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China and Ship Finance: The Degree of Difficulty Increases 14th Annual Greek Ship Finance Forum, 17 October 2012 Kevin Oates, Marine Money Asia.

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Presentation on theme: "China and Ship Finance: The Degree of Difficulty Increases 14th Annual Greek Ship Finance Forum, 17 October 2012 Kevin Oates, Marine Money Asia."— Presentation transcript:

1 China and Ship Finance: The Degree of Difficulty Increases 14th Annual Greek Ship Finance Forum, 17 October 2012 Kevin Oates, Marine Money Asia

2 Not least due to their size, Chinese banks have the potential to fill part of the void left by withdrawing European banks China is already home to at least four of the worlds largest banks by market capitalization China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Opportunities in Ship Finance

3 China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Opportunities in Ship Finance Ship Owners The profile of Chinese commercial banks in international ship finance has developed significantly over the past decade Chinese banks are no longer underrepresented in league tables. Bank of China, Industrial and Commercial Bank of China, Bank of Communications and China Construction Bank have become major ship lenders

4 Over the past five years, many shipping companies - including prominent foreign shipowners such as Bernhard Schulte, Mitsui O.S.K Lines, Norden, Pacific International Lines and STX Pan Ocean have tapped financing from the Chinese commercial banks successfully China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Opportunities in Ship Finance Select Chinese Banks Ship Finance Transactions (2010-2012) LenderYearBorrowerDeal Size (USDm) Remarks 2011Bernhard Schulte GmbH & Vo. KG 203German owner closed a financing package consisted of a Sinosure backed USD 61 million facility and a USD 142.2 million commercial facility (Bank of China and China Exim) for three 9,000 TEU ships to be built at Shanghai Jiangnan Changxing Heavy Industry Fairstar Heavy Transport 30Fairstar secured a USD 30 million pre-delivery loan from Bank of China, for the financing of a 50,000 dwt semi-submersible heavy lift vessel at Guangzhou Shipyard International 2010Vale1,230Brazilian miner secured a 13 year loan from China Exim and Bank of China to finance 80% of the construction cost of 12 VLOCs ordered at Jiangsu Rongsheng Heavy Industries. The vessels will be owned by Vale Shipping and flagged in Singapore Pacific International Lines 517Singapores box shipowner/operator secured a Sinosure backed USD 517 million 10 year buyer's credit from Bank of China. Proceeds are used to finance newbuildings at Dalian Shipbuilding Industry STX Pan Ocean92Bank of China and ING provided the South Korean shipper a Sinosure backed buyer's credit for the construction of four 57,000 dwt bulkers at COSCO Zhoushan Shipyard J. Lauritzen267Bank of China participated in a club ten year deal, comprising BNP Paribas, Société Générale and Sinosure, for the financing of five China built MR tankers and two LNG tankers FH Bertling40Bank of China provided the German shipowner a Sinosure backed buyers credit of USD 40 million for the financing of two general cargo newbuilding orders at Zhong Chuan Heavy Industry in Zhejiang province Source: Marine Money

