presented by Ted Petropoulos - Petrofin Research · • Prepare a comprehensive and honest...

1

Small Owners in Greece: Raising Financepresented by

Ted PetropoulosMD

PETROFIN S.A.

LLOYD’S SHIPPING ECONOMIST

SHIPPING FINANCE CONFERENCE

14th - 15th November 2000

2Small Owners in Greece: Raising Finance

PETROFIN S.A. NOVEMBER 2000

Changes in banks’ perspectives

Long-term factors affecting appetite for shipping

• Commercial banks needed to build up and

subsequently maintain tier 1 capital in the 80’s, 90’s

and today

• Switch to non-risk products and services

• Shipping has a 100% risk weighing factor for a bank’s

capital

• Long held view that shipping is a high risk industry

• Mergers and aqcuisitions led to rapid bank

consolidation on a local, national and international

basis




Long-term factors affecting appetite for shipping

• Credit decisions have been transferred to Head

Quarters’ Credit Committees as opposed to local

branches where there would be direct dealings with

clients and an in-depth knowledge of the local market

• Standardisation of credit analysis and decisions

• Increased detachment between borrower-lender

• Shipfinance transactions are increasingly seen as

product rather than relationship driven




Shorter-term factors affecting appetite for

shipping and type of shipping client

• Flight to credit quality as a result of the 97/98 Far East

and shipping slump

• Overage vessel values worst affected

• Increased international regulation and restrictions

affect mostly older vessels

• Although most banks proved supportive during the

slump, their loan portfolios were stuck with overage

vessels or loans that exceeded vessel values




Shorter-term factors affecting appetite for

shipping and type of shipping client

• Emphasis on newbuildings absorbed a high percentage

of shipping loan volume

• Large corporate shipping clients targeted for selling

banks’ increased variety of products and services

• Increased association of credit quality with size of the

client and the transaction

• Intensified bank consolidation has had pronounced

impact on number, size and geographical presence of

shipfinance banks

6

BANKS INVOLVED IN INTERNATIONAL SHIPLENDING 1992 - 2000

39

28

46

43

43

76

56

98

62

139

58

140

49

112

39

93

36

123

0

50

100

150

200

250

1992 1993 1994 1995 1996 1997 1998 1999 2000

MINOR

ROLE

MAJOR

ROLE

67

89

119

159

201

161

198

132

154

Research by PETROFIN SA © Spring 2000

7

BANKS INVOLVED IN INTERNATIONAL

SHIPPING FOR

1992, 1997, 1998, 1999 AND 2000

1313

12

7 7

9 109

6

11

6

18

15

11 10

6

2020

17

22

5

1010

8

6

11

51

42

2932

14

26

23

20 18

3

52

30

34

53

0

5

1015

20

2530

35

4045

5055

UK

FRA

NC

E

SCA

ND

INA

VIA

GER

MA

NY

NETH

ERLA

ND

S

OTH

ER E

UR

OPEA

N

NO

RTH

AM

ERIC

A

FAR

EA

ST & O

THER

S

1992

1997

1998

1999

2000

Research by Petrofin S.A.© Spring 2000



The Greek Shipowning Industry:

Composition and Analysis

• In the year 2000, small owners

with fleets consisting of 1-4 vessels

accounted for 67.6% out of a 835

total of Greek shipowning

companies (Petrofin Research ©)

9

2000

NUMBER OF GREEK SHIPMANAGEMENT COMPANIES WITH

FLEETS OF 1-2 AND 3-4 VESSELS

IN TERMS OF AGE out of a total of

Fleet size : 1 -2 vessels

No of companies : 376

% of total of Greek companies : 45%

Fleet size : 3 - 4 vessels

No of companies : 189

% of total of Greek companies : 22.6%

Vessels 0 - 9 years of age Vessels 10 - 14 years of age Vessels 15-19 years of age

