The City of London Third Biennial MeetingThe City of London Third Biennial MeetingLondonLondon
The Challenges and Prospects in the Banking
Arena for Shipping
Alpa Shah
SVP & Head of Distribution, DVB Bank AG
Page 2
ContentsContents
DVB at a glanceDVB at a glance11
22 The Requirement for Ship Finance & ProvidersThe Requirement for Ship Finance & Providers
33 ConclusionsConclusions
Page 3
Transport FinanceTransport Finance
AviationLand
TransportShipping
Sectors of DVB
Page 4
Land Transport
12%
Shipping54%
Aviation34%
Transport Infrastructure
3%
DVB at a glance….DVB at a glance….The Transport BankThe Transport Bank
RWARWA
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BergenBergenHamburgHamburgLondonLondon
RotterdamRotterdamPiraeusPiraeus
New YorkNew York
CuracaoCuracao
TokyoTokyo
Hong KongHong Kong
SingaporeSingapore
AmericaAmerica EuropeEurope Asia/PacificAsia/Pacific
Coverage of DVB ShippingCoverage of DVB Shipping
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DVB Shipping - Key Figures DVB Shipping - Key Figures
9 regional marketing offices
We have financed over 850 ships
Number of people involved in shipping: 70
We are not only a shipping bank…We are not only a shipping bank…
But a shipping expertise bank!But a shipping expertise bank!
Activity 2001/2002 2001 2002
Gross Managed Portfolio $ 5.496 mn $ 6.124 mn
Net Portfolio $ 4.238 mn $ 4.623 mn
Underwriting $ 1.790 mn $ 1.723 mn
Syndicated to third parties 24,5% 31,6 %
Average deal size $ 21.6 mn $ 24,3 mn
New Transactions 83 71
Number of Clients 229 207
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Shipping Expertise…..Shipping Expertise…..
We finance
visions. We have
done so for a hundredyears, and
we willcontinue to do so.
Finance is a people’s business. No matter how great your plans
are, it takes the right people with the right knowledge to
understand the opportunities and the risks. We at Nedship Bank
have specialized in shipping finance since 1899, and have thus
gained the experience required to put us in the lead – and to keep
us there.
Wherever you are located in the world, if you have great plans to
realize, let us share with you our knowledge of modern finance.
DVB, Shipping Division, Rotterdam
Phone: + 31 10 206 79 00
Fax: +31 10 436 2957
2001: Best overall knowledge of the Tanker Sector: DVB Nedship
2000: Most innovative ship finance institution worldwide: DVB NedshipBank
Lloyd´s SHIPPING ECONOMIST:
2002: Most professional overall finance service to shipping: DVB
Maritime Asia:
1999: Best Ship Finance Bank in Asia: DVB
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ContentsContents
DVB at a glanceDVB at a glance11
22 The Requirement for Ship Finance & ProvidersThe Requirement for Ship Finance & Providers
33 ConclusionsConclusions
Page 9
Capital Requirement 2003*/2004/2005
Capital Required Capital Required Newbuildings – 70%Newbuildings – 70%
2003200311,2bn11,2bn
2004200417,3bn17,3bn
2005200517,0bn17,0bn
Capital Required Capital Required S&PS&P
Capital RequiredCapital Required
200320032,5bn2,5bn
200420045,7bn5,7bn
200520055,7bn5,7bn
2003200317,6bn17,6bn
2004200429,1bn29,1bn
2005200528,7bn28,7bn
*2nd half 2003
Top-up 35% for unregistered contracts
+3,9bn
+6.1bn
+6.0bn
+ + + +
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Who Provides Ship Finance?
