CURRENT TREND IN SHIP FINANCE IN THE CHEMICAL · PDF fileCURRENT TREND IN SHIP FINANCE IN THE...

TH Chemical & Product Tanker Conference - London 12 March 2014

CURRENT TREND IN SHIP FINANCE IN THE

CHEMICAL AND PRODUCT TANKER SECTORS

Frans van de Bospoort

Managing Director Tanker Group

Agenda

2 Tanker markets in short

3 Ship finance market

1 DVB

4 A Finance example

5 Takeaways

4 Challenges for shipping banks

SHORT QUIZ (1)

• WHAT SHIPPING SECTOR HAS THE BEST FUNDAMENTALS FOR GROWTH ?

(Dry bulk, Container, Crude, Chemical, Products, LPG ?)

• ARE NEWBUILT PRICES AT THE BOTTOM OF THE CYCLE ?

• ARE BANKS TO BLAME FOR SHIPPING’S MALAISE ?

• HOW MUCH HAS THE CONTRACT PRICE OF AN 50K DWT MR PRODUCT TANKER MOVED SINCE THE

LAST YEAR’S CONFERENCE IN MARCH 2013 ? WHAT ABOUT THE 1 YEAR TC RATE ?

SHORT QUIZ (2)

SHORT QUIZ (3)

•Contract Price 50k dwt IMO 3 Product Tanker (Korea) March 2013: USD 33 mln

March 2014: USD 37.5 mln

+ 14%

• One year TC in March 2013: USD 13,500

March 2014: USD 15,000

+ 11%

Introducing DVB

DVB Facts

Global Presence Through 14 Offices

• Listed: Frankfurt Stock Exchange

• Market capitalisation >EUR 1.1bn

• Rated A+ for long term debt by S&P/Fitch (August 2012)

• Majority owned (95.45%) by DZ Group, the largest co-operative banking group in Germany

• EUR 20 bln loan book

• Over 500 clients, all active in the transport sector, worldwide

• Over 500 professionals, all specialising in transport finance

Bank Structure

Shipping Aviation Land Transport

Risk Distribution

Loan Participations

Research in Shipping, Aviation and Land Transport

Investment Management

Investment Banking

Structured Asset Finance

New York

London

Rotterdam

Piraeus

Singapore

Curacao

Bergen

Hamburg

Frankfurt

Oslo

Tokyo

MonacoZurich

Cardiff

Demand outlook - for chemical, LPG & product tankers

Shipping Finance – DVB’s Specific sector expertise

Container, Car Carrier, Intermodal & Ferry Group(container vessels, container boxes, car carriers, reefers, ferries and RoRo’s)1

2

3 Dry Bulk Group(barges, dry cargo, combination and bulk carriers)

Tanker Group(crude, product and chemical tankers and LPG & LNG carriers)

DVB – Tanker Group

• Shipping Portfolio of DVB is USD 12.6bln as of March 2014 (excl Offshore)

• Of which USD 5.4 bln in Tankers (approx 45% of Total Portfolio)

• USD 1.3 bln exposure in Chemical (10%) and USD 1.5 bln in Product Tankers (12%)

• Team of 15 highly experienced shipping bankers

• Strategically Based in Bergen/Oslo, Athens, London, NY and Singapore

• Finance > 300 chemical & product tankers for approx 65 owners

• Closed 30 transactions in 2013 with new loan volume of USD 950 mln

• Open for new business (DVB Shipping 2013: approx 90 new transactions with volume of USD 3.bln)

Tanker Market in short - Products

• Forecast for growth in demand for seaborne products transportation = 10% from 2014 – 2016

• Supply Fleet Profile and Order Book:

Tanker Market in short - Chemicals

• Forecast for growth in demand for seaborne chemical transportation = 13% from 2014 – 2016

• Supply Fleet Profile and Order Book:

(European) Bank Funding remains expensive

Higher pricing also means

reduced capacity to lend

Demand outlook - for chemical, LPG & product tankers

Shipping Banks Landscape

Banking market

• Large number of established shipping banks stopped its ship finance business or sold

portfolios. Very limited number of banks remain open for new business

• Nevertheless, sentiment is improving. Recently, we saw some established shipping banks

coming back to the market but strong focus on credit quality and mainly open for existing clients

(stricter lending policy). Even new shipping bank established: Marine &Merchant

• Funding cost are coming down from peak levels in 2011/2012

• Shipping portfolios negatively affected by lower asset values, tight cash flows

• Banks taking stricter measures: arrest, foreclosure, warehousing, restructuring

• Impact of Basel 3 regulations make asset finance less attractive

Sources of Funding

SOURCE AVAILIBILITY March 2013 March 2014

•Public Equity Markets NO YES

• Public Bond Markets NO YES

•KG/KS NO / LIMITED NO / LIMITED

•Private Equity / Private Placements LIMITED YES

•Mezzanine Finance LIMITED LIMITED

•Traditional Bank Debt LIMITED LIMITED

•ECA Finance YES YES

•Sale & Leaseback LIMITED LIMITED

•Insurance Co’s and Pension Funds NEW LIMITED

Growing role of Export Credit

• Mostly in Korea (KEXIM – KSURE / CEXIM / SINOSURE)

• Big tickets possible

• Always in co-operation with commercial banks, but share can vary per project

• Funded, covered or insured by Export Credit Agency (“ECA”)

• Not as flexible as commercial bank debt

• Long lead time

• Need corporate recourse or long term charters attached, or combination of both

• Not cheap

• Refinancing existing vessels built in China possible via CEXIM

Private Equity

• Here to stay or flavor of the day ?