Research by: PETROFIN S.A. Source: Greek Shipping Directory 2000 April 2000

Vessels 20+ years of age

8 8

35

138

13 1447

302

835 Companies currently operating



The Greek Shipowning Industry:

Composition and Analysis

• Smaller owners own older vessels,

i.e. over 92.35% of 1-4 vessel

fleets are 15 years old or older

11

79

710 24

45

33

89

35

138

47

302

0

50

100

150

200

250

300

350

1 2 3 4 5 6

FLEETS 0 - 9 YEARS OF AGE



FLEETS 20+ YEARS OF AGE

Fleet of: 25+ vessels 16-24 vessels 9-15 vessels 5-8 vessels 3-4 vessels 1-2 vessels

Source: GREEK SHIPPING DIRECTORY 2000 Research by: PETROFIN S.A. © April 2000

2000: TOTAL OF 835 GREEK SHIPMANAGEMENT COMPANIES

DISTRIBUTED BY FLEET SIZE AND AGE

out of which565 GREEK SHIPMANAGEMENT COMPANIES WITH 1-4 VESSEL FLEETS

out of which

522 OPERATE VESSELS OF 15+ YEARS OF AGE (92.35%)

Group A Group B Group C Group D Group E Group F



An analysis of the Greek shipping loan portfolios

by banks with or without a local presence

• Bank lending to Greek shipping

companies is estimated at over $13

billion

13

Bank Portfolios available to Greek shipping in millions of US$

2000A comparison between figures obtained by Petrofin S.A., Marine Money International and LLP

A. GREEK BANKS

800

850

800

350350 350

500500

700

150150

75

250

350

400

50

0

100

200

300

400

500

600

700

800

900

National Bank

of Greece

Comercial Alpha Eurobank Egnatia Piraeus Prime European

Popular

Petrofin S.A.

Marine Money Inernational

LLP

14



B. FOREIGN BANKS WITH A GREEK PRESENCE

2000

2500

2200

750

600

1600

625

550

1100

550

600

350 350450

650

350

300

350

700

700

600650

450

950

400

550

400

300

950

150

300 300

175

200250

250

0

500

1000

1500

2000

2500

Royal B

ank

of

Sco

tland

Cit

ibank

Chase

Manhatt

an

HS

BC

AB

N

Bank

of

Nova S

coti

a

Banque I

ndosu

ez

DV

B N

edsh

ip

Cre

dit

Suis

se

DN

B

BC

V

Mees

Pie

rson

BN

P

Bayeri

sche B

ank

Petrofin S.A.


LLP

15



C. FOREIGN BANKS WITHOUT A GREEK PRESENCE

250

750

400

300

400 350

1600

1200

100 100

400

500

400

5050

750

1200

500

1300

400

0

200

400

600

800

1000

1200

1400

1600

Ham

burg

isch

e

Landesb

ank

Bank

of

New

York

Deuts

che

Shif

fsbank

Bre

men

Landesb

ank

Bank

of

Sco

tland

Vik

ing

KfW

Rem

ain

ing

Germ

an B

ank

s

Chri

stia

na

Petrofin S.A.


LLP



An analysis of the Greek shipping loan portfolios

by banks with or without a local presence

• Greek banks have developed a more active presence

and currently account for approx. 18% of the loan

totals

• Foreign banks with a Greek presence account for an

average of approx. 60%

• Banks without a local presence account for an average

of about 22%. Their share is seen to slowly decline

overtime



Rapid consolidation and reduction of shipfinance

banks to the Greek shipping industry

• Over the last few years the following banks have

withdrawn from Greek shipping:

• Barclays • CIT

• National Westminster • RZB

• ANZ Grindlays • Henry Aschbacher

• Hambros • Dorian Bank

• Guiness Mahon • Hill Samuel

• Societe General • Scotia Bank

• Paribas • First National Bank of Maryland



Rapid consolidation and reduction of shipfinance

banks to the Greek shipping industry

• Reduced numbers

• Reduced variety

• Reduced competition

• Reduced appetite

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How the Banks view the small owner