5 Over the past five years, many shipping companies - including prominent foreign shipowners such as Bernhard Schulte, Mitsui O.S.K Lines, Norden, Pacific International Lines and STX Pan Ocean have tapped financing from the Chinese commercial banks successfully China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Opportunities in Ship Finance Select Chinese Banks Ship Finance Transactions (2010-2012) LenderYearBorrowerDeal Size (USDm) Remarks 2012Grupo R550Bank of Communications participated in a syndicated loan for the Mexican conglomerate Grupo R. Proceeds will be used to finance the construction of a semi- submersible drilling rig, ordered at Korean shipbuilder DSME. Other syndication members included Export-Import Bank of Korea (KEXIM), Mizuho, WestLB AG, Korea Development Bank and K-Sure 2011China Shipping Container Lines 543.9Bank of Communications, Hong Kong branch arranged a USD 543 million 10 year post- delivery syndicated loan for CSCL. The facility, at 40% LTV, was priced at LIBOR+130bps and will be used to finance a series of eight 14,000 TEU containerships ordered in August 2007. The boxships will be built at Samsung Heavy Industries for USD 170 million a piece COSCO Container Lines 100DNB provided a three year term loan to COSCO Container Lines. The facility is guaranteed by Bank of Communications Xing Long Shipping 72.1Bank of Communications, Hong Kong branch provided a 10 year post-delivery loan to Xing Long Shipping, a SPV which is jointly owned by China Shipping Development and Shanghai Puyuan Shipping. The facility, at 80% LTV, was priced at LIBOR+130bps and will be used to finance the construction of a 23,000 dwt ore carrier Zhida Shipping72.1Bank of Communications, Hong Kong branch provided a 10 year post-delivery loan to Zhida Shipping, a SPV jointly owned by China Shipping Development and steel mill Baogang. The facility, at 80% LTV, was priced at LIBOR+130bps and will be used to finance the construction of a 23,000 dwt ore carrier Lida Shipping72.1Bank of Communications, Hong Kong branch provided a 10 year post-delivery loan to Lida Shipping, a SPV jointly owned by China Shipping Development and steel mill Baogang. The facility, at 80% LTV, was priced at LIBOR+130bps and will be used to finance the construction of a 23,000 dwt ore carrier Source: Marine Money

6 Select Chinese Banks Ship Finance Transactions (2010-2012) LenderYearBorrowerDeal Size (USDm) Remarks 2012Pacific International Lines 97CCB participated in a Sinosure backed 11.5 year loan together with ANZ and ING. The facility is said to be priced at LIBOR+285 bps 2011Norden200Danish owner secured a Sinosure backed loan for the financing of 7 Chinese built ships. BNP Paribas, Bank of Construction and Deutsche Bank were the lenders 2010Norden200CCB, together with BNP Paribas, provided a 10 year Sinosure backed credit facility for the financing of seven vessels from Chinese shipyards. The shipowner drew USD 87 million on this credit facility in 2011 2011Mitsui OSK and China Shipping (PNG LNG Project) 440ICBC participated in the pre and post-delivery limited recourse financing for two 172,000 cbm LNG tankers to be built at Hudong Zhonghua Shipyard. Other syndicate members included China Exim, Mizuho and SMBC Seaspan150Subsidiary of Seaspan secured USD 150 million facility from BTMU and ICBC for the financing of one 13,000 TEU vessel Shandong Haiyang Shipping 27.2Chinese owner inked loan from ICBC for the financing of one panama newbuilding 2010United Arab Shipping Company 302ICBC participated in a 14 year club deal, comprising Daxia, BNP Paribas, ICBC and Ahli United Bank for the financing of three 13,000 TEU vessels at Samsung Heavy Industries Hopeful Grain & Oil Group 51.2State-owned grain and oil marketing enterprise secured loan from ICBC to finance two second-hand panama bulk carriers 2011Jiangsu Ocean Shipping 20Shanghai Pudong Development Bank completed its first ever cross border ship finance transaction, with Jiangsu Ocean Shipping's subsidiary in Hong Kong Source: Marine Money Over the past five years, many shipping companies have tapped financing from the Chinese commercial banks successfully China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Opportunities in Ship Finance

7 But to many, the progress made by Chinese commercial banks in global ship finance is simply not fast enough Common grouses suggest that loan appraisals tend to be overly cautious, bureaucratic and time-consuming While Chinese banks may have financed a number of foreign shipowners, their clients are still largely limited to some of the biggest and best-known companies, who can still obtain keen terms from the international banking market Lending activities to the shipping industry are also mostly confined to bilateral corporate lending structures. Club or syndication deals among Chinese commercial banks are uncommon China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Challenges in Ship Finance

8 Managing risks and volatility in ship financing remains a challenge to many Chinese lenders. They continue to rely on Western banks to structure transactions China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Challenges in Ship Finance Dr. John Coustas, President of New York listed Danaos Corporation, described the loan appraisal process of Chinese banks as time consuming and painful Safe Bulkers is one company who has not sought Chinese financing because of the costs Source: Bloomberg, Chinas Shipyards Fail to Win Orders as Greek Owners Shun Loans, June 8, 2012

