Finance and InsuranceGreater ChinaMaritime CEO

ICBC Leasing: Changing the face of shipping

The final issue for 2017 of Maritime CEO magazine launches today with a distinctly Chinese flavour to proceedings. The executive director of ICBC Financial Leasing, Bill Guo, features on the cover while inside there are in depth reports on the republic’s economy, ports, yards, dry bulk needs as well as an overview of what the future holds for the nation’s top line, Cosco.

China’s ship leasors are changing the face of shipping, and they’re only just beginning. In the space of just a few years they have become among the largest shipowners in the world, changing the dynamics of big ship orders and by extension they are able to influence the financial health of individual sectors.

In terms of contract value, the past two years in particular have a seen a rapid growth on the books of China’s shipping leasors.

ICBC Financial Leasing, having firmly established itself as the largest financial leasing company in the country, is now looking to transform itself from a traditional credit provider into an integrated maritime financing service provider.

Bill Guo Fangmeng, executive director of ICBC Financial Leasing, believes the growing momentum of China’s ship financial leasing business is a juggernaut that will not ease up anytime soon.

“There is still a firm demand for ship financial leasing in the market and the next two to three years should be a golden period for the Chinese financial leasing industry,” Guo says in this issue’s cover story, pointing out the significant financing gap left by the departure of many traditional European ship financing banks this decade, something the Chinese are keen to fill.

ICBC Leasing owns a fleet today of more than 300 vessels with a total value of around RMB50bn ($7.5bn).

With the promising outlook in the Chinese ship financial leasing sector, more domestic financial leasing companies and even shipyards are entering the ship leasing business. Both state-run shipbuilding conglomerates – CSIC and CSSC – now have leasing platforms, keeping their drydocks ticking over.

Data from the China Banking Regulatory Commission shows that currently there are 60 financial leasing companies in China, 23 of which have exposure in the shipping sector, managing a fleet of in excess of 1,000 ships. Combined year-on-year growth fleet-wise is expected to top 50% in 2017.

In Guo’s opinion, there is unlikely to be much intense competition within the Chinese ship leasing sector in the short term as the demand is still strong enough to let most players get a slice of the cake.

The growing ship leasing business operated by the shipyards is not a threat to the traditional financial leasing firms, Guo argues, as their leasing costs are higher and their main purpose, via this new strand of business, is to help secure orders and tide them over financially.

“However,” Guo concedes, “when the market is saturated after this golden development period, the players need to have more innovative solutions to compete in the market.”

ICBC Leasing has been making efforts to offer more flexible and innovative financing solutions in order to meet the complex demands from shipowners in the current volatile market, Guo says.

In October, ICBC Leasing and China Merchants together ordered six VLOCs plus three options at CSIC-affiliated Qingdao Beihai Shipbuilding under a contract of affreightment (COA) with Brazilian miner Vale, following ICBC Leasing’s order of 10 VLOCs in 2016 under a similar deal with Vale.

The deals are ICBC Leasing’s first newbuilding projects under a COA arrangement.

“The COA deal with Vale is a great financial solution innovation for us. Vale, as a shipper, is quitting its role as a tonnage provider but needs ships outside its balance sheet, while we can secure stable cash income in the long term via the arrangement; it’s a win-win deal,” Guo says.

Guo reveals that one of ICBC Leasing’s main future development strategies is to get more into both shipowing and shipmanagement.

“The traditional banking role will face more competition and will no longer meet the growing complex demands in the ship financing market,” Guo predicts.

Talking about the challenges facing a slowly recovering shipping sector, Guo warns any speculative investment in the sector must be controlled.

“Ship leasing companies should focus more on the client’s actual demand, not only on the appreciation or depreciation of ship assets,” Guo suggests.

Another worry is the continued appreciation of the US dollar, which is hurting the whole Chinese leasing sector at the moment.

In terms of the shipping markets themselves, the ICBC boss is most bullish on containers and especially dry bulk for the coming couple of years. How Guo goes about making the most of this uptick will in no small way influence the length of the rebound.

Elsewhere, within this not-to-miss issue of Maritime CEO there are interviews with many of the world’s top shipowners including a call from the head of the Italian shipowners’ association for his peers ’to grow up’ while the incoming head of the European shipowners association has a stark warning that Asia – led by China – could obliterate the continent’s shipping community.

As ever, there’s forthright opinion by our brilliant set of columnists and brilliant market commentaries from some of the best analysts in shipping.

To access the full issue for free online, click here.

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