China and Ship Finance: The Degree of Difficulty Increases
14th Annual Greek Ship Finance Forum, 17 October 2012 Kevin Oates, Marine Money Asia
▪ Not least due to their size, Chinese banks have the potential to fill part of the void left by withdrawing European banks
▪ China is already home to at least four of the world’s largest banks by market capitalization
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Opportunities in Ship Finance
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Opportunities in Ship Finance
Ship Owners
▪ The profile of Chinese commercial banks in international ship finance has developed significantly over the past decade
▪ Chinese banks are no longer underrepresented in league tables. Bank of China, Industrial and Commercial Bank of China, Bank of Communications and China Construction Bank have become major ship lenders
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2011 Global Shipping Portfolios of Major Shipping Banks in USD billions
Source: Marine Money
▪ Over the past five years, many shipping companies - including prominent foreign shipowners such as Bernhard Schulte, Mitsui O.S.K Lines, Norden, Pacific International Lines and STX Pan Ocean have tapped financing from the Chinese commercial banks successfully
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Opportunities in Ship Finance
Select Chinese Banks’ Ship Finance Transactions (2010-2012)Lender Year Borrower Deal Size
(USDm)
Remarks
2011 Bernhard Schulte GmbH & Vo. KG
203 German owner closed a financing package consisted of a Sinosure backed USD 61 million facility and a USD 142.2 million commercial facility (Bank of China and China Exim) for three 9,000 TEU ships to be built at Shanghai Jiangnan Changxing Heavy Industry
Fairstar Heavy Transport
30 Fairstar secured a USD 30 million pre-delivery loan from Bank of China, for the financing of a 50,000 dwt semi-submersible heavy lift vessel at Guangzhou Shipyard International
2010 Vale 1,230 Brazilian miner secured a 13 year loan from China Exim and Bank of China to finance 80% of the construction cost of 12 VLOCs ordered at Jiangsu Rongsheng Heavy Industries. The vessels will be owned by Vale Shipping and flagged in Singapore
Pacific International Lines
517 Singapore’s box shipowner/operator secured a Sinosure backed USD 517 million 10 year buyer's credit from Bank of China. Proceeds are used to finance newbuildings at Dalian Shipbuilding Industry
STX Pan Ocean 92 Bank of China and ING provided the South Korean shipper a Sinosure backed buyer's credit for the construction of four 57,000 dwt bulkers at COSCO Zhoushan Shipyard
J. Lauritzen 267 Bank of China participated in a club ten year deal, comprising BNP Paribas, Société Générale and Sinosure, for the financing of five China built MR tankers and two LNG tankers
FH Bertling 40 Bank of China provided the German shipowner a Sinosure backed buyer’s credit of USD 40 million for the financing of two general cargo newbuilding orders at Zhong Chuan Heavy Industry in Zhejiang province
Source: Marine Money
▪ Over the past five years, many shipping companies - including prominent foreign shipowners such as Bernhard Schulte, Mitsui O.S.K Lines, Norden, Pacific International Lines and STX Pan Ocean have tapped financing from the Chinese commercial banks successfully
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Opportunities in Ship Finance
Select Chinese Banks’ Ship Finance Transactions (2010-2012)Lender Year Borrower Deal Size
(USDm)
Remarks
2012 Grupo R 550 Bank of Communications participated in a syndicated loan for the Mexican conglomerate Grupo R. Proceeds will be used to finance the construction of a semi-submersible drilling rig, ordered at Korean shipbuilder DSME. Other syndication members included Export-Import Bank of Korea (“KEXIM”), Mizuho, WestLB AG, Korea Development Bank and K-Sure
2011 China Shipping Container Lines
543.9 Bank of Communications, Hong Kong branch arranged a USD 543 million 10 year post-delivery syndicated loan for CSCL. The facility, at 40% LTV, was priced at LIBOR+130bps and will be used to finance a series of eight 14,000 TEU containerships ordered in August 2007. The boxships will be built at Samsung Heavy Industries for USD 170 million a piece
COSCO Container Lines
100 DNB provided a three year term loan to COSCO Container Lines. The facility is guaranteed by Bank of Communications
Xing Long Shipping