9 But to many, the progress made by Chinese commercial banks in global ship finance is simply not fast enough The series of interest rate hikes since 2010 have eroded some of the pricing advantages previously available to Chinese banks Another dampener to the Chinese banks appetite for shipping lies in their continual struggle with USD/RMB exchange rate and the opportunity cost of capital Dollars have become costlier from an internal treasury prospective as they must buy dollars with RMB reserves. This is made worse, given that Chinese banks have suffered a savings flight in recent months China and Ship Finance: The Degree of Difficulty Increases Chinese Commercial Banks: Challenges in Ship Finance

10 China and Ship Finance: The Degree of Difficulty Increases Policy Banks Take the Lead: China Exim Bank With the mission to support the local shipbuilding industry, Chinas two state-owned policy banks - China Exim and China Development Bank (CDB) have remained committed to extending financing to foreign shipping companies (either as participating as a lender or an issuer of standby letter of credit or guarantees) China Exims Ship Finance Transactions BorrowerDeal Size (USD million)Remarks 2011 Mitsui OSK and China Shipping (PNG LNG Project) 869China Exim participated in the pre and post-delivery limited recourse financing for four 172,000 cbm LNG tankers to be built at Hudong Zhonghua Shipyard. Other syndicate members included ICBC, BTMU, Mizuho and SMBC Danaos Corporation203China Exim participated in a 12 year Sinosure backed USD 203.4 million post-delivery facility together with ABN AMRO and Citi. Loan proceeds will be used for the financing of three 8,530 TEU container ships to be built at Jiangnan Shipyard. This is the first Sinosure backed buyer credit closed for a Greek name Costamare203Greek owner entered into a 10 year credit facility with China Exim, DNB and China Everbright Bank for the financing of three 9,000 TEU newbuildings. The vessels were ordered at Shanghai Jiangnan Changxing Heavy Industry, at USD 95 million apiece SK Shipping137.2China Exim co-financed 45% of a DVB arranged pre and post-delivery mortgage financing for the construction of two 320,000 dwt VLCCs at Dalian Shipbuilding Industry Corporation Parakou Shipping96China Exim provided a USD 96 million loan to the Hong Kong owner at LIBOR+300bps for the financing of a 35,000 dwt bulk carrier, Pretty Keel Daxin Holdings50China Exim provided a USD 50 million buyers credit to the dry bulk shipping subsidiary of China Dalian International Cooperation Craig GroupUndisclosedUK based Graig Group secured financial support from a major European bank and China Exim for the financing of its fuel efficient new generation container feeder ships. The vessels will be built at Jin Hai Shipyard Source: Marine Money

11 China and Ship Finance: The Degree of Difficulty Increases Policy Banks Take the Lead: China Exim Bank With the mission to support the local shipbuilding industry, Chinas two state-owned policy banks - China Exim and China Development Bank (CDB) have remained committed to extending financing to foreign shipping companies (either as participating as a lender or an issuer of standby letter of credit or guarantees) China Exims Ship Finance Transactions (Cont) BorrowerDeal Size (USD million)Remarks 2010 Vale1,230Brazilian miner secured a 13 year loan from China Exim and Bank of China to finance 80% of the construction cost of 12 VLOCs ordered at Jiangsu Rongsheng Heavy Industries. The vessels will be owned by Vale Shipping and flagged in Singapore National Iranian Tanker Company 1,112Iranian shipper secured 90% financing from a consortium of Chinese banks including China Exim for the financing of 12 Chinese built VLCCs Bourbon400French offshore oil and gas services provider secured a 12 year credit facility from China Exim for the construction of ships ordered at Sino-Paciifc Shipbuilding Ethiopian Shipping Lines235African shipping company secured 80% financing from China Exim for the financing of seven multipurpose vessels and two product tankers, ordered at China's Taizhou Kouan Shipbuilding TORM170Danish owner entered into an 8 year USD 170 million loan with China Exim for six 52,000 dwt tankers to be delivered between 2010 and 2012. This part of the letter of intent that TORM concluded with China Exim 2009 on a total financing facility of USD 500 million Angelicoussis Group111Loan facility to finance the construction of two Chinese built dry bulkers Bocimar International90Belgium based owner secured a loan facility from China Exim and Societe Generale for its purchase of two bulk carrier newbuildings under construction at Zhoushan Jinhaiwan Shipyard in China Diana Shipping82.6China Exim provided 70% financing for Diana Shippings acquisition of two 206,000 dwt dry bulk carriers, under construction at China Shipbuilding Trading Company and Shanghai Jiangnan- Changxing Shipbuilding InterOrient Navigation64.7Cyprus based owner secured the Sinosure backed buyers credit for the construction of two 115,000 dwt bulk carriers at Jiangsu New Century Shipbuilding SUMEC Corporation23SUMECs subsidiary in Singapore will make use of the 8 year USD 23 million buyer credit facility from China Exim to finance its first vessel, a 35,000 dwt dry bulk carrier Source: Marine Money

