The New Normal in Shipping FinanceHarris Antoniou
Capital Link Greek Shipping Forum 201023 February 201023 February 2010
Merchant Banking | Energy, Commodities & Transportation | 2
Table of Contents
1. Ship finance today
2. How to deal with it - alternatives
3 F ti B k N d l d itt d t hi i3. Fortis Bank Nederland - committed to shipping
Merchant Banking | Energy, Commodities & Transportation | 3
The Ship Finance Cycle
High returns in shipping
Higher margins for Non-shipping Current position in the
Ship
counter cyclical lending
banks enter the market
IncreasedNon-shipping
cycle but with the unique difference that the financial crisis has limited the lending Ship
Lending Cycle
M k t Reduced
Increasedcompetitionbanks leave
the industrycapacity of traditional shipping banks.
E l f Cheap debt leads to
Market Collapses
Reduced margins
Excess supply of tonnage
C eap deb eads oaccelerated borrowing
Merchant Banking | Energy, Commodities & Transportation | 4
Traditional Sources of Capital for Shipping
Bilateral Lending Internal equity finance
Bank Loans have traditionally satisfied approx. 75% of capital requirements
A severe shortage of bank debt is currently constraining the shipping industry an Internal equity finance
Shipyard finance Government Other Syndicated Loans
constraining the shipping industry, an industry that is heavily dependent on the banking market
Markets currently closed or extremely
40.2%36.2%limited activity.
Limited activity
Closed
2 5% 2% 6 0% 5 0% 8 0%
Closed
2.5% 2% 6.0% 5.0% 8.0%
Non shipmortgage loans
KG / KS markets
Bond &Public Equity
Tax Lease investors
Equity funds
Merchant Banking | Energy, Commodities & Transportation | 5
Funding demand remains high…
Expected need for ship financing May ’09 (60% leverage)
250
155
125150
200
bln
103 83 37
97
125
50
100USD
64 832537
02009 2010 2011 2012
Source: Clarksons
Equity Debt
Merchant Banking | Energy, Commodities & Transportation | 6
Credit tightness since mid 2008…..
Global shipping loans by volume in USD bln In 2007 approximately USD 100 bln was lent to the shipping industry in the syndicated and
100
non syndicated loan market
2008 showed a decline 50
75
with a further sharp decrease in 2009
25
50
02001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Dealogic, syndicated and significant bilateral transactions
Q1 Q2 Q3 Q4
Merchant Banking | Energy, Commodities & Transportation | 7
….and shipping finance continued to decrease
Global shipping loans: quarterly volume/number of deals
35 120
The high volume in 1Q09 was mainly driven by AP Moller Maersk’s USD 6.5 bln USD bln
77
96
74
9196
20
25
30
80
100debt restructuring
34 3424
33 3010
15
20
40
60
24
0
5
10
0
20
3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09
Source: Dealogic, syndicated and significant bilateral transactions
Merchant Banking | Energy, Commodities & Transportation | 8
Basically coming to a standstill in 2009
Global syndicated shipping volume
refinancings / restructerings new money
25.000
30.000USD mln
15.000
20.000
726
311
351
901
443
257
521
486
113
778
181
079
351
848
08 39 73 10
5.000
10.000
360
889
1.01
8
3.03
6
2.20
1
635
2.50
3
2.96
3
1.43
6
2.00
5
1.06
8
1.58
4
3.61
0
680
7.64
1
1.31
5
2.38
2
2.73
0
17.7
16.3
10.3
11.9
20.4
24.2
17.5
21.4
21.1
22.7
14.1
26.0
25.3
10.8
4.40
4.73
5.47
3.61
Source: Dealogic
03Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
3 8 1 3 2 6 2 2 1 2 1 1 3 6 7 1 2 2
Merchant Banking | Energy, Commodities & Transportation | 9
Trends in bank debt
Strict conditions Refocus on core clients & quality
names
Less Liquidity Many big players in ship finance have
significantly reduced activity due to:
Smaller facilities
Little syndicated loan activity, bi-lateral and club deals
Pricing increase
• pressure from governments to act more domestically,
• credit related problems due to aggressive lending during shipping
Pricing increase
Tighter covenants
Declined appetite for LT debt; increased premium for LT funding
boom ,• concentration risk resulting from
recent mergers• reduction of bank’s balance sheetsincreased premium for LT funding reduction of bank s balance sheets
So today it’s all about:
Core regions Core clients Core sectors – is this still shipping?
