Shipowners opt for alternative financing

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Keith Wallis, Singapore - Wednesday 22 April 2009

ALTERNATIVE ship financing sources, including bond issues and private equity, have started to take over from traditional bank lending to finance the newbuilding orderbook since the beginning of this year, financiers said today.

This comes as the number of new ship finance banks entering the market has also shown a dramatic increase, delegates to the Sea Asia conference were told.

Jefferies maritime group managing director Hamish Norton said high-yield bonds, convertible bonds, equity finance and sovereign wealth funds have become more attractive as shipowners seek alternative funding sources.

Pointing to high yield bonds in particular, Mr Norton said 10 offerings totalling $13.9bn were done between January and March, compared with hardly any last year.

By comparison, DVB Bank head of shipping Dagfinn Lunde said 25 loans totalling $10.6bn had been done in the first three months of this year, according to Datalogic figures.

Mr Norton said that typically the five-to-10-year bonds carry a coupon rate of “15% plus”.

The high-yield bond and bank lending markets had “converged”, Mr Norton said.

He added that interest had also grown in convertible bonds, and while no shipping company had issued convertible bonds recently, he expected that to change.

Mr Norton said there had been little involvement by sovereign wealth funds. But the Chinese government had recently made commitments to support its shipyards, and the Norwegian government had also supported the country’s shipping companies.

Mr Norton said private equity companies would also take more of a role once they could assess ship asset prices to scrap prices.

“Private equity firms are waiting to see the true direction of ship prices relative to scrap values,” he said.

Jeffries has emerged as the largest US investment bank since the US banking crisis.

He thought that while the cost to shipowners of using these alternative sources looked higher in reality they were quite competitive.

Mr Lunde pointed out that banks were paying 280-350 basis points above the London interbank rates before they started to price loans for shipowners.

This came as new figures showed a dramatic change in the league table of ship finance banks based on bank lending. The top three last year were Nordea, DnB NOR and ING. Based on lending in the first three months of this year, Sumitomo Mitsui Banking was number one, SBI Capital Markets was number two and Mitsubishi UBJ was in third place.

HSH Nordbank Asia head of shipping Paul Chang said the state of the shipfinance market “might attract new banks into the picture”.

Mr Lunde said among the banks still active were DVB, DnB NOR and Fortis, “which was participating from both the Dutch and Belgian sides”. He said it was still possible to put together syndication or club deals of up to $100m-$150m, while the offshore sector could attract deals of around $400m.

Nordea head of corporate finance for Asia Erik Valen said Japan, South Korea and China were likely to take a national approach when it came to financing shipyards and owners, although China had also financed foreign owners.

Mr Valen added that more merger and acquisition activity was likely among shipowners but only towards the end of 2009 or 2010.