12 China and Ship Finance: The Degree of Difficulty Increases Policy Banks Take the Lead: China Development Bank Like the Chinese commercial banks, they are equally prudent and cautious in selecting their counterparties and in determining their commercial terms China Development Banks Ship Finance Transactions BorrowerDeal Size (USD million) Remarks 2012 A.P. Moller Maersk500Danish shipping and oil company signed USD 500 million loan agreement with CCB to purchase containers DryShips123George Economou-led Dryships sealed a USD 122.58 million export buyer credit syndication facility from CDB. Proceeds will be used to finance three 206,000 dwt VLOCs that will be built by state-owned shipbuilding conglomerate CSSC. CDB will provide Dryships the bulk of the facility, but Bank of China – Ningxia branch and Zhejiang branch will also participate as a minor lender for an undisclosed sum. This transaction also marks the successful closing of the first syndicated loan facility between two Chinese banks, without the involvement of a Western bank China Shipping Container Lines 100CDB provided a three year loan to Hong Kong incorporated subsidiary of state-owned China Shipping Group 2011 Brightoil Petroleum4,000Chinas third largest marine bunkering company signed a 5 year USD 4 billion strategic co-operation agreement with China Development Bank. Funds will be used to acquire tankers, letters of credit and bank guarantees and potential M&As STX Pan Ocean510.7CDB participated in a 12 year syndication loan, made up of KEXIM, ABN AMRO, DNB, Deutsche Schiffsbank, BNP Paribas, ING, Standard Chartered, Credit Industrial et Commerciel, for the financing of 16 Open Hatch Bulk Carriers. The vessels will be chartered to Fibria upon delivery Peter Döhle1,000CDB pledged to provide financial support, amounting to up to USD 1 billion, to German Shipowner Peter Döhle, over the next five years for the financing of vessels to be built at Singapore listed Yangzijiang Shipbuilding 2010 Cardiff Marine75George Economou led Cardiff Marine secured a USD 75 million Sinosure-backed financing of a VLCC newbuilding from CDB Maritime Construction Services 104CDB provided a RMB 690 million loan for the financing of one 300m long pipelay barge constructed at Shanghai Zhenhua Port Machinery Source: Marine Money

13 Key Takeaways Broadly speaking, commercial Chinese banks have not participated in global ship finance in a big way and their willingness and ability to finance foreign buyers is still very much dependent on the availability of export credit cover Apart from export credit cover, Chinese commercial banks prefer to work with reputable international banks in extending financing to foreign shipping companies. Such collaborations allow Chinese banks to leverage on the shipping expertise and relationships that their western counterparts have with the borrowers But in reality, club/syndicated deals involving collaborations between commercial Chinese and Western banks remain fairly limited China and Ship Finance: The Degree of Difficulty Increases

14 Key Takeaways There is a mismatch in expectations between owners and bankers. Owners are optimistic that more liquidity will be available for shipping in the latter half of 2012, but anecdotal evidence suggests otherwise. Chinese banks may have better USD availability than western banks, but they remain very cautious of industry fundamentals Chinese banks rise in the share in ship finance is largely in line with the growth of the countrys shipping and shipbuilding industries. They have no plans to grow into major ship financers. Moving forward, their appetite for ship financing will be severely tested in the current shipping downturn China and Ship Finance: The Degree of Difficulty Increases


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