There’s been some pretty big wake-up calls for traditional ship finance players in recent months with a raft of tech firms coming in trying to usurp their places. However, the editor has told me to write on that for my next column and in this first article of 2018 to focus more on the big picture. All I will state on the matter of new tech companies emerging for the moment is this: I do feel the way banking is done today is outdated and is at risk of being picked apart by nimble, new entrants.
To the matter in hand, then, the overview of key themes in ship finance in 2018. Smaller banks in Europe are eying the gap left by departing big names while Asian giants are rapidly becoming the leaders in the field.
Maritime and Merchant Bank, Hellenic Bank, Amsterdam Trade Bank, Berenberg and the Bank of Cyprus are just some of the new entrants from Europe making a foray into ship finance.
The ongoing pullback by the larger European ship finance brands continues in 2018. My old bank, DNB, which has already gone through a significant retreat from shipping, has recently announced another $10bn move away from the sector. $10bn is a huge sum – something like 220 cape newbuild orders at today’s prices.
The typical wrong logic is still very prevalent among the leading banks; there is no counter cyclical mentality, which I do find scary. There are opportunities to be had in this market, but financiers are not willing to take the plunge. Most amazing for me was to see that in 2016 when values were at their lowest and you could lend against very low values, practically no bank was around to lend to shipowners who wisely invested in bulkers that year.
The other theme that is clearly continuing from 2017 is Asia, led by Chinese leasors, filling the gap left by departing European banks. They are here to stay as a serious force in shipping.
A nice thing to observe recently is that pricing in ship finance has finally become much more realistic. A five-year loan at 50% financing and a 4% or 5% margin is typical today.
Shipowners got too used to extremely low priced loans, which proved deadly for the banks – 70% loans at a 2% margin are mercifully impossible today. Down to 50% financing at double the price has, of course, come as a major shock to many owners. Luckily for them with LIBOR still so low that cushions the shock somewhat.
More and more credit funds are trying to do business in this field. They might be more expensive but I do not expect this growing trend to slow down this year.
I do wince at the volume of ship orders I am reading about on a daily basis. The equilibrium is still so tight. Owners are naturally trying to catch the peak of the bulk cycle, something I am anticipating in around 12 months’ time maximum. Cycles are now shorter thanks to delivery capacity at the yards, but nevertheless it is important to bear in mind that the demand side for many sectors, notably dry bulk, remains fantastic.
As ever, the editor has put me on the spot asking where the smart money should go on this year. Handy bulk carriers remain a decent bet, I think. However, for the brave, I’d plump for smaller pure chemical carriers, a sector that has finally bottomed out and has little in the way of orderbook.
Now stay tuned for the next column where I promise to deliver some fiery comment on tech and ship finance.
This article first appeared in the just published latest issue of Maritime CEO magazine. Splash readers can access the full magazine for free by clicking here.