OECD COUNCIL WORKING PARTY ON SHIPBUILDING (WP6) … 2.2 HDA Conseil_- Impact of Ship...

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OECD COUNCIL WORKING PARTY ON SHIPBUILDING (WP6)

WORKSHOP ON SUPPLY AND DEMAND IN THE SHIPBUILDING INDUSTRY

Ship Finance and its possible impacts on excess capacity

Henri d’Ambrières

HDA Conseil 9 November 2015

The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 1

Agenda_______________________________________________________________________________________

1. What’s new since 2008 ?

2. Is Aircraft Financing a benchmark ?

3. The Drivers of the Financing of the Shipping Industry A. The fleetsB. Pricing of the assetsC. Drivers of the financingD. Possible sources of financing

4. Global Shipping FinancingA. Global VolumesB. Sources

5. Trends

_____________________________________________________The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 2

What’s new since 2008 ?_______________________________________________________________________________________

A new paradigm in worldwide Trade

Before 2008, growth in Trade was the double ofthe GDP growth

Since 2012, both growth are similar

Source WTO

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What’s new since 2008 ?_______________________________________________________________________________________

The bank crisis : more equity but a similar volume of loans

Source Basel Committee for Banks Supervision

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Aircraft Finance and Shipping Finance_______________________________________________________________________________________

Common points - LT assets moving worldwide- Asset based financing (possibility of mortgages)- A limited number of countries of productions- LT financing more complicated with commercial banks

But…


Aircraft Finance_______________________________________________________________________________________

The market is driven by passangersA regular growth, resilient to crisis (cf Gulf Crisis, 9/11, Lehman,…)

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The fleetWill double over the next 20 years (being almost fully renewed)

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A regular growth of the total financing (source Boeing)

With less ECAs support and more capital markets

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The Drivers of the Financing of the Shipping Industry_______________________________________________________________________________________

Drivers of a financing : cash-flows

1. Operating cash flows

2. Sale of the assets

The fleet

New orders, orders book, deliveries, total fleet

The financial products

The financial actors

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The Drivers of the Financing – Cash flows_______________________________________________________________________________________

Operating cash flows are unstable, mostly for pricing reasons

Seabourne world transport decreased by 5% in 2009 but recoveredin 2010. It is almost growing like Global Exports. (Source UNCTAD)

BDI divided by 7 in 5 years

Source : BRS

While unit prices vary a lot.__________________________________________________________________________________________________



Asset value : sharp variations over the time

both for new-built and for second-hand

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Future asset value very difficult to predict : second-hand over newbuilding in 2008 !

_________________________________________________The Shipbuilding Industry - Impact of Shipping Financing - Nov. 2015 12

The Drivers of the Financing : the Fleet _______________________________________________________________________________________

2004-2014 : A growing (+ 84%) and younger fleet (<10 years in 2014 vs >12 y in 2004)



A more reasonable order book (< 20% of the fleet)

Representing 3,2 y of deliveries (vs 6,0 in 2008 and 1,5 in 2012) (impact of delayed deliveries) Source BRS

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The Shipbuilding Industry - Impact of Shipping Financing - Nov. 201514

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Order books (M tpl)

New Orders Deliveries Order Book Orders/ Fleet(%)


The fleet expanded more rapidly than seabourne trade from 2007 until 2011

and the gap has not reduced since then (1,27 for 4 years) Sources : IHS, UNCTAD

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The Drivers of the Financing : Providers_______________________________________________________________________________________

The providers : an evolving market with multiple and new players

Deliveries in 2014 : 63% of the peak reached in 2011 Souces SAJ, IHS


Global Shipping Financing - Products_______________________________________________________________________________________

The different financial instruments requested for the financing of a ship

Equity of the owner- Through retained earnings or capital marketsBy investors (including PE, family offices,…)

Debt for the shipyard (pre-delivery) or the owner (post-delivery)- Through loans- Through capital market instruments- Through leasingBy public institutions, commercial banks or capital markets

+ derivatives (Interest rate swap – cross currency swap)

