Sources of Shipping Finance
CASS Business School Event at Peter Döhle Schiffahrts-KG
Hamburg, 13 June 2015
Ralf Bedranowsky
Member of the Board of Managing Directors, DVB Bank SE
Slide 1
Agenda
1
MACRO - Shipping Environment
2
Industry Attractiveness
3
Client Selection
4
Traditional Bank Debt
5
Pre & Post Delivery Finance
6
Equity and Debt Capital Markets
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 2
1 MACRO - Shipping Environment
Demand: Increasing Global Seaborne Trade With a Focus in Asia
Development of International Seaborne Trade
Mn Tonnes
Selective Seaborne Trades
Average Growth Rate
25%
10,000
8,5018,685
8,210
7,769
9,000
8,000
20%
7,370
6,916
6,853
6,664
7,000
6,416
6,098
5,581
6,000
5,1935,1465,229
15%
10%
5,000
5%
4,000
0%
3,000
-5%
2,000
-10%
2000-2008
1,000
2009-2013
Dry Cargo
2000-2008
2009-2013
Tanker Cargo
2000-2008
2009-2013
Container Cargo
0
Intra Asia (incl. China)
Container Cargo
Tanker Cargo
Dry Cargo
• Seaborne trade is growing with CAGR of 4.0% from
2000 to 2013
Total
China
Europe
North America
South America
• The remarkable increase in Asian seaborne trade is mainly driven
by China, which had an average volume growth of 15% over the
period. The Chinese economy, however, grew 7.4% in 2014, the
slowest since 1990, and down from 7.7% in 2013.
• Decrease in the North American Tanker trade volume is primarily
attributed by the US becoming more self-sufficient.
* Source: DVB Shipping and Offshore Research, IHS Global Insight
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 3
1 MACRO - Shipping Environment
Supply:
Global Development by Sectors
Global excess supply across shipping sectors
35%
Orderbook as % of the fleet in terms of capacity
50%
45%
30%
40%
25%
35%
30%
20%
25%
15%
20%
15%
10%
10%
5%
5%
0%
0%
Dry bulk
Container
Products
Tanker
2011
2012
Crude
Tanker
2013
Chemical
Tanker
2014
LPG
LNG
2015f
• Supply and Demand imbalance across shipping sectors.
• The Dry Bulk and LNG space experienced an excess
supply CAGR of 7,8% in recent years, as opposed to the
other sectors showing a steady decline in excess supply.
Dry bulk
Container
Products
Tanker
2011
Crude
Tanker
2012
2013
Chemical
Tanker
LPG
2014
• Significant Orderbook for all shipping sectors, especially
for the Gas Carriers, the latter with an average volume
growth of 25% over the period.
* Source: DVB Shipping and Offshore Research, MSI
CASS Business School Event at Peter Döhle Schiffahrts-KG
LNG
Slide 4
2 Industry Attractiveness
What are the risks and rewards associated with each sector?
Continued close analysis of demand fundamentals, utilization rates, seasonal spikes, vessel values and freight rates is key.
Need to closely monitor what the optimal solutions are for shipping companies that have over-stretched their balance sheet by
committing significant capital expenditure by placing too many orders.
What are the sectors we should be increasing our exposure to?
Exposure must ideally be backed by fixed charter contracts to charterers with high credit worthiness and / or to operators who
have demonstrated outperformance compared to the spot market.
Selectively financing owners that have strong technical and commercial management skills and have capability to honor financial
obligations in case of market downturn.
What type of assets should we finance?
Target vessels that provide the best commercial opportunities. Quality Shipyards should be preferred as vessel values will be
better preserved, even for older tonnage.
A lot of focus has been on modern eco-design vessels that are younger than 5 years of age. Some of the modern tonnage as
young as five years needs to be avoided as these vessels are equipped with large engines which are not desirable in the event
high bunker prices prevail.
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 5
3 Client Selection
Key Features – “Incorporating the 6 C’s”
Client
Attributes
 Credibility
 Good track record in
good and less
favourable times
 Close relationship and
strategic dialogue with
Lenders
 Transparency,
reliable/corporate family
structure
 Sustainability
(resilience)
 Compelling investment
story
 Type of Assets / Vessels
 Charter Coverage
 Liquidity (enough cash)
CASS Business School Event at Peter Döhle Schiffahrts-KG
All comes
down to the 6’s
 Character
 Capacity
 Capital
 Company
 Conditions
 Collateral
Slide 6
4 Traditional Bank Debt
Current Market Trends for Bank Debt
Bank Debt / Facility structures requiring use of Balance Sheet












Term Loans
Club Deals
Syndicated Facilities
Bullet / non amortizing
Revolving Credit
Facilities
Bridge Loans
Letters of Credit
Warehouse Facilities
Public Debt
ECA Financing
Derivatives, IR Hedging
Subordinated Debt
 More opportunistic lending towards first tier Shipping companies
following several years with reduced competition.