Merchant Banking | Energy, Commodities & Transportation | 10
Trends in Ship FinanceFinancing shortfall is significant
Conclusion: Major Shift in Ship finance has occurred
p Many big players in ship finance
have significantly reduced activity
Thi t k t l t 50% f th
g g
70
80
68.0Annual Shortfall
c. $13-30Bn
US$ Bn
This takes at least 50% of the lending capacity out of the market.
Demand for capital is very high 40
50
60
50.7
38.0
due to high new building order book. There is a big gap with the expected capacity in the banking market10
20
30Assuming
70% Order book
Deliverymarket.
0
Source: Marine Money, May 2009
Est. Annual New Building Financing Need ‘09 – ‘11
Est. Annual Lending Availability
How to deal with this ?y y
Merchant Banking | Energy, Commodities & Transportation | 11
Table of Contents
1. Ship finance today
2. How to deal with it - alternatives
3 F ti B k N d l d itt d t hi i3. Fortis Bank Nederland - committed to shipping
Merchant Banking | Energy, Commodities & Transportation | 12
Imbalance in capital supply and demand
Europe:
ClientsNorthAsia:
Funding
Clients
North
America:
Funding
Middle East:
Funding
Demand for and availabilityyof capital are not necessarily at the same part of the hemisphere
Merchant Banking | Energy, Commodities & Transportation | 13
Alternative sources of debt increase in relevance
New funds need to be sourced – from pension & insurance funds, sovereign wealth funds, Islamic funds, bond and equity market, commodity producers and traders, etc.
Part of the gap will be filled by DCM/ECM and private deals with institutional investors.
Public equity & high yield bond markets open up again, also for Shipping
Merchant Banking | Energy, Commodities & Transportation | 14
Investors looking for alternatives
…investors are looking for Long-term assets with a preference
for higher yielding
Instead of traditional investments… Institutional investors are reducing
exposure to traditional asset classes in particular equity Inflation protected
Low correlated risk
• Corporate bonds
particular equity
Very low yields on government bonds and recent sovereign concerns reduce their attractiveness
• Infrastructure investments
• Other long-term and low-correlated investments
Merchant Banking | Energy, Commodities & Transportation | 15
High yield bonds attractive substitute for loan debt
Structural benefits: More recession-resistant capital structure
Longest-tenor debt in capital structure
Interest rates is the next ‘Big Worry’ after this recession Borrowers looking to lock-in low fixed-
rate coupons via bond transactionsand ‘junior’ layer of debt
Diversify investor base and create trading liquidity for benchmarking and repeat issuance
rate coupons via bond transactions
Allows larger / more conservative borrowers to raise acquisition currency
minimize or avoid expensive equity issuance and dilution
borrowers to raise acquisition currency Bond market is increasingly re-opening
for acquisition related financings
Merchant Banking | Energy, Commodities & Transportation | 16
Fortis’ role in the new market (1/2)
Establishing (Shipping) Funds Investors will benefit from:
• carefully selected and diversified portfolio of new shipping loans
• attractive risk - return profile.• Limited risk exposure; financing of assets < 10 year historic average
values; conservative leverage position of 0 – 45% of current market valuesvalues.
• FBN’s expertise in the global ship finance, its existing client base and its 200+ years of history in this sector.
Direct participation in Fortis deals is also a possibility.
FBN and Qatari Investment bank QInvest created a mezzanine fund aiming to fill the gap between what is available in the banking market and equity portion.