Technical Guarantees for the shipyard (pre-delivery)By public institutions, commercial banks or insurers

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Global Shipping Financing - Providers_______________________________________________________________________________________

Public institutions (Development banks, ECAs,…)(very) long-term view, low expectations in terms of returns, possibility to absorb lossesCan provide, mostly for new-built :- Equity- Pre-shipment financing- ECA loans regulated by SSU (Direct lending)- Untied ECA loans (direct lending)- Technical guarantees- Guarantees for bond issuances or banks’ loans- Insurances for banks’ loans

Commercial banksMedium-term to long-term view (5 to 10 years), mid-level expectations in terms of returns, possibility to absorb some lossesCan provide for new-built or second-hand- Pre-shipment financing- Funding for ECA loans regulated by SSU or Untied ECA loans (with large

durations)- Unsecured loans (with shorter durations)- Technical guarantees_____________________________________________________


Global Shipping Financing - Providers_______________________________________________________________________________________

Pension fundsLong-term view (> 10 y and dependent on operating income), mid-level expectations in terms of returns, no possibility to absorb losses (need for regular cash-flows)Can provide funds for new-built or second-hand- loans, - bonds (with or without an ECA cover)

Equity Investors, PE funds, Hedge Funds,Short to Medium view (< 6-8 y and highly dependent on asset-value for rapid returns), high-level expectations in terms of returns, possibility to absorb losses, Can provide- Equity- Loans or bonds (usually without any ECA cover to maximize returns)Could in theory fund new orders but in practice today focus on second-hand (in distressed portfolios or not) ships to boost returns through future disposal of assets.

Hedge FundsShort-term oriented, they prefer short-term volatility rather than long-term variations

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Global Shipping Financing_______________________________________________________________________________________

Global Volumes now at 80/90 bn USD

(Marine Money)

With banks covering 60%

(and not 90% as in 2008

after the Lehman choc !)

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The Shipbuilding Industry - Impact of Shipping Financing - Nov. 201520


Global Shipping Portfolio League Tables 2008 & 2013

(Marine Money)

The 27 largest banks hold less assets (-9%)

Some banks disappeared (Llyods, Natixis,..)

or might disappear (RBS)

Most actors still active reduced their portfolio

(by more than 25% for 7 banks)

Only 3 increases > 25% (ICBC, SEB, SMBC)

Entrance of new actors often coming

from Asia (SMTB, CBA, Stand Chart)

the public sector (EksportFinans/Kreditt)

the Asian Public Sector (BoC, Kexim, Cexim, CDB, KDB)

+ other new comers : DBS, Clifford Capital,…

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2013 200838Bank of Ireland 0,6 -67%

37CIC 1,8

36Dekabank 2,0

35CBA (Australia) 2,3

34SocGen 2,5

33Helaba 2,7 -23%

32Alpha Bank 2,8 4%

31KDB 4,0

30Bank of America 4,0

29EksportFinans 4,9

28Swedbank 5,3

27Standard Chartered 5,5 1,8JP Morgan

26ICBC 6,9 #### 1,8Bank of Ireland

25Unicredit 7,1 -37% 2,0Piraeux Bk

24Danske Bank 7,5 -9% 2,2ICBC

23Deutsche bank 8,1 -28% 2,7Alpha Bank

22SEB 8,2 26% 3,5Helaba

21Bremer LB 8,2 -18% 5,0Natixis

20ABN Amro 8,3 ND 5,1Fortis (BNPP)

19Danish Ship Finance 9,0 -20% 6,5SEB

18HSH Nordbank (Non Core) 9,6 8,2Danske Bank

17Citibank 10,2 7% 9,5Citibank

16SMTB 11,6 ND 9,6SMBC

15SMBC 12,0 25% 10,0Bremer LB

14Nord LB 12,7 ND 11,2HVB (Unicredit)

