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OSV segment falls out of favour with lenders

OSV segment falls out of favour with lenders
The battered offshore segment, particularly the offshore vessels category, would face an uphill task in gaining access to bank financing, in view of the sector’s bleak outlook, according to senior banking executives.

Banking executives maintained that while liquidity is still available, stricter regulatory requirements and higher risks posed by the sluggish shipping and offshore markets have led to very cautious approach to lendings.

“We are open to all asset segments (in the next 12 months) with the exception of offshore,” Tom Zachariassen, senior relationship manager at Nordea, told delegates at the Marine Money conference held in Singapore on Tuesday.

The offshore segment, from upstream exploratory assets like drillships, FPSO and rigs, to downstream assets like OSVs, is a very capital intensive industry, as well as being highly leveraged and very technical for the lenders, noted James Tong, managing director, regional head global shipping & logsitics – APAC & Japan, at Citi.

“I am never really a big fan of OSV as the structure is not attractive, and you get a contract for 12 months if you are lucky. This makes our pricing very expensive for these ‘boats’,” Tong shared.

Abhishek Pandey, managing director & head, Asean, South Asia & Middle East at Standard Chartered Bank, quipped that he will also label the OSVs as boats henceforth.

Standard Chartered is known to have a sizable offshore portfolio after it entered this area of business during the last oil price boom. After the collapse of oil price that exacerbated the troubles of the already oversupplied offshore market, the bank has been looking at new structures to mitigate its risks on its existing portfolio.

“Obviously everything is in question now and we have taken a fresh look at the value of the assets and our portfolio,” Pandey said. “The increased costs and regulatory burden have made the market even more challenging, plus the risks that the shipping industry typically poses, pricings have become quite dislocated. We are focusing on value acquisition and we don’t take the asset view.”

Japan’s Sumitomo Mitsui Banking Corporation (SMBC) will only go for bigger offshore projects such as drillships and FPSOs that are on long term contracts, staying clear of the small OSV assets, according to the bank’s head of shipping Asia, Noriyuki Kawachi.

“We will be very conservative but open for business though we see very little new projects. There is going to be very slow development for the industry, which is in a way good,” Kawachi commented.

A key word, used by Lee Keng Mun, head of shipping Asia at HSH Nordbank, is “selectivity”. “Bankers are trying to find the right balance in terms of managing the risks and getting the returns. Liquidity is still out there, but the key word is selectivity,” Lee said.

He added that the HSH Nordbank has fresh budget and is open to all segments, though it has taken a very cautious approach on offshore and is internally debating whether the sector is in for a long term recession or just a temporary downturn.