Slide 15TH Chemical & Product Tanker Conference - London 12 March 2013
CURRENT TREND IN SHIP FINANCE IN THE CHEMICAL AND PRODUCT TANKER SECTORS
Frans van de Bospoort
Managing Director Chemical, LPG and Product Tanker Group
Slide 2
Agenda
2 Ship finance market
3 Game changers & challenges
1 DVB & Product and Chemical Tanker markets in short
4 A Finance example
5 Takeaways
Slide 3
SHORT QUIZ
HOW MANY SHIPPING BANK WERE ACTIVE IN 2008 ?
HOW MANY ARE ACTIVE NOW ?
WHAT WAS THE BREAK-EVEN RATE FOR A NEW BUILDING 50K DWT MR PRODUCT TANKER IN 2008(debt service and opex ?)
WHAT WOULD BE THE BREAK-EVEN RATE FOR A NEW BUILDING MR PRODUCT TANKER NOW ?
TIMING IS KEY IN SHIPPING, WOULD THAT ALSO APPLY FOR SHIPPING BANKS ?
Slide 4
Introducing DVBDVB Facts
Global Presence Through 14 Offices
Listed: Frankfurt Stock Exchange
Market capitalisation >EUR 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 23 bln loan book
Over 500 clients, all active in the transport sector, worldwide
Over 370 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
LondonRotterdam
Piraeus
Singapore
Curacao
Bergen
HamburgFrankfurt
Oslo
Tokyo
MonacoZurich
Cardiff
Slide 5Demand outlook - for chemical, LPG & product tankers
Shipping Finance Specific sector expertise
Container , Car Carrier, Intermodal & Ferry Group(container vessels, container boxes, car carriers, reefers, ferries and RoRos)
11
Cruise Group (ocean/river cruise)22
Crude Oil & LNG Tanker Group (crude oil and Liquefied Natural Gas tankers)33
Chemical, LPG & Product Tanker Group(chemical, specialist, Liquefied Petroleum Gas, product and asphalt/bitumen tankers)
44
Dry Bulk Group(barges, dry cargo, combination and bulk carriers)55
Offshore Drilling & Production Group(jack-ups, drill ships, semi-subs, FPSO, FSO, FPU)66
Offshore Support Group (AHTS, PSV, subsea, diving and heavy lift vessels, others)
77
www.dvbbank.com
Slide 6
DVB Chemical LPG and Product Tanker Group
Shipping Portfolio of DVB is USD 15.65 mln as of 31 Dec 2012
Of which USD 2.3 mln in Chemical and Product tankers (15% of Total Portfolio)
In addition > USD 500 mln exposure in LPG market
Team of 12 highly experienced shipping bankers
Strategically Based in Bergen, Athens, London, NY and Singapore
Finance > 350 chemical/product/LPG tankers for approx 80 owners
Closed 25 transactions in 2012 with new loan volume of USD 750 mln
Open for new business
Slide 7
Point in the Cycle
Slide 8
High level view of the Shipping Market
Shipping market is not homogenous (in terms of asset markets and key drivers);
Number of sub segments, that are uncorrelated to one another and subject to different drivers, are performing well (such as LPG, Containerboxes, Offshore);
High Volatility is the new normal in shipping, especially in more commodity type (dry bulk, tanker);
Demand is holding bottom has not fallen out. However softening in China and downturn in Europe will slowdown demand growth;
Supply is the main killer of a healthy Demand Supply balance;
Orderbook not evenly spread across bulk shipping sectors: Tankers 10%, Dry Bulk 17% and Container 21%;
Moreover latent yard capacity has the potential to stall impending recovery
Slide 9
Slide 10
(European) Bank Funding remains expensive and scarce
Higher pricing also means reduced capacity to lendHigher pricing also means
reduced capacity to lend
Slide 11Demand outlook - for chemical, LPG & product tankers
Shipping Banks Landscape
Source: Marine Money 2012
Slide 12
Banking market
Large number of established shipping banks stop its ship finance business or sell portfolios.
