Export credit agencies set for bigger role in ship finance

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Keith Wallis, Dalian - Thursday 6 November 2008

 

Wei Jiafu.

EXPORT credit agencies are set to take an increasing role in ship finance as the availability of bank lending becomes tighter, according to a senior bank executive. 
HSBC head of global shipping Mark Long pointed to the example of the Export-Import Bank of Korea (Kexim), which had given financial support totalling $10bn so far this year for South Korean shipbuilding contracts. 
He told delegates at the World Shipping (China) summit in Dalian that the level of this year’s advances compared with $20bn Kexim gave in support for the entire five years between 2002-2007. 
The $10bn included a $550m structured financing deal inked in July to back the construction of nine 13,100 teu boxships ordered by Germany’s MPC Capital at Hyundai Heavy Industries. The financial package comprised $440m in loans and $110m in guarantees. MPC Capital ordered the ships at a total cost of $1.53bn. 
Export credit agencies would become an increasing feature of the ship finance sector, he said. 
His comments were supported by Export-Import Bank of China deputy general manager Li Li, who said the bank had supplied $3bn to support orders at Jiangsu New Century Shipbuilding and $3.5bn to Dayang Shipyard, both in Jiangsu province. 
She said the export-import bank was mulling plans to offer $8bn-$10bn to three shipyards in Zhejiang province. 
Ms Li added that the bank is working on proposals for a syndicated refund guarantee that would help shipyards to secure orders after 2010. 
Mr Long added that the global financial contagion meant it was “back to basics for banks” and that lenders would be more cautious over the next year or two. 
With between $500bn-$650bn needed over the next four or five years if the current order backlog is delivered, Mr Long said the new orderbook “looks increasingly difficult to finance”. 
He said he doubted whether there was enough debt available, and that delays and cancellations were inevitable. 
But while financing would become more expensive and challenging to arrange, there would be opportunities, Mr Long said. 
This optimism was echoed by Cosco Group president and chief executive Wei Jiafu, who said that globalisation and the huge infrastructure investments that would buoy the bulk markets would continue. 
He said China planned to spend $2trn on railways and $5trn on ports, roads and associated infrastructure in the coming years, while India had earmarked $390bn for infrastructure works in the next five years. 
Capt Wei said China’s commitment to increased urbanisation, the development of its western provinces, and the opportunities this provided to the shipping markets would “not change in the long-term”. 
He said China’s infrastructure spending would boost results next year at China Ocean Shipping (Group). 
“I expect Beijing’s economy-boosting measures, such the plan to hike infrastructure spending, to start having an impact on the domestic economy in the first-half of 2009,” he said. 
Capt Wei said the shipping sector should remain confident that it could ride out the current “economic winter”, given that emerging economies remained resilient, dry bulk volumes were forecast to grow 3.5% next year and intra-Asia trades and European and US exports were strong. 
But Capt Wei said there was increased scope for co-operation between owners, ports, financiers, yards and others in the maritime sector to reduce risk and overcome the financial crisis. 
Emirates Shipping chairman and chief executive Vikas Khan was similarly upbeat, especially about the potential for regional Asia trade. He said intra-Asia traffic would grow to become the world’s largest trade lane by 2015. 
He said intra-Asia trade would account for 80m teu per year by 2015, compared with 44m teu for Asia-Europe and 43m teu on transpacific routes. 
He added that China overtook the US as India’s largest trading partner this year and India’s trade with China is forecast to be worth $100bn by 2013. India and the Middle East have shifted sourcing from their traditional suppliers in Europe and the US to Asia and China, Mr Khan said.

 

As adapted from Lloyds list