72.1 Bank of Communications, Hong Kong branch provided a 10 year post-delivery loan to Xing Long Shipping, a SPV which is jointly owned by China Shipping Development and Shanghai Puyuan Shipping. The facility, at 80% LTV, was priced at LIBOR+130bps and will be used to finance the construction of a 23,000 dwt ore carrier
Zhida Shipping 72.1 Bank of Communications, Hong Kong branch provided a 10 year post-delivery loan to Zhida Shipping, a SPV jointly owned by China Shipping Development and steel mill Baogang. The facility, at 80% LTV, was priced at LIBOR+130bps and will be used to finance the construction of a 23,000 dwt ore carrier
Lida Shipping 72.1 Bank of Communications, Hong Kong branch provided a 10 year post-delivery loan to Lida Shipping, a SPV jointly owned by China Shipping Development and steel mill Baogang. The facility, at 80% LTV, was priced at LIBOR+130bps and will be used to finance the construction of a 23,000 dwt ore carrier
Source: Marine Money
Select Chinese Banks’ Ship Finance Transactions (2010-2012)Lender Year Borrower Deal Size
(USDm)
Remarks
2012 Pacific International Lines
97 CCB participated in a Sinosure backed 11.5 year loan together with ANZ and ING. The facility is said to be priced at LIBOR+285 bps
2011 Norden 200 Danish owner secured a Sinosure backed loan for the financing of 7 Chinese built ships. BNP Paribas, Bank of Construction and Deutsche Bank were the lenders
2010 Norden 200 CCB, together with BNP Paribas, provided a 10 year Sinosure backed credit facility for the financing of seven vessels from Chinese shipyards. The shipowner drew USD 87 million on this credit facility in 2011
2011 Mitsui OSK and China Shipping (PNG LNG Project)
440 ICBC participated in the pre and post-delivery limited recourse financing for two 172,000 cbm LNG tankers to be built at Hudong Zhonghua Shipyard. Other syndicate members included China Exim, Mizuho and SMBC
Seaspan 150 Subsidiary of Seaspan secured USD 150 million facility from BTMU and ICBC for the financing of one 13,000 TEU vessel
Shandong Haiyang Shipping
27.2 Chinese owner inked loan from ICBC for the financing of one panama newbuilding
2010 United Arab Shipping Company
302 ICBC participated in a 14 year club deal, comprising Daxia, BNP Paribas, ICBC and Ahli United Bank for the financing of three 13,000 TEU vessels at Samsung Heavy Industries
Hopeful Grain & Oil Group
51.2 State-owned grain and oil marketing enterprise secured loan from ICBC to finance two second-hand panama bulk carriers
2011 Jiangsu Ocean Shipping
20 Shanghai Pudong Development Bank completed its first ever cross border ship finance transaction, with Jiangsu Ocean Shipping's subsidiary in Hong Kong
Source: Marine Money
▪ Over the past five years, many shipping companies have tapped financing from the Chinese commercial banks successfully
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Opportunities in Ship Finance
But to many, the progress made by Chinese commercial banks in global ship finance is simply not fast enough
▪ Common grouses suggest that loan appraisals tend to be overly cautious, bureaucratic and time-consuming
▪ While Chinese banks may have financed a number of foreign shipowners, their clients are still largely limited to some of the biggest and best-known companies, who can still obtain keen terms from the international banking market
▪ Lending activities to the shipping industry are also mostly confined to bilateral corporate lending structures. Club or syndication deals among Chinese commercial banks are uncommon
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Challenges in Ship Finance
▪ Managing risks and volatility in ship financing remains a challenge to many Chinese lenders. They continue to rely on Western banks to structure transactions
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Challenges in Ship Finance
Dr. John Coustas, President of New York listed Danaos Corporation, described the loan
appraisal process of Chinese banks as “time consuming and painful”
Safe Bulkers is one company who has not sought Chinese financing because of the costs
Source: Bloomberg, “China’s Shipyards Fail to Win Orders as Greek Owners Shun Loans”, June 8, 2012
But to many, the progress made by Chinese commercial banks in global ship finance is simply not fast enough
▪ The series of interest rate hikes since 2010 have eroded some of the pricing advantages previously available to Chinese banks