Yards
Financial Institutions
Export Credit
Institutions
Capital Market (through
Investment Banks)
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Put another way - where does the finance come from
Syndicated Bank Lending
42%Global Ship
Finance Loans 10%
- Bilateral Lending- Internal Equity Finance- Credit Leasing- Shipyard Finance- Venture Capital- Government
KG/KS Schemes4%
Bonds/Public Equity 5%
39%
Sources of Finance:
Source:Lloyd’s Shipping Economist/DVB
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Financial Institutions – Bank Debt
Main source of Ship finance
“Money is cheap”
160bn USD of outstanding shipping loans (Petrofin Research)
Number of banks involved in shipping has decreasedBank market consolidationEg: -CAI/CL -HSH Norbank -Nordea to name a fewStrategic decision to reduce shipping activitiesNew entrants unlikely, at least of significant size.Recent new entrants include Chinese banks and increased activity by KEXIM
Situation with the Landesbanks
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Financial Institutions – Bank DebtWhat areas does the finance come from
16%37%
32%
15%
Scandinavian
US
Asian
European
Lead arranger roles:
Source:Lloyd’s Shipping Economist
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Global Shipping banks by portfolio size:Source: Nordea/Lloyd’s Shipping Economist
0 5 10 15 20
Danish Ship FinanceHSBC
DnBCommerzbank
Deutsche SchiffsbankNordea
The Royal Bank of ScotlandKfW
Hamburgische LandesbankNational Bank of Greece
Fleet BankCredit Lyonnais
NatexisLloyd's TSBSE Banken
Credit SuisseNord LB
Deutsche Bank/SHLCitibank
Vereins und WestbankCAI
BNP ParibasBank of Scotland
INGFortis
Bank of Nova ScotiaABN Amro
JP Morgan ChaseDVB
USD Bn (estimates)
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Financial Institutions – Bank Debt
Prospects and Challenges for Bank Debt providers:Fiercer competition between the dedicated shipping banks- yet lower margins- greater pressure on banks’ return- consolidation in the Ship Finance industry resulting from further banking consolidation? - increased focus on relationship banking
Basel II will not make it easier for smaller owners Tightening credit criteria might result in an increase in high-yield bond issuance
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Investment Banking:Capital Markets - Equity
Public Market provides approximately 5% of Equity in shipping
Gives access to capital (and promotes transparency)
1993: Starting point for an increase in shipping IPOs2003: Starting point for an increase in shipping de-listings? (ref:OSE)
Challenges and Prospects:
Investors have been burnt by Shipping IPOs
The Shipping Industry – Over-populated with under-capitalised companies?
Recent Exists:
Leif HoeghBergesen
Awilco
Recent Year Highs:
FrontlineTeekay
OMIOSG
Stelmar
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Investment Banking:Capital Markets - Equity
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Top Companies, Charterers and Shipping Companies
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Market Cap - Shipping Companies w/o Carnival and Royal Caribbean
0
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Investment Banking:Capital Markets - Equity
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Investment Banking:Capital Markets - Equity
Challenges and Prospects:
Investors have been burnt by Shipping IPOs
The Shipping Industry – Over-populated with under-capitalised companies?
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Investment Banking:Capital Markets - Bonds
Current cheap finance from shipping banks should in principle make bonds less attractive…however;
High-yield bonds (“Junk-Bonds”) seem to be getting popular again…..
Again we have seen “B” rated shipping credits
Approximately 1.3bn issued to shipping
Challenges and ProspectsLate 90s are not forgotten so easily
Selective retail market
Private placement market
“Consolidation”• Genmar - Metrostar• Teekay - Navion• MISC – AET fleet
(from NOL)• World-Wide –
Bergesen• Carnival – P&O
Princess
Bond Issues• Teekay• Genmar• CMA CGM• CP Ships• Stena• OSG• Carnival
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ContentsContents
DVB at a glanceDVB at a glance11
22 The Requirement for Ship Finance & ProvidersThe Requirement for Ship Finance & Providers
33 ConclusionsConclusions
Page 22
Banking: The Full Service Approach
The trend: A one-stop-shop
Increased emphasis on:
Corporate Finance departments:Lease transactions providing clients with attractive funding levels and the required balance sheet treatment of their assets.
