Step change in Chinese ship finance scene
EVERYWHERE you look someone is talking about China. But the one thing you don’t hear much about is China and ship finance. Well, hang on to your hat, because China can’t do everything at once, but its collective attention is now turning to the link between money and ships, and as with everything China does, the effect may be felt globally.
Speakers at this year’s Shipping China forum, held in Shanghai and organised by Mare Forum and Tradewinds, debated the issues of what is around the corner for ship finance in China. Two big trends emerged. One is that Chinese banks are now willing to finance non-Chinese tonnage post-delivery. As Chinese ship finance is currently relatively well-priced, any bank financing a ship to be built in China, or any owner building in China, should be beating a path to the door of Exim bank and holding out their hands. The other big trend is that China’s second tier shipowners, still giants but until now hidden in China’s coastal mists, are looking for global finance and want to use the tools the rest of the world uses.
On the first trend, of Chinese finance for post-delivery, Chris Williams, director of the Graig group, said the eight Diamond 53 handymaxes which have already begun delivery to Spar Shipping of Norway from Shanghai yards are the first ships for non-Chinese owners for which China’s Exim Bank has provided post-delivery finance.
Williams made the point that ship finance in China is like any other business in China. It has to be done based on strong relationships and on working with the Chinese system, not trying to impose Western ways.
“Why did Exim take a commercial risk for the first time ever on the series of Diamond 53s for Spar? Because of Exim's relationship with Graig, built up over a long period, and their relationship with Nordea, which provided the rump of the post delivery finance. How did that benefit us? By providing a better rate and lower cost, and by giving us access to the relationships Exim has with yards,” explained Williams.
Benjamin Bao, deputy general manager of Export Credit Department, Exim Bank, said Exim is increasingly hungry to widen its portfolio, and it is already looking at a number of deals where it works with Western owners and Western banks on ongoing ship finance.
“There is a lot of scope for growth in Chinese shipowning, and hence scope for growth in Chinese ship finance,” Fortis Bank’s Gust Biesbroeck told the meeting. But he made the key point that the big strong groups such as COSCO and CSG were already well integrated into global capital markets and well served by banks. His point was that the hungry bank had to look at the next level of owners, those without a global household name. There are problems there, he explained, as China’s second tier owners are:
- Largely uncharted territory for international banks
- Lack corporate structure difficult for Chinese banks
- Under radar screen of capital markets
- Lacking financial transparency
His thesis was that an international bank could help these shipowners with structuring and reporting, and so help them access global markets. Gao Yanming, president of Hebei Ocean Shipping Co, (HOSCO), was listening intently, as he is exactly that market personified. He said, “While we have access to the resources of domestic Chinese capital, we Chinese shipowners should make more efforts to utilise the international capital to prompt our expansion.
“In 2004 we bought up 13 ships, including five VLCCs, seven capesizes, and one panamax, totally valued at over $500 million.” Five hundred million US dollars is a lot of ship finance. Some of that cash came from Nordea Bank, Ness, Risan & Partners, Bank of China (Hong Kong) Limited, and Fortis Bank.
Gao continued, “Yet at the moment it seems that the Chinese financial community has not fully realised the potential of the Chinese shipping market and is even less prepared for its exponential growth. This situation has created a bottleneck for the growth of the Chinese shipping industry and led many to miss the best timing and strategic opportunities. Ship financing is a globalised market with great potential and volume. Chinese financial institutions should take advantage of this historical opportunity and endeavour to play a role in ship financing.
“China’s shipowners have to first resort to domestic financing. For a variety of reasons, however, nowadays, only a few banks and financial institutions in China are acquainted with the shipping industry and have the ability to provide the efficient financing services in a timely manner and on a large scale. Therefore, China’s shipowners should as an alternative pursue the international financial institutions for this purpose. Doing so not only provides a solution to the capital shortage for China’s shipowners, but also offers diversified opportunities for international investors.”
Step this way, the market’s waiting.