Pros

More favourable loan terms and yields

Higher loyalty

More intimate relationships

Smaller individual client exposures of interest to

smaller banks

Small Owners in Greece: Raising FinancePETROFIN S.A. NOVEMBER 2000

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Cons

• Higher operating risk due to smaller fleet

• Higher management risk due to slimmer management

• Higher financial risk due to lower liquidity, greater

financial dependency per vessel

• Higher crewing risk due to lower quality of crews

attracted to smaller owners and lack of crewing pool

• Higher maintenance cost risk due to reduced economies

of scale


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Cons

• Higher insurance costs and poorer terms / coverage

• Higher preliminary costs of supplies, provisions, spares

and stores

• Reduced ability to develop long-term chartering

relationships and contracts of affreightment

• Higher probability of port state control inspections


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In Conclusion

• Higher risk

• Higher operating costs

• Lower fleet income

• Reduced versatility, fewer alternatives

• Reduced efficiency

• Time/labour intensive


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In Conclusion

• Higher dependency on a single bank

• Tend to own overage vessels, which first feel the impact

of a shipping slump through reduced cashflows and

values

• Due to overage fleets, reduced ability to overcome

problems over time

• Reduced appetite/interest in banks’ non risk products

and services


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Options available to the small owner

Hara-Kiri

Hunger Strike

Jumping off Cliffs

Hanging


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OR

• Leave the industry

• Engage in cash only transactions

• Merge with other small industries

• Contact a reputable financial consultancy firm


26


A. ATTRACTING SHIPFINANCE

In order to enhance the probabilities of obtaining shipfinance,

what will undoubtedly assist the small owner is to

• Prepare a comprehensive and honest presentation

of the shipping firm

• Provide full background of the principals, their

experience, track record, abilities and performance

over the years for all ventures and activities

• Provide a full credit history


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• Provide a comprehensive net worth statement designed to

show commitment and financial ability to support the new

purchase in particular and the shipping firm in general

• Provide a detailed organisation diagram and short CVs of

the managers

• Provide full details of the proposed vessel(s) including

recent surveys, valuations and earning ability


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• Provide a detailed operating budget and comparison to

other vessels of the fleet or similar vessels (now or in the

past)

• Analyse in depth the intended employment strategy of the

vessel(s)

• Provide a full list of all suppliers, insurance brokers,

chartering brokers, agents, repair firms, yards, etc


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• Provide a character reference list of prominent and

respected people/firms

• Prepare a cashflow analysis including a sensitivity analysis

• Show the existing fleet’s loss/claim record and off-hire

analysis over the years

• Show latest market estimations/forecasts on the vessel(s)’s

sector, including demand, supply and key events


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• Analyse the specific reasons underlying the purchase

• Offer to provide corporate and personal guarantees, as well

as additional collateral if available

• Choose vessels that are as young as possible and do not

have repairs, s/s or d/d due immediately


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• Choose standard vessel designs, i.e. avoid specialised

designs with obvious flaws in length, draught, gear,

configuration, engine type and make, auxiliaries and/or

involving yards with poor reputation

• Avoid vessels below 10-15,000 DWT, which are considered

too small by most banks’ standards

• Identify likely banks and set-up operating bank accounts

and develop a sound operating account relationship


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• Invite the bank’s shipping team to visit your offices and

make a full presentation

• Invite bank to send inspectors to inspect other vessels of the

fleet or provide them with other bank’s surveyors’

inspection reports

• Discuss with other small owners who recently purchased

similar age/type of vessels of which bank financed their

purchases

• Request your lawyer to review recent ship registry

mortgages and ascertain the bank’s involvement and

offered terms


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• Do not request a high percentage of finance