13CDB 12,8 ND 11,2Danish Ship Finance

12BNPParibas 12,8 -25% 11,3Deutsche bank

11China Exim 14,4 ND 12,0BNPParibas

10RBS 15,0 -50% 12,2Llyods/ HBOS

9DVB 15,1 3% 13,0BTMU

8Kexim 15,5 ND 14,6DVB

7Bank of China 17,0 ND 18,7CA CIB

6CA CIB 18,0 -4% 19,5Nordea

5Nordea 18,3 -6% 20,7KfW Ipex

4HSH Nordbank (Core) 19,3 -50% 30,0RBS

3KfW Ipex 19,7 -5% 36,0DNB

2Commerzbank 19,8 -56% 44,8Commerzbank (DSB)

1DNB 24,0 -33% 58,0HSH Nordbank

Top 27 347 -9% 381


Detailed data (Marine Money))

The loan syndication market is recovering

With larger durations (but below 2007 levels)

With reduced pricings (100 to 300 bps, still

above 2007 levels)



EEEquity markets remain aactive

s and some operations are still possible in the bond market !

Source Marine Money

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A growing involvement of ECAs (x 2,5 in 8 years)

Total provided through export credits over 9 years $ 98 bn (OECD - ECG)

Total provided with an ECA over 9 years $ 93 bn (Dealogic)

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Global Shipping Financing – Export Credits_______________________________________________________________________________________

Can the Dealogic data be consistent with the data of the ECG which do not include Chinese data ?China Exim had a shipping exposure of $ 16 bn in 2014Sinosure supported projects for $ 24 bn from 2008 to 2014.And CDB – China Development Bank and ICBC ?

What about off-shore financings, supported by ECAs ?

Are interventions of ECAs other than Export Credits taken into account ?Where do untied loans appear ?Where do investment support appear ?What about pre-shipment financings ? Technical bonds ?

Where do appear other public supports granted by vehicles (development banks,…) other than ECAs? _________________________________________________


Preliminary observations_______________________________________________________________________________________

A sector difficult to finance :• A growth in the fleet difficult to explain, creating prices volatilty• Difficult to predict cash-flows available to pay for investments• Hence a need for lower LTV ratios and more equity or Sub Debt• Probable need for a detailed analysis of some sub-segments(recognizing the fragmentation of the shipping markets, which has many asset classes vs three main types of large aircrafts)

Today, capital markets reluctant towards new-built and focused on existing vessels

New-built mostly supported by “operators” and public institutions

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What next ?_______________________________________________________________________________________

Fine tuning on sources of financing and other financial instruments

Future trends to be commented with existing stakeholders and new entrants with case studies

Links between available financings and expansion of the fleet

Impact of public policies

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Sources of information_______________________________________________________________________________________

Public data (BRS, Clarksons, Marine Money, SAJ, IHS, WTO, OECD, …)

First meetings in Seoul, Tokyo, Hong-Kong with public institutions, banks, ship-ownners

First meetings in London and Hamburg with brokers, banks, ship-owners

More meetings to come with public institutions, brokers, banks, ship-owners, shipyards,…

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Scope of the assignment_______________________________________________________________________________________• Generation of descriptive data on new forms of finance for the shipbuilding industry

• The providers of ship finance • The instruments used • The obligors • Potential particularities of certain market segments

The report will include information (volumes, trends and anecdotal evidence, including case studies) on:• The instruments and practices used to support the sale and financing of ships at the stages of

contracting, construction and post-delivery phases• The factors that have an impact on access to ship finance (financial regulation, situation of financial

markets,…)

• Identification of recent government policies having an impact on ship finance• The role played by Export Credit Agencies that has apparently increased in recent years, through

export credits or other instruments;• The role played by governments and other public financial entities, through financial support, other

than Export Credit Insurances, to shipyards for their export contracts;• Other policies that may have an impact on ship finance focusing

The report will also consider• How these public policies interact with overcapacity and market disruptions and whether they

decrease or even increase volatility;• Which measures cause significant market distortions in segments of the shipping market, for

shipyards and, if applicable, for the marine equipment industry;• Priority needs for action to address market distortions (in pre-delivery financing as well as post-

delivery).


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