Merchant Banking | Energy, Commodities & Transportation | 17
Fortis’ role in the new market (2/2)
Regional imbalance Asian surplus in liquidity and looking for
investment opportunities.
Capital Markets & Traditional banking FBN has access to the Debt and Equity
Capital Markets through a co-operation with Sunrise Securities Corp in New 95% of all vessel ship yards are in Asia,
looking for:
investment vehicles,
co sponsors
with Sunrise Securities Corp. in New York.
FBN will continue to find innovative solutions for Shipping Sector co-sponsors
experienced ship finance structuring parties
Asian investors start entering alternative
solutions for Shipping Sector
Asian investors start entering alternative investments
Asian yield requirements < US/EU yield requirements
Merchant Banking | Energy, Commodities & Transportation | 18
Table of Contents
1. Ship finance today
2. How to deal with it - alternatives
3 F ti B k N d l d3. Fortis Bank Nederland
Merchant Banking | Energy, Commodities & Transportation | 19
Fortis has a long track record the ECT Industries
Energy Commodities Transportation Principal Finance Clients active from upstream to distribution: Offshore Oil (field)
Clients active in: Agri Metals
Energy
Clients active in: Deep sea shipping
industry Intermodal
Direct investments activities in ECT industries
Portfolio of assets( )and Gas services
Power & Utilities Carbon Banking Renewables
Energy Aviation
Portfolio of assets in projects related to and companies active in these assetsTop 5 Top 3 Top 5
Shipping syndicated
loan markets
Oil field services industry
Commodity bank
worldwide
Merchant Banking | Energy, Commodities & Transportation | 20
We have come a long way since last year…
Some of our Transportation Group Milestones 2009 25 deals over US$ 800 mln Announcement of new strategy (May) T joins up with Forum of the Future (July) T together with Capital Link organises first ever Shipping Webinar
(23 september)( p ) Opening Singapore office + booked our first deals (16 October) Q-Invest – 12 November
Merchant Banking | Energy, Commodities & Transportation | 21
…and we are moving forward fast
One bank with Market leader in the Netherlands in wholesale banking
AMBITIONS without
PRETENTIONS
in wholesale banking
International network with PRETENTIONS
In the year ahead we will
activities in 25 countries
A leading position in specificwork together to create a new, strong Dutch bank
under the brand name ABN AMRO
A leading position in specific sectors/services, such as Energy, Commodities & Transportation and Brokerage, Clearing &
ABN AMRO Custody
Merchant Banking | Energy, Commodities & Transportation | 22
Strategic fit of Fortis Bank Nederland & ABN AMRO
Conventional Bank(like ABN AMRO in NL) Fortis Bank Nederland
Merchant Banking Sold to RBS
Commercial Banking
Private BankingPrivate Banking
Retail Banking
Merchant Banking | Energy, Commodities & Transportation | 23
ECT and the new organisation
How will this affect you ? Business as usual is top priority
Client remains central Client remains central
ECT minimal affected by integration plan
ECT is acknowledged as one of the growth pillars g g pwithin the new bank
New combination allows us to:
Off ffi i t d t biliti t t f• Offer sufficient product capabilities to cater for our clients
• Leverage on the combined International N t kNetwork
Merchant Banking | Energy, Commodities & Transportation | 24
ECT presence - Where our clients lead us
Amsterdam Oslo
RotterdamLondon
Dubai
New York
Rotterdam
Athens
Hong Kong
*Dubai
Singapore
Hong Kong
Sao Paolo
Representative office scheduled to open soon*
Merchant Banking | Energy, Commodities & Transportation | 25
Conclusion - What ECT can offer you
Our capabilities: Strong Origination network
Strong Structuring and execution capabilities Strong Structuring and execution capabilities
Operational excellence in our Commodities and Shipping mid and back office
Adequate capital resources to meet (some of ) your funding requirements
Innovative approach to breach the funding gap (if any)pp g g p ( y)
Thank You