▪ Another dampener to the Chinese banks’ appetite for shipping lies in their continual struggle with USD/RMB exchange rate and the opportunity cost of capital
▪ Dollars have become costlier from an internal treasury prospective as they must buy dollars with RMB reserves. This is made worse, given that Chinese banks have suffered a savings flight in recent months
China and Ship Finance: The Degree of Difficulty Increases
Chinese Commercial Banks: Challenges in Ship Finance
China and Ship Finance: The Degree of Difficulty Increases
Policy Banks Take the Lead: China Exim Bank
▪ With the mission to support the local shipbuilding industry, China’s two state-owned policy banks - China Exim and China Development Bank (“CDB”) have remained committed to extending financing to foreign shipping companies (either as participating as a lender or an issuer of standby letter of credit or guarantees)
China Exim’s Ship Finance Transactions Borrower Deal Size (USD million) Remarks2011Mitsui OSK and China Shipping (PNG LNG Project)
869 China Exim participated in the pre and post-delivery limited recourse financing for four 172,000 cbm LNG tankers to be built at Hudong Zhonghua Shipyard. Other syndicate members included ICBC, BTMU, Mizuho and SMBC
Danaos Corporation 203 China Exim participated in a 12 year Sinosure backed USD 203.4 million post-delivery facility together with ABN AMRO and Citi. Loan proceeds will be used for the financing of three 8,530 TEU container ships to be built at Jiangnan Shipyard. This is the first Sinosure backed buyer credit closed for a Greek name
Costamare 203 Greek owner entered into a 10 year credit facility with China Exim, DNB and China Everbright Bank for the financing of three 9,000 TEU newbuildings. The vessels were ordered at Shanghai Jiangnan Changxing Heavy Industry, at USD 95 million apiece
SK Shipping 137.2 China Exim co-financed 45% of a DVB arranged pre and post-delivery mortgage financing for the construction of two 320,000 dwt VLCCs at Dalian Shipbuilding Industry Corporation
Parakou Shipping 96 China Exim provided a USD 96 million loan to the Hong Kong owner at LIBOR+300bps for the financing of a 35,000 dwt bulk carrier, Pretty Keel
Daxin Holdings 50 China Exim provided a USD 50 million buyer’s credit to the dry bulk shipping subsidiary of China Dalian International Cooperation
Craig Group Undisclosed UK based Graig Group secured financial support from a major European bank and China Exim for the financing of its fuel efficient new generation container feeder ships. The vessels will be built at Jin Hai Shipyard
Source: Marine Money
China and Ship Finance: The Degree of Difficulty Increases
Policy Banks Take the Lead: China Exim Bank
▪ With the mission to support the local shipbuilding industry, China’s two state-owned policy banks - China Exim and China Development Bank (“CDB”) have remained committed to extending financing to foreign shipping companies (either as participating as a lender or an issuer of standby letter of credit or guarantees)
China Exim’s Ship Finance Transactions (Con’t)Borrower Deal Size (USD million) Remarks2010Vale 1,230 Brazilian miner secured a 13 year loan from China Exim and Bank of China to finance 80% of the
construction cost of 12 VLOCs ordered at Jiangsu Rongsheng Heavy Industries. The vessels will be owned by Vale Shipping and flagged in Singapore
National Iranian Tanker Company
1,112 Iranian shipper secured 90% financing from a consortium of Chinese banks including China Exim for the financing of 12 Chinese built VLCCs
Bourbon 400 French offshore oil and gas services provider secured a 12 year credit facility from China Exim for the construction of ships ordered at Sino-Paciifc Shipbuilding
Ethiopian Shipping Lines
235 African shipping company secured 80% financing from China Exim for the financing of seven multipurpose vessels and two product tankers, ordered at China's Taizhou Kouan Shipbuilding
TORM 170 Danish owner entered into an 8 year USD 170 million loan with China Exim for six 52,000 dwt tankers to be delivered between 2010 and 2012. This part of the letter of intent that TORM concluded with China Exim 2009 on a total financing facility of USD 500 million
Angelicoussis Group 111 Loan facility to finance the construction of two Chinese built dry bulkersBocimar International 90 Belgium based owner secured a loan facility from China Exim and Societe Generale for its
purchase of two bulk carrier newbuildings under construction at Zhoushan Jinhaiwan Shipyard in China
