Slide 1 Hamburg, 13 June 2015 Sources of Shipping Finance CASS Business School Event at Peter Döhle...

Hamburg, 13 June 2015

Sources of Shipping Finance

CASS Business School Event at Peter Döhle Schiffahrts-KG

Ralf BedranowskyMember of the Board of Managing Directors, DVB Bank SE

Agenda

2 Industry Attractiveness

Client Selection

4

1 MACRO - Shipping Environment

Pre & Post Delivery Finance


Traditional Bank Debt

Equity and Debt Capital Markets6

5

3

• Seaborne trade is growing with CAGR of 4.0% from 2000 to 2013

Demand: Increasing Global Seaborne Trade With a Focus in Asia

* Source: DVB Shipping and Offshore Research, IHS Global Insight

Development of International Seaborne Trade Selective Seaborne Trades

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

5,1935,1465,2295,581

6,0986,416

6,6646,916

7,3706,853

7,7698,210

8,5018,685

Container Cargo Tanker Cargo Dry Cargo Total

Mn Tonnes

2000-2008 2009-2013 2000-2008 2009-2013 2000-2008 2009-2013Dry Cargo Tanker Cargo Container Cargo

-10%

-5%

0%

5%

10%

15%

20%

25%

Intra Asia (incl. China) China Europe North America South America

Average Growth Rate



• The remarkable increase in Asian seaborne trade is mainly driven by China, which had an average volume growth of 15% over the period. The Chinese economy, however, grew 7.4% in 2014, the slowest since 1990, and down from 7.7% in 2013.

• Decrease in the North American Tanker trade volume is primarily attributed by the US becoming more self-sufficient.

Supply: Global Development by Sectors

* Source: DVB Shipping and Offshore Research, MSI

Global excess supply across shipping sectors Orderbook as % of the fleet in terms of capacity

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Dry bulk Container Products Tanker

Crude Tanker

Chemical Tanker

LPG LNG

2011 2012 2013 2014



Dry bulk Container Products Tanker

Crude Tanker

Chemical Tanker

LPG LNG

0%

5%

10%

15%

20%

25%

30%

35%

2011 2012 2013 2014 2015f

• Supply and Demand imbalance across shipping sectors. • The Dry Bulk and LNG space experienced an excess

supply CAGR of 7,8% in recent years, as opposed to the other sectors showing a steady decline in excess supply.

• Significant Orderbook for all shipping sectors, especially for the Gas Carriers, the latter with an average volume growth of 25% over the period.

What are the risks and rewards associated with each sector?

What are the sectors we should be increasing our exposure to?

What type of assets should we finance?

Continued close analysis of demand fundamentals, utilization rates, seasonal spikes, vessel values and freight rates is key.

Need to closely monitor what the optimal solutions are for shipping companies that have over-stretched their balance sheet by committing significant capital expenditure by placing too many orders.

Exposure must ideally be backed by fixed charter contracts to charterers with high credit worthiness and / or to operators who have demonstrated outperformance compared to the spot market.

Selectively financing owners that have strong technical and commercial management skills and have capability to honor financial obligations in case of market downturn.

Target vessels that provide the best commercial opportunities. Quality Shipyards should be preferred as vessel values will be better preserved, even for older tonnage.

A lot of focus has been on modern eco-design vessels that are younger than 5 years of age. Some of the modern tonnage as young as five years needs to be avoided as these vessels are equipped with large engines which are not desirable in the event high bunker prices prevail.

2 Industry Attractiveness


Key Features – “Incorporating the 6 C’s”

Client Attributes

Credibility Good track record in

good and less favourable times

Close relationship and strategic dialogue with Lenders

Transparency, reliable/corporate family structure

Sustainability (resilience)

Compelling investment story

Type of Assets / Vessels Charter Coverage Liquidity (enough cash)

Character Capacity Capital Company Conditions Collateral


Client Selection3

All comes down to the 6’s


Term Loans Club Deals Syndicated Facilities Bullet / non amortizing Revolving Credit

Facilities Bridge Loans Letters of Credit Warehouse Facilities Public Debt ECA Financing Derivatives, IR Hedging Subordinated Debt

Traditional Bank Debt4

More opportunistic lending towards first tier Shipping companies following several years with reduced competition.

Flight to quality on part of Shipping Banks remains. Downward pressure on pricing and softening of key covenants. Strong interest for ECA structured transactions especially with a

project focus. Lending remains Sector dependent i.e. tougher market conditions

for Offshore (in light of falling oil prices) and Drybulk, leading to reduced Lending. Anticipate restructuring will take place in second half 2015.

