial analysis is related to the charter rate, duration and counterparty quality, with loans amortising to $0 or a low scrap value for older vessels under fixed employment.

“Both crude and product tankers have maintained their status as market darlings, with forward projections (and long term time charter rates) continually increasing throughout the quarter. With spot rates at record levels and long-term period employment even for non-eco tonnage, it is easy for financiers to see the strength of the cashflow potential in these vessels,” Oceanis said.

This is on the back of charter-free market values returning to pre-pandemic levels over the past three months, and earnings that are now higher than during pre-pandemic times.

“German borrowers in particular are able to take advantage of highly attractive terms for acquired vessels with outstanding charters, with financing at 65% loan-to-valuation yielding margins in the mid-3% region where employed long-term to a Tier II charterer.”

Oceanis pointed out that there remain serious questions over the long-term earnings of older vessels in the spot market, which is reducing lender willingness to provide funds for acquisitions without firm employment and resulting in lower loan-to-valuations becoming common.

Overall, for the container sector, financing activity is described as “quite thin”, with sale and purchase volumes having decreased and most existing vessels having been re-financed over the past two years. “This will be good news for lenders which, with portfolios heavily skewed towards container vessels during 2021/2, will be able to reallocate towards other vessel types to balance their portfolios,” Oceanis said.
Source: Baltic Exchange

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