Advisory/M&A departmentsFollowing the consolidation trend advisory services will play an increasingly important role
Investment FundsSo far a great success for those who have started
Other Products
Cash management, treasury funds and bunker hedging.
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SUMMARY
Commercial Banks continue to be the main source of finance for shipping.
Banks will focus more on additional products creating fees.
Consolidation in the Ship Finance world is not unlikely.
Chinese banks are getting more aggressive (beat Japan’s banks in 2002) and Kexim is coming strongly.
Only the really big players will have access to the Capital Markets and any sign of asset play tendencies will again ruin the shipping companies reputation.- Consolidation of Shipping companies will continue.
Thank youThank youfor your attention !for your attention !
The City of London Third Biennial MeetingThe City of London Third Biennial Meeting
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Finance Requirement – S&P
2nd hand value 1996 1997 1998 1999 2000 2001 2002 2003Tankers 2498 2320 1750 1437 3055 4620 1744 3239Bulkers 1810 3055 1451 1857 2053 1548 2421 2380Containers 1333 868 819 703 1416 971 1513 1864Others 3999 3136 1995 1481 1128 2285 1955 2137TOTAL 9640 9379 6015 5478 7652 9424 7633 9620
Average Value Over 8 years: USD 8,1 bn 8,1bn @ 70% finance = 5,7 bn
CAPITAL REQUIREMENT FOR EXISTING TONNAGE – Strictly S&PCAPITAL REQUIREMENT FOR EXISTING TONNAGE – Strictly S&P
Raw data: Clarkson Research
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Finance Requirement - Newbuilding
Orderbook Delivery Value Delivery Value Delivery Value2003 2003 2004 2004 2005 2005
139mn DWT: 32,3mn DWT 54mn DWT 52,7mn DWT
Mn DWT USD bn Mn DWT USD bn Mn DWT USD bnTankers 17,9 7,3 25,8 9,7 26,3 10,4Bulkers 6,2 2,0 15,7 4,8 15,2 4,5Containers 4,0 3,2 8,0 6,3 8,1 6,8Others 4,2 3,6 4,5 3,8 3,1 2,6Total Building Cost (USD bn): 16,1 24,6 24,3
70 % finance (USD bn) 11,3 17,2 17,0Unregistered newbuilding contracts are estimated to increase this by 35-40%
FINANCE REQUIREMENT FOR FINANCE REQUIREMENT FOR REGISTEREDREGISTERED NEWBUILDINGS NEWBUILDINGS
As from June 2003As from June 2003
Raw data: Clarkson Research / Drewry / MSI
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Singapore Office
•Fortis•DNB•DBS
Hong Kong Office
•HSBC (HK)•CAI•BNP•HSH NordbankNew York
Office•Fortis•Nordea•DNB
London Office•Nordea•CAI•HSH Nordbank•DNB
Hamburg Office•HSH Nordbank•Deutsche Schiffsbank
•Commerzbank
Bergen Office•DNB•Nordea•HSH Nordbank
Main Competitors by regional office
Piraeus Office•Royal Bank of Scotland•HSH Nordbank•Deutsche Schiffsbank•National Bank of Greece
Rotterdam Office•CAI•HSH Nordbank•Deutsche Schiffsbank
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Yards/Export Credit Institutions
Finance on attractive terms – through export credit agencies
The 1994 OECD Shipbuilding Agreement- Ratified by certain countries- Unlikely to ever come into force
Negotiations for a new Shipbuilding agreement (end 2005) is undertaken by a Special Negotiation Group (SNG) consisting of both OECD and non-OECD members
The Never-Ending “EU-Korean” Story- Latest development is the counterclaim from Korea on EU’s Temporary Defensive Mechanism (TDM) (6%)
Report from the WTO Dispute Resolution Panel on the initial EU complaint should be available in October
THE DISPUTE SHOULD NOT AFFECT THE OECD WORK, BUT WILL IT??
