Equity capital wanted for ship finance

At least, this is the prediction of some of the speakers attending the SMM Ship Finance Forum on 3 September. “The classic German KG model has become obsolete for the time being”, says Dr Torsten Teichert, chairman of the Management Board of Lloyd Fonds AG. He sees more international investors taking a role, while Dirk Lammerskötter, management board of HSH Corporate Finance, adds that US private equity companies will play a part.

Although a number of the traditional ship financiers such as HSH and Unicredit are successively reducing their commitment, the public sector KfW IPEX-Bank is increasingly moving into project financing. For example, it is financing two modern ro-flex ferries for the Finnish shipping company Bore-Rettig, to be supplied by Flensburger Schiffbaugesellschaft.

It is also involved in the newbuilding of a crane lift ship for offshore wind turbine assembly for HOCHTIEF Solutions, in construction at Crist shipyard in Poland, added Dr Carsten Wiebers, head of the bank’s Shipping Department.

However, bank regulations are becoming more and more stringent (Basel II and III), which means that most of the banks find it hard to work with this volatile industry. So far the expectations that an Asian bank would fill the gap by moving into this sector in a big way have not been fulfilled. As a rule such arrangements operate with a linked package deal whereby a ship built by a South Korean or Chinese shipyard also gets a funding arrangement or credit guarantee from these countries.

So in Germany more attention is now directed towards alternative financing instruments such as borrower’s note loans, profit participation capital, and ship mortgages. Some of the major international shipping companies are already stock exchange listed, or can get access to the capital market by means of bond issues, an approach used by Hapag Lloyd.

Investors currently benefit from an extremely favourable price level. “I think the risk-return ratio is at present the best it has been for many years”, said Dagfinn Lunde, director of DVB Bank and a panel participant at the SMM Ship Finance Forum. That is also confirmed by the figures from Clarkson Research. “Compared with their peak in 2008, shipbuilding prices have dropped by 30 or 40%”, said Dr Martin Stopford, managing director at Clarksons.

There is no doubt about it, the crisis does give investors worthwhile openings. Newbuildings are mostly more energy efficient than ships in the current fleet, so that is very useful in view of the dramatic rise in fuel costs. Individual shipping companies are already thinking of adding to their fleets, provided they find the right financing partners.