Some banks are more focused on cashflow and terms rather than asset.

Majority of banks targeting strong relationship clients due to corporate focus (with recourse). Employment is key.

Expectation for less volume in new business in 2015. Focus on existing clients.

Banks less willing to underwrite. Deal size likely to be smaller with more club deals.

Bank Debt / Facility structures - requiring use of Balance Sheet

Current Market Trends for Bank Debt

Banks by Type of Focus for Bank Debt

• Large proportion of banks targeting top tier clients due to corporate focus and especially projects with employment.

• Increased interest and appetite has resulted in downward pressure on pricing and softening of transaction terms.

• Higher visibility/interest for ECA structured transactions and number of larger syndicated deals are increasing especially in energy related sectors.

• Maritime (Shipping and Offshore) syndicated bank debt lending and bond issuance is increasing totalling US$109b (US$94b bank debt, US$15b bonds) in 2013 with US$82b in H1 2014 (US$73b bank debt, US$9b bonds).


Traditional Bank Debt4

5 Pre & Post Delivery Finance

Post Delivery Debt

Drawdown on delivery of vessels Secured with mortgage on the vessel, corporate guarantees,

cash and potentially secured employment Risk for Lender is reduced

Pre Delivery Debt

Drawdown on yard instalment milestones Banks are highly selective and quality of shipyard is key Mainly for Tier One Clients with strong balance sheets Secured in NB contract, unencumbered assets, corporate

guarantees, cash and potential for step into future employment

Higher Risk for Lender Difficult to achieve in current market environment

Alternatives to Pre Delivery Debt

Equity Bonds IPO’s / Share Issues Mezzanine Bank debt Combination of the above



Term Loan B Investment Grade

Bonds Sub Investment Grade

Bonds Norwegian High Yield

Bonds US Baby Bonds Medium Term Notes Commercial Paper Convertible Debt Warrants IPO, Ordinary Shares,

Secondary Offerings, Preference Shares etc.

Perpetual Debt Equity Investments

Equity and Debt Capital Markets6

Equity Investors, Private Investors, Institutional Investors

Traditional Capital Market products

Equity and Debt Capital Markets are a tool for diversification of funding sources but are arguably only open for good names in the current market environment.

Bond Market remains closed for now but for how long? Term Loan B market is taking a breather but expected to return. Large refinancing & restructuring requirements for Offshore Bond market

expected in 2015 . Follow on share issues and some IPO’s taking place over the last 10

months for select names (i.e. Diana, Navios, Star Bulkers, Dryships, Euronav, Double Hull Tankers, Hafnia Tankers, Hoegh, Golar, Topships, Polarcus etc.) – some with significant negative impacts on share price.

Challenging Market Conditions for new IPO’s for most Sectors at present but window of opportunity could open soon for sophisticated Shipping Companies with the right tonnage and the right truly compelling investment story.

Investor preference so far in 2015 is for higher rated Bonds compared to 2014.

Current Market Trends for Shipping Capital Markets

Lend

ing

Focu

sIn

vest

men

t Ban

king

Foc

us

Generalist Asset Specialist

Credit- Seller

Lend

er w

ith C

ross

-Sel

ling

IB-Service

Provider

with

di

strib

ution

with

out

dist

ributi

on

Source: zeb(1) Source: Tufton Oceanic, “Too Much Equity, Not Enough Debt?”, 2014.

Generalist

Boutique

Lenders with Distribution

Exclusive Lenders

Strong growth in DCM & ECM (27%, 16 %, respectively) 2006-2013‒ High yield bonds 85% of 2013 global DCM revenues

Fragmented market in DCM & ECM top 10 banks capture c. 40% of deal volume

New York & Oslo are key capital markets for shipping issuances

Share of unfunded orders increased to US$ 60 billion in 2014, leading to growing funding needs(1)

Balance sheet constraints of traditional lenders due to Basel-III capital

Capital markets an important alternative source of funding‒ More familiarity with shipping & offshore in recent years‒ Increased receptivity to new & repeat issuers

6 Equity and Debt Capital Markets


Investment Banks by Type of Focus

4 business model clusters in market: generalist investment banks, specialised investment boutiques, specialist lenders with distribution and exclusive lenders


Thank you for your attention and kind hospitality

Slide 1 Hamburg, 13 June 2015 Sources of Shipping Finance CASS Business School Event at Peter Döhle...

Documents

Transcript of Slide 1 Hamburg, 13 June 2015 Sources of Shipping Finance CASS Business School Event at Peter Döhle...