Shipping: Is this a bankers’ market?

The ship financing landscape is a completely different ballgame these days. In its latest weekly report, shipbroker Intermodal said that “over the last 10 years, many of the traditional and top lending banks have made the decision to either downsize their portfolios or even exit shipping. According to Petrofin, Top 40 shipping banks’ lending has fallen since 2008 by 25%, whilst at the same time the world fleet has grown by 28%. On top of this, out of the banks that have decided to stay in the game, not all of them have the strength, the budget and the competitive terms to do so. As a result, the availability of financing for small-medium size companies has become a scarce, hence a luxury good. In other words, even when there is available financing for these companies, its cost is really prohibitive.

According to Mr. George Laios, Deputy CEO, Intermodal Group, “apart from the banks’ endogenous and structural issues, their shipping departments also need to decide where to allocate their budget. In an era of growing LNG demand, numerous large shipping firms invest in the very capital intensive LNG carriers. Most of the large banks are there to support their very good clients. However, this means that a big percentage of their budget (and resources in general) end up to the LNG carriers’ financing, i.e. not much budget left for the remaining sectors/shipping projects. So, when these banks are left with a limited budget to spend, they become very selective and of course their pricing goes up as the list of the waiting finance projects is significant”.

“But what about the alternative ways of financing for the small and medium size companies? Asian leasing has indeed filled part of the gap that was created with the traditional banks’ exit, however, again this is available for owners with larger fleets and bigger ticket sizes. Public markets have been quiet regarding shipping in general; bond markets again require significant size. Therefore, the small companies are left with the option of the so called alternative financing. Private equity and hedge funds do have the funds to invest, but this only happens when they get the return of capital that they require; given that this most of the times is a double digit figure, then the capital cost for the small/medium ship owners increases dramatically”, Laios said.

Intermodal’s Deputy CEO added that “there are quite a few new European banks that have joined ship financing – whose pricing sits in between the one of the traditional banks and that of leasing – however, their current budget is nowhere near to filling the gap that was left after the departure of the big banks. Therefore, small-medium size shipping companies struggle to find competitive finance terms. Someone may argue that this had always been the case, however, in today’s ship finance market it is evident that the financing of small-medium size shipping companies is not the banks’ first priority, which should not be the case given the performance of such companies during recent years. Indeed, many small-medium size companies have proved their top quality and professionalism by not only surviving the crisis but also by getting back into expansion mode. There are many ship-owning companies falling into this category. Indicatively, only in Greek shipping there are more than 150 companies that own 3-15 bulk carriers, of more than 28,000 dwt and younger than 17 years old. A big percentage of these companies are long standing and solid companies; however, face the above finance issues. This is the clientele that will provide the bank with projects of good credit quality and at the right pricing and therefore should be the one attracting the attention of ship financiers if they wish to make their business efficient and dynamic again”, Laios concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide