Since 2008, it has been well publicised that the traditional European and US banks have worked hard to reduce their exposure to the volatile shipping markets and ran down their portfolios, Gibson Shipbrokers said in a report.
Similarly, many of the recent IPO offerings have failed to attract strong levels of interest, often resulting in disappointing failure to reach target price. Next came the US hedge funds which for a while became ‘quite sexy’ for investors but lost their appeal, as once again the volatile shipping markets put an end to earning a ‘fast buck’ for those seeking a quick return from that vehicle.
Enter China!
Many shipowners have have taken advantage of China’s enthusiasm to enter the finance market, including several well known tanker owners.
For example, Scorpio Tankers announced in its second quarter results that in April this year, the company sold and leased back 2013 built MRs to an ‘unaffiliated third party’ for a total sale price of $87 mill.
In September, Scorpio followed this up with a similar sale and leaseback for five more 2012 MRs for $27.5 mill each. In both cases, the deal was concluded through the Shanghai Bank of Communications Financial Leasing (BoComFL).
Similarly, Teekay Tankers announced in its 2Q17 results that a $153 mill sale and leaseback financing transaction involving four modern Suezmaxes, again BoComFL were the financiers.
But perhaps the biggest BoComFL deal to come to light thus far is the financing (if not all, part) of the estimated $1.3 bill 32 tanker order announced by Trafigura in June. Full details of the project are still to be revealed; however, many of the orders to build Suezmaxes, LR2s and MRs in yards in China and South Korea announced thus far, appear to have BoComFL financial backing, Gibson said.
Several Chinese financial institutions have sprung up over the past few years keen to fill the gap left by traditional lenders, in part to support domestic shipbuilders, leasing vessels back to international ‘blue chip’ owners.
This has raised concerns about the ease of raising finance to build more ships for oversupplied markets. However, the ‘blue chip’ companies are less likely to default on loans. Even so, Chinese financiers are keen on the sale and leaseback deals because lenders are still worried about payment defaulting.
Under this arrangement, the banks can more easily take control of the asset should the leasing company default on payments. Gibson said that its records indicated that BoComFL currently finance around 5.2 mil dwt tanker tonnage spread amongst refinancing existing tonnage and newbuildings, but precise data is difficult to obtain.
The Industrial & Commercial Bank of China portfolio is estimated at 2 mill dwt of existing tanker tonnage but this particular bank is more heavily involved in financing in a wide range of shipping sectors. However, Minsheng Financial Leasing, one of China’s largest lessors is reported to finance more than 300 vessels, more than doubling their portfolio in three years with tanker tonnage representing 15% of this total.
Clearly, China has once again built a formidable challenge to the traditional western players, in yet another service sector of shipping, but this should hardly be viewed as a surprise, Gibson concluded.