• Try to involve more than one vessel per bank/loan package

in order to reduce individual vessel risk to bank

• Show to interested banks the management information

reports that are available

• Provide copies of financial reports normally provided to

existing lending banks and their timeliness and

comprehensiveness


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• Work within bank’s responses even though they may be

negative/reluctant by positively addressing their areas of

concern

• Offer to visit the bank’s headquarters and make

presentation

• Express your interest to utilise a bank’s other products and

services

• Ask other bank clients to speak on your behalf


35

B. BAREBOAT HIRE PURCHASE

• Not a widely used method in the Greek market

• B/b entails:

«Leasing out» of a vessel normally by alarge/sophisticated corporate shipping company, whothoroughly vets the proposed b/b charterer

Obligation to buy at the end of the bareboat period

Bareboat hire is paid out in monthly in advance and itincludes interest at predetermined rates

A residual amount is normally left at the end of thebareboat period, which is well short of the vessel’sresidual trading life



36


The b/b manager manages the vessel taking full

responsibility for its performance

Owner has right to inspect vessel throughout the b/b

period and ensure proper maintenance

Insurance terms and quality specifically set/approved

by owner at cost of b/b charterer

Vessel price normally higher than market value by 5-

10%



37


The bareboat charterers will incorporate the interest

in the whole amount which needs to be worked out as

there is a tendency to inflate it. There have been cases

where the interest was calculated at 15% p.a.

Down payment is normally less than the equivalent

requested for bank finance, i.e. 15-20% of vessel’s

underlying price

Documentation is based normally on a Barecon A or

Bareboat agreements adjusted to reflect the

individuality of the transaction



38

B. BAREBOAT HIRE PURCHASEA basic example of a 4 year b/b transaction involving a 1981, 22560DWT b/c vessel

39


Important!

a. The option to purchase at any point during the

bareboat term can be negotiated. This means that the

vessel can be bought off at any suitable moment.

b. As bareboat schemes increase the fleet and vessels

thus acquired tend to be of younger and more bank-

acceptable age, there is the possibility that the owner

may be rendered financeable and, thus, obtain bank

finance in due course in order to repay the residual.

The ability to manage the vessel will have already

been proven to the Bank



40


Important!

c. Bbhp’s are more likely during periods of market

slackness when sellers cannot achieve their sales at

prices they have selected.

d. Bbhp has been often used by banks seeking to

recover their loan exposure after foreclosure whilst

keeping “ownership” of the vessel(s)



41

C. LOAN TRANSFER

• This involves the subtitution of one owner for another

utilising the same bank.

• It does, however, still call for new loan documentation

and credit approval



42

C. LOAN TRANSFER

Advantages

• Facilitates a vessel’s sale by a seller and its purchase

by a buyer

• Since it does not involve an increase in loan exposure,

bank approval can be easier to obtain

• There is often a loan reduction as a bank sweetener



43

C. LOAN TRANSFER

Disadvantages

• Full documentation cost which may be prohibitively

high foa a small loan residual transaction

• Tends to be short-term and thus onerous for new

owners

• Seller may request a premium

• Some banks require the continuance of personal

guarantees of the sellers



44

D. DEVELOPING A GOOD RELATIONSHIP

WITH A BANK

(How flexible is inflexible?)

• Banks tend to have a two tier approach, especially

regarding their clients

• Although officially the client may not fulfil the criteria,

unofficially a particular case may be considered and

processed

• Smaller owners’ deals are being done but not let out as

this would consitute negative marketing



45

D. DEVELOPING A GOOD RELATIONSHIP

WITH A BANK

(How flexible is inflexible?)

• The rise in scrap prices has helped

• The client should differentiate himeself from other

small owners by showing quality rather than quantity



46

Conclusion

• Small owner financing still widely done but

quietly and selectively

• The chances to obtain bank finance for

small owners can be enhanced by engaging

a reputable financial consultant


47

Conclusion

• Small owners should consider alternative

forms of finance, where these are available.

An active search is essential

• The search for shipfinance should become a

small owner’s key target and a suitable

strategy and long-term commitment is

required


presented by Ted Petropoulos - Petrofin Research · • Prepare a comprehensive and honest...

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