By George Laios
Deputy CEO, Intermodal Group
Is this a bankers’ market?
Over the last 10 years, many of the traditional and top lending banks have made the decision to either downsize their portfolios or even exit shipping. According to Petrofin, Top 40 shipping banks’ lending has fallen since 2008 by 25%, whilst at the same time the world fleet has grown by 28%. On top of this, out of the banks that have decided to stay in the game, not all of them have the strength, the budget and the competitive terms to do so. As a result, the availability of financing for small-medium size companies has become a scarce, hence a luxury good. In other words, even when there is available financing for these companies, its cost is really prohibitive.
Apart from the banks’ endogenous and structural issues, their shipping departments also need to decide where to allocate their budget. In an era of growing LNG demand, numerous large shipping firms invest in the very capital intensive LNG carriers. Most of the large banks are there to support their very good clients. However, this means that a big percentage of their budget (and resources in general) end up to the LNG carriers’ financing, i.e. not much budget left for the remaining sectors/shipping projects. So, when these banks are left with a limited budget to spend, they become very selective and of course their pricing goes up as the list of the waiting finance projects is significant.
But what about the alternative ways of financing for the small and medium size companies? Asian leasing has indeed filled part of the gap that was created with the traditional banks’ exit, however, again this is available for owners with larger fleets and bigger ticket sizes. Public markets have been quiet regarding shipping in general; bond markets again require significant size. Therefore, the small companies are left with the option of the so called alternative financing. Private equity and hedge funds do have the funds to invest, but this only happens when they get the return of capital that they require; given that this most of the times is a double digit figure, then the capital cost for the small/medium ship owners increases dramatically.
There are quite a few new European banks that have joined ship financing – whose pricing sits in between the one of the traditional banks and that of leasing – however, their current budget is nowhere near to filling the gap that was left after the departure of the big banks.
Therefore, small-medium size shipping companies struggle to find competitive finance terms. Someone may argue that this had always been the case, however, in today’s ship finance market it is evident that the financing of small-medium size shipping companies is not the banks’ first priority, which should not be the case given the performance of such companies during recent years. Indeed, many small-medium size companies have proved their top quality and professionalism by not only surviving the crisis but also by getting back into expansion mode. There are many ship-owning companies falling into this category. Indicatively, only in Greek shipping there are more than 150 companies that own 3-15 bulk carriers, of more than 28,000 dwt and younger than 17 years old. A big percentage of these companies are long standing and solid companies; however, face the above finance issues.
This is the clientele that will provide the bank with projects of good credit quality and at the right pricing and therefore should be the one attracting the attention of ship financiers if they wish to make their business efficient and dynamic again.
Chartering (Wet: Stable+ / Dry: Stable+)
The past week saw the BDI move another leg up on the back of substantial gains for the bigger sizes, while optimism still remains reserved given the fact that we are now well into the traditionally stronger second quarter of the year and no impressive upside has been achieved yet. The BDI today (23/04/2019) closed at 821 points, up by 31 points compared to Thursday’s (18/04/2019) levels and increased by 72 points when compared to previous Tuesday’s closing (16/04/2019). A small spike in demand ahead of the Easter holidays has given a much needed breather to the crude carriers market that ended the week with gains overall. The BDTI today (23/04/2019) closed at 643, increased by 1 point and the BCTI at 571, a decrease of 3 points compared to previous Tuesday’s (16/04/2019) levels.
Sale & Purchase (Wet: Stable+ / Dry: Firm+)
SnP activity remains healthy, with the majority of rumored deals concerning dry bulk vessels and with the majority of Buyers currently investing in the sector focusing almost exclusively on Supramax and Handysize candidates. In the tanker sector we had the sale of the “MARAN CAPELLA” (159,713dwt-blt ‘98, S. Korea), which was sold to U.A.E based owner, Kasco, for a price in the region of $11.5m. On the dry bulker side sector we had the sale of the “SHINYO CHALLENGER” (184,887dwt-blt ‘02, Japan), which was sold to Chinese buyers, for a price in the region of $12.0m.
Newbuilding (Wet: Firm+ / Dry: Firm+)
Strong contracting activity resumed in the past days as well, with dry bulk deals making up for the majority of recently reported firm orders for a second week in a row, while owners currently investing in the sector via a newbuilding continue to ignore bigger bulkers of PostPanamax size and above. As far as newbuilding prices are concerned these appear to have stabilized since the beginning of the spring, with average levels for all dry bulk sizes and almost all tanker sizes quoted well above last year’s average prices. The MR newbuilding price is the only one that has so far missed the upward momentum, although given the preference of owners towards this size we could see a premium being noted for the MR newbuilding price s as well sooner rather than later. In terms of recently reported deals, Greek owner, Pantheon Tankers, placed an order for two firm and two optional Aframax tankers (115,000 dwt) at SWS, in China for a price in the region of $44.8m and delivery set in 2020-2021.
Demolition (Wet: Firm+/ Dry: Firm+)
Activity in the demolition market remains healthy, with appetite in the Indian subcontinent growing and increasing competition between cash buyers pushing average prices out of the region up for a third week in a row as Pakistan is still trying to close the price gap and Bangladesh has been responding with even higher offerings. Among deals that have been recently sold for scrap and for which price details have been made known, Capesize units once again hold the lion’s share. With earnings for the bigger bulkers still struggling and demolition prices currently at year highs, it makes sense that vintage units of this size have been heading for scrap at an accelerating pace, with the year to date demolition activity of bulkers of 120,000dwt or more having now more than tripled compared to the same period in 2018. Average prices in the different markets this week for tankers ranged between $280-455/ldt and those for dry bulk units between $270-445/ldt.
Please click here to open Intermodal's Weekly Market Report for the week 16,2019