• Objectives of each PE fund vary from pure asset play to building a long term full flash operation

• DVB supports / leverages 45 different PE firms across the 4 transportation sectors

• Typically low leverage with lots a bells & whistles in the finance structure

• “OPM” in some cases to be spend within

certain time frame……..

• Pillar for consolidation in certain sectors

• Teaming up with reputable owner

• USD 5 bln so far invested in “disstressed loans

I heard shale gas is the new buzz,

let’s call the guys and order some

VLCC’s with the Koreans

Challenges for Shipping Banks (1)

Cashflow

Asset

(Residual Value)Recourse

HOW BANKERS THINK………..


Consumption & Emissions

Eco design

‒ to maximize fuel efficiency and to minimize harmful emissions

‒ Two, or even three, tier market?

‒ will the yards match owners/charterers expectations?

Sulphur Emission Control Areas (SECA)

‒ further pressure on already high bunkers costs

Energy Efficiency Design Index (EEDI) => more requirements to come?

Ballast Water Treatment

= IMPACT ON VESSEL VALUES IN NEAR FUTURE ?


Banks

Demanding regulatory environment

Basel III impact

Negative perception ship finance industry (especially in Germany)

Kicking the can down the road versus facing the music

Shortening economical life of a non-Eco vessel and impact on fleet

valuations / bank portfolios.

EBA

CRD IV

CRR

CCP

ESMA

MaRisk

Technical

standards

FSB

LCR

NSFR

EMIR

Leverage ratio

KWG

CEBS

SolvV

MiFID

MiFirEU-COM

EP

CVA

FINREP

COREP

FATCA

EIOPA

ITS

RTS

ESA

ESFS

Single

rulebook

ESRB

GroMiKVInstitutsVergV

IAS9

ICAAP

NSA

BCBS

ASF

IAS13

...the regulatory tsunami

Finance Example 1 - MR Product Tanker

New Building MR Product Tanker (Post delivery only)

2008 Now

New Building Price USD 50 mln USD 38 mln

Full Pay-out loan profile 18 years 15 years

Tenor 10 years 5-7 years

Leverage financing 75% (USD 37.5 mln) 60% (USD 23 mln)

Margin / Fees 1.25%/ 0.75% 3.25%/1.5%

Average TCE (opex USD 6.5k) USD 16,000 USD 13,500

WHAT IS A BETTER DEAL FOR THE BANKS ?????????????

- counter cyclical finance

Finance Example 2 - 20 s/s Chemical tanker Tanker

New Building MR Product Tanker (Post delivery only)

2008 Now

New Building Price USD 50 mln USD 35 mln

Full Pay-out loan profile 18 years 15 years

Tenor 10 years 5-7 years

Leverage financing 75% (USD 37.5 mln) 60% (USD 21 mln)

Margin / Fees 1.25%/ 0.75% 3.25%/1.5%

Average TCE (opex USD 6.5k) USD 15,300 USD 13,200

WHAT IS A BETTER DEAL FOR THE BANKS ?????????????

- counter cyclical finance

Conclusion of session - the sandwich effect…

Unless cash rich,

or strong balance sheet

Shipping markets

Financial markets

OWNERS may find themselves

“sandwiched” by

Low charter rates

High bunker costs

Increasing OPEX

Increased vetting

requirementsEnvironmental requirements

Increased margins/fees

Lower LtV’s

Limited finance available

Increased covenant

requirementsPE / Mezz costly

Otherwise:

Different layers &

pockets of funds

Way out?

• 5 “C” in Singapore (Cash, Condo, CreditCard, Car, Country Club)

• 5 “C” for Shipping Finance:

1) Cash (focus on liquidity, create a buffer and monatizing balance sheet)

2) Credit is available in different layers but has its price. Close relationship with banks

3) Consolidation to gain substance (new platforms supported by PE, mergers, fleet acquisitions)

4) Complexity in operations and finance, make it as transparent and clear as possible to stakeholders

5) Cargo (get as close to cargo as possible by way of JV with cargo owners or contract coverage

Thank you for your attention!

Frans van de Bospoort

DVB Group Merchant Bank (Asia) Ltd.

77 Robinson Road # 30-02

Singapore 068896

www.dvbbank.com

[email protected]

Phone: +65 9144 6394

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