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Alternative capital paths

There’s not as much cash circling to all Italian owners as in the past.

Even with the ship finance market in Italy changing dramatically in the last few years with the arrival of speculative investors, local traditional banks still play a key role for family-run shipping lines which is just as well given how many foreign banks have practically disappeared from the market.

According to data released by Fabrizio Vettosi, managing director of Venice Shipping & Logistics (VSL) private equity fund, for the time being the overall debt exposure of the Italian shipowning industry with the banks stands at some $13bn. Roughly $6bn of this amount are non-performing loans related to 15 to 20 shipping companies still involved in restructuring procedures with the following banks most active in the sector: Intesa Sanpaolo, Unicredit, Banco Popolare, MontePaschiSiena, Banca Carige, Banco Popolare, Bper, Ubi and Banca Popolare di Milano.

“In the future less banks will allocate individually higher funds to fewer large growing groups,” Vettosi says. “Meanwhile, medium and small businesses will have to seek funding elsewhere, particularly through bonds.”

The VSL managing director thinks that the shipping industry needs to appeal in particular to large insurance groups and pension funds. “My feeling is that the local shipping market might be ready to welcome a private debt fund to fill the finance gap consequent to some international and Italian banks leaving,” says Vettosi, who has been working on this project for a long time now.

Recently a workshop on ship finance, to evaluate what kind of financial tools and opportunities are available on the market to support the development of the shipping business, took place in the port of Augusta organised by the Italian association of young shipowners lead by Andrea Garolla. The Naples-based entrepreneur commented: “Considering the new shipping scenario and other rulings, shipowners need to get ready to undertake new investments in more technologically advanced units in line with the latest guidelines on emissions, ballast water treatment, eco-friendly scraps, Energy Efficiency Design Index (EEDI), etc. This will occur even exploiting EU co-financing projects related to inland and maritime logistics.”

Another potential option for shipowners is the European Investment Bank (EIB) which already has a long-standing business relation for instance with Grimaldi Group. In 2014 EIB and the European Investment Fund allocated €11.4bn ($12.5bn) to finance projects launched by over 6,700 small and medium enterprises.

The head of the Italian young shipowners association who is looking at a potential partnership with financial investors added: “Financial investors and traditional shipowners have different business approaches. The latter looks at long-time investment returns with an industrial vision, while private equity funds aim at short-term financial gains and don’t care about the company’s long-term strategies. We would like to ask speculative investors in general to consider the shipping industry as a long-term investment opportunity, thus targeting 10 instead of five years’ time exit strategy.”

Starting from November 2014, the Italian shipowners association, Confitarma, has been organising meetings with representatives of the banks and of the Italian Banking Association (ABI) in order to face and discuss latest trends and facts on the shipping market. In the last gathering held in Rome the major problems characterizing the relations between banks and shipowners in the current scenario were tackled, with specific reference to the many debt-restructuring processes underway.

In this regard, Confitarma emphasised the need and advisability to find flexible, quick and shared solutions, with a view to preserving the unity and soundness of the Italian shipping system, thus avoiding wasting excellence and management skills. The association stressed: “Currently there is the risk that restructuring processes, dragged over time without any prospect for quick conclusion, may lead to liquidations trough the sale of assets (or, indirectly, through banks’ assignment of their credit portfolios) at significantly lower values then the nominal ones and to counterparts likely coinciding with hedge funds which are characterised by an aggressive (speculative) approach.”

Goldman Sachs and Deutsche Bank are the first two hedge funds which entered the Italian shipping market with the purchase of non-performing loans of RBD Armatori from Unicredit, GE Capital and Banco Popolare.

The shipping companies responded positively to the banking system’s needs, by increasing their managerial and organisational requirements and upgrading communications level and information transparency, with a view to speeding up the financial restructuring processes. Also in the banking system’s interest, in 2014, within the European Community Shipowners’ Associations (ECSA), Confitarma continued its initiative designed to carry out an in-depth analysis of the Basel Accords, so as to supplement and amend them in the medium term, with a view to equating the risk treatment of banks’ exposures compared to similar asset classes.

But what are the perspectives for Italian shipping companies in the present and future finance scenario? Lorenzo Banchero, seasoned shipbroker and chairman of Banchero Costa tells Splash: “I often go back to my initial period in shipping in the ‘50s and ‘60s when, as a young broker in Genoa I could speak with more than 30 shipping companies. Shipowning is a job that some Italians know very well and it’s a pity that the development of bulk shipping in Italy has almost faded away, with the exception of some outstanding companies like d’Amico Group.”

Banchero also notes: “The shipowning business has changed since then, but the present and future generations should be reminded that the traditional Italian ship financing tool called ‘le carature’ was very common in the past and it’s not very different from the present quoted companies shares. Furthermore today’s stock exchange markets have much more liquidity.”

The only two Italian shipping companies listed on Milan’s stock exchange are d’Amico International Shipping and Premuda, not considering Emanuele Lauro’s Monaco-based Scorpio Tankers and Scorpio Bulkers listed in New York.

“My suggestion to the next generation of Italian shipowners is to raise capital from the market now and invest them in ships since asset prices are and will be at historical lows for some time in the near future, mainly in the dry bulk market,” concludes Banchero. According to this expert shipbroker, that’s the only way for the Italian shipping industry to relaunch and grow its merchant fleet which has been steadily decreasing in recent crisis-hit years.

 

This article first appeared in the just published Splash Italy Market Report 2016. You can read the full magazine online for free by clicking here.

Nicola Capuzzo

Nicola is a highly qualified journalist focused on transport economics, logistics and shipping with broad experience in both online and printed media. Specialties: shipping, ship finance, banking, commodities and port economics. He regularly interviews Europe's top shipowner executives for Maritime CEO magazine.
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