Very limited number of banks are open for new business
Increased funding costs (Cost of Liquidity), fees, margins
shipping portfolios negatively affected by lower asset values, cash flows
lending policy increasingly selective (flight to quality)
Banks taking stricter measures: arrest, foreclosure..
Impact of Basel 3 regulations make asset finance less attractive
Slide 13
Sources of Funding
SOURCE AVAILIBILITY
Public Equity Markets NO
Public Bond Markets NO
KG/KS NO / LIMITED
Private Equity / Private Placements LIMITED
Mezzanine Finance LIMITED
Traditional Bank Debt LIMITED
ECA Finance YES
Sale & Leaseback LIMITED
Insurance Cos and Pension Funds NEW
Slide 14
Funding Gap
According to Clarkson the value of total ORDER BOOK stands at USD 288 bln as of Feb 2013
Assume 70% (guess) will be actually delivered
Further assume an average leverage of 60%
TOTAL AMOUNT OF USD 120 BLN HAS TO FINANCED (this excludes refinancing existing balloons and SH S&P transactions)
Slide 15
Game Changers & Challenges (1)
Panama Canal expansion by 2014
New, shorter and faster trade routes?
Reduction transport costs (time, bunker)
New ship design and impact on values ?
Slide 16
Game Changers & Challenges (2)
Cashflow
Asset(Residual Value) Recourse
HOW BANKERS THINK..
Slide 17
Game Changers & Challenges (3)
Consumption & Emissions
Eco design to maximize fuel efficiency and to minimize harmful emissions two 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 ?
Slide 18
Game Changers & Challenges (4)
Operations
Opex escalation Explosive increase over recent years Outsourcing 3rd party ship managers due to complexity
Crewing Matrix Ever increasing demands from oil majors Are their sufficient experienced officers for tankers ?
Vetting No vetting = no charterer Failure to comply has impact on whole fleet
= TANKER OPERATIONS BECOME EVEN MORE COMPLICATED AND REGULATED
Slide 19
Game Changers & Challenges (5)
Banks
Demanding regulatory environment
Basel III impact
Negative perception ship fiance industry
Will the days of 80/80 ever return ?
Slide 20
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
GroMiKV InstitutsVergV
IAS9
ICAAP
NSA
BCBSASF
IAS13
...the regulatory tsunami
Slide 21
BUT : History repeats itself ....
People tend to have short memories and shipping attracts a variety of players with different interests
(perfect example in Matt McCleerys book the Shipping Man)
Wall Street 2:
Money never sleeps
Slide 22
Finance Example 1 - MR Product Tanker
New Building MR Product Tanker (Post delivery only)
2008 Now
New Building Price USD 50 mln USD 33 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 19.8 mln)
Margin / Fees 1.25%/ 0.75% 3.50%/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
Slide 23
Finance Example 2 - 19.9k dwt S/S Chemical Tanker
2008 built 19.9k S/S Chemical Tanker
2008 Now
Market Value USD 41 mln USD 24 mln
Full Pay-out loan profile 18 years 15 years
Tenor 10 years 5-7 years
Leverage financing 75% (USD 31 mln) 60% (USD 14.4 mln)
Margin / Fees 1.25%/ 0.75% 3.50%/1.5%
Average TCE (opex USD 6.5k) USD 14,700 USD 12,000
WHAT IS A BETTER DEAL FOR THE BANKS ?????????????
- counter cyclical finance
Slide 24
Conclusion of session - the sandwich effect
Unless cash rich,or strong balance sheet
Shipping markets
Financial markets
OWNERS may find themselves sandwiched byLow charter ratesHigh bunker costs
Increasing OPEXIncreased vetting
requirementsEnvironmental requirements
Increased margins/feesLower LtVs
Limited funds availableIncreased covenant
requirementsLimited access to CM&PE
Otherwise:
Different layers & pockets of funds
Slide 25
Way out?
Slide 26
Thank you for your attention!
Frans van de Bospoort
DVB Group Merchant Bank (Asia) Ltd.77 Robinson Road # 30-02Singapore 068896
www.dvbbank.com