Diana Shipping 82.6 China Exim provided 70% financing for Diana Shipping’s acquisition of two 206,000 dwt dry bulk carriers, under construction at China Shipbuilding Trading Company and Shanghai Jiangnan-Changxing Shipbuilding
InterOrient Navigation 64.7 Cyprus based owner secured the Sinosure backed buyer’s credit for the construction of two 115,000 dwt bulk carriers at Jiangsu New Century Shipbuilding
SUMEC Corporation 23 SUMEC’s subsidiary in Singapore will make use of the 8 year USD 23 million buyer credit facility from China Exim to finance its first vessel, a 35,000 dwt dry bulk carrier
Source: Marine Money
China and Ship Finance: The Degree of Difficulty Increases
Policy Banks Take the Lead: China Development Bank
▪ Like the Chinese commercial banks, they are equally prudent and cautious in selecting their counterparties and in determining their commercial termsChina Development Bank’s Ship Finance Transactions Borrower Deal Size
(USD million)
Remarks
2012A.P. Moller Maersk 500 Danish shipping and oil company signed USD 500 million loan agreement with CCB to purchase
containersDryShips 123 George Economou-led Dryships sealed a USD 122.58 million export buyer credit syndication facility from
CDB. Proceeds will be used to finance three 206,000 dwt VLOCs that will be built by state-owned shipbuilding conglomerate CSSC. CDB will provide Dryships the bulk of the facility, but Bank of China – Ningxia branch and Zhejiang branch will also participate as a minor lender for an undisclosed sum. This transaction also marks the successful closing of the first syndicated loan facility between two Chinese banks, without the involvement of a Western bank
China Shipping Container Lines
100 CDB provided a three year loan to Hong Kong incorporated subsidiary of state-owned China Shipping Group
2011Brightoil Petroleum 4,000 China’s third largest marine bunkering company signed a 5 year USD 4 billion strategic co-operation
agreement with China Development Bank. Funds will be used to acquire tankers, letters of credit and bank guarantees and potential M&As
STX Pan Ocean 510.7 CDB participated in a 12 year syndication loan, made up of KEXIM, ABN AMRO, DNB, Deutsche Schiffsbank, BNP Paribas, ING, Standard Chartered, Credit Industrial et Commerciel, for the financing of 16 Open Hatch Bulk Carriers. The vessels will be chartered to Fibria upon delivery
Peter Döhle 1,000 CDB pledged to provide financial support, amounting to up to USD 1 billion, to German Shipowner Peter Döhle, over the next five years for the financing of vessels to be built at Singapore listed Yangzijiang Shipbuilding
2010Cardiff Marine 75 George Economou led Cardiff Marine secured a USD 75 million Sinosure-backed financing of a VLCC
newbuilding from CDBMaritime Construction Services
104 CDB provided a RMB 690 million loan for the financing of one 300m long pipelay barge constructed at Shanghai Zhenhua Port Machinery
Source: Marine Money
Key Takeaways
▪ Broadly speaking, commercial Chinese banks have not participated in global ship finance in a big way and their willingness and ability to finance foreign buyers is still very much dependent on the availability of export credit cover
▪ Apart from export credit cover, Chinese commercial banks prefer to work with reputable international banks in extending financing to foreign shipping companies. Such collaborations allow Chinese banks to leverage on the shipping expertise and relationships that their western counterparts have with the borrowers
▪ But in reality, club/syndicated deals involving collaborations between commercial Chinese and Western banks remain fairly limited
China and Ship Finance: The Degree of Difficulty Increases
Key Takeaways
▪ There is a mismatch in expectations between owners and bankers. Owners are optimistic that more liquidity will be available for shipping in the latter half of 2012, but anecdotal evidence suggests otherwise. Chinese banks may have better USD availability than western banks, but they remain very cautious of industry fundamentals
▪ Chinese banks’ rise in the share in ship finance is largely in line with the growth of the country’s shipping and shipbuilding industries. They have no plans to grow into major ship financers. Moving forward, their appetite for ship financing will be severely tested in the current shipping downturn
China and Ship Finance: The Degree of Difficulty Increases