 Flight to quality on part of Shipping Banks remains.
 Downward pressure on pricing and softening of key covenants.
 Strong interest for ECA structured transactions especially with a
project focus.
 Lending remains Sector dependent i.e. tougher market conditions
for Offshore (in light of falling oil prices) and Drybulk, leading to
reduced Lending. Anticipate restructuring will take place in second
half 2015.
 Some banks are more focused on cashflow and terms rather than
asset.
 Majority of banks targeting strong relationship clients due to
corporate focus (with recourse). Employment is key.
 Expectation for less volume in new business in 2015. Focus on
existing clients.
 Banks less willing to underwrite. Deal size likely to be smaller with
more club deals.
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 7
4 Traditional Bank Debt
Banks by Type of Focus for Bank Debt
• Large proportion of banks targeting top tier clients due to
corporate focus and especially projects with employment.
• Increased interest and appetite has resulted in
downward pressure on pricing and softening of
transaction terms.
• Higher visibility/interest for ECA structured transactions
and number of larger syndicated deals are increasing
especially in energy related sectors.
• Maritime (Shipping and Offshore) syndicated bank debt
lending and bond issuance is increasing totalling
US$109b (US$94b bank debt, US$15b bonds) in 2013
with US$82b in H1 2014 (US$73b bank debt, US$9b
bonds).
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 8
5 Pre & Post Delivery Finance
Pre Delivery Debt
 Drawdown on yard instalment milestones
 Banks are highly selective and quality of shipyard is key
 Mainly for Tier One Clients with strong balance sheets
 Secured in NB contract, unencumbered assets, corporate
guarantees, cash and potential for step into future
employment
 Higher Risk for Lender
 Difficult to achieve in current market environment
Post Delivery Debt
 Drawdown on delivery of vessels
 Secured with mortgage on the vessel, corporate guarantees,
cash and potentially secured employment
 Risk for Lender is reduced
Alternatives to Pre
Delivery Debt
 Equity
 Bonds
 IPO’s / Share Issues
 Mezzanine
 Bank debt
 Combination of the above
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 9
6 Equity and Debt Capital Markets
Equity Investors, Private Investors, Institutional Investors
Current Market Trends for Shipping Capital Markets
Traditional Capital Market
products
 Term Loan B
 Investment Grade Bonds
 Sub Investment Grade
Bonds
 Norwegian High Yield
Bonds
 US Baby Bonds
 Medium Term Notes
 Commercial Paper
 Convertible Debt
 Warrants
 IPO, Ordinary Shares,
Secondary Offerings,
Preference Shares etc.
 Perpetual Debt
 Equity Investments
 Equity and Debt Capital Markets are a tool for diversification of funding
sources but are arguably only open for good names in the current market
environment.
 Bond Market remains closed for now but for how long?
 Term Loan B market is taking a breather but expected to return.
 Large refinancing & restructuring requirements for Offshore Bond market
expected in 2015 .
 Follow on share issues and some IPO’s taking place over the last 10
months for select names (i.e. Diana, Navios, Star Bulkers, Dryships,
Euronav, Double Hull Tankers, Hafnia Tankers, Hoegh, Golar, Topships,
Polarcus etc.) – some with significant negative impacts on share price.
 Challenging Market Conditions for new IPO’s for most Sectors at present
but window of opportunity could open soon for sophisticated Shipping
Companies with the right tonnage and the right truly compelling
investment story.
 Investor preference so far in 2015 is for higher rated Bonds compared to
2014.
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 10
6 Equity and Debt Capital Markets
Investment Banks by Type of Focus
4 business model clusters in market: generalist investment banks, specialised investment boutiques,
specialist lenders with distribution and exclusive lenders
with
distribution
Boutique
Generalist
Lenders with
Distribution
without
distribution
Lender with Cross-Selling
Lending Focus
Investment Banking Focus
IBService
Provider
CreditSeller
Exclusive Lenders
Generalist
Asset Specialist
 Share of unfunded orders increased to US$ 60 billion in 2014, leading  Strong growth in DCM & ECM (27%, 16 %, respectively) 2006-2013
to growing funding needs(1)
‒ High yield bonds 85% of 2013 global DCM revenues
 Balance sheet constraints of traditional lenders due to Basel-III capital
 Fragmented market in DCM & ECM top 10 banks capture c. 40% of deal
volume
 Capital markets an important alternative source of funding
‒ More familiarity with shipping & offshore in recent years
 New York & Oslo are key capital markets for shipping issuances
‒ Increased receptivity to new & repeat issuers
CASS Business School Event at Peter Döhle Schiffahrts-KG
Source: zeb
(1) Source: Tufton Oceanic, “Too Much Equity, Not Enough Debt?”, 2014.
Slide 11
Thank you for your attention and kind hospitality
CASS Business School Event at Peter Döhle Schiffahrts-KG
Slide 12