The emergence of Chinese financial leasing firms has been helping to fill the capital funding gap for shipping following the shying away of the traditional western banks post-global financial crisis.
According to estimates, traditional banks have gone from financing around 80% of the shipping industry in 2008 to about 60% in 2016, while Chinese leasing firms have grown their market share to about 20% last year.
Part of the growing market share for Chinese leasing firms has come from an expanding base of western shipowners, including New York-listed Greek shipowner Star Bulk Carriers, which has raised close to $1bn with the Chinese lessors and enjoyed “extremely positive” working relationships, according to co-cfo Christos Begleris.
“Now is a great time for Chinese leasing companies to go out and lend as we are seeing that their covenants can be more flexible than what is being offered by traditional western banks,” Begleris told delegates at the Capital Link International Shipping Forum held in Shanghai last week.
Star Bulk Carriers completed its first Chinese leasing finance deal five years ago and it considered it a huge success for a publicly-listed company in a very difficult dry bulk shipping market, according to Nicos Rescos, the company’s coo.
“Chinese financing is getting more flexible, cheaper and they are quick to react to Libor. Today we have seen offers like 3% which is impossible five years ago,” Rescos said.
While traditional bank debts continue to be the “cheapest form” of financing, they are no doubt a “diminishing source”, according to Pankaj Khanna, ceo of Pioneer Marine Inc, which has its shares traded on the Norwegian OTC.
“So now we have to look at every financing source available in the market like Norwegian bonds, retail bonds in the US and Chinese leasing. But the biggest handicap of Chinese leasing is getting to complete the deal in a short timeframe like three to six months,” Khanna said, citing his experience of a 18-month long deal with a Chinese leasing firm that eventually did not materialise.
“We then went to a western bank and the deal was done in eight months,” Khanna recalled.
Vikram Hiranandani, director of corporate finance at Scorpio Tankers/Scorpio Bulkers, said the Scorpio group is also be looking at a preferred timeline of three to six months for a deal with Chinese leasing firms. “We are sitting on about $4bn worth of assets between Scorpio Bulkers and Scorpio Tankers, and it is all about diversifying capital sources at a time when bank financing is more restrained and they become more selective,” Hiranandani said.
Dimitris Glynos, vice president finance at Dryships/Cardiff/TMS, has not completed any dealings with Chinese leasing firms due to some differences in pricings. But Glynos qualified that Chinese leasing firms have gradually been able to become more competitive both in terms of rates and pace of closing a deal.
“It will be important for them to diversify a bit more in their portfolio and offer financing options closer to what traditional banks can offer, and these will set themselves up to be in higher demand,” Glynos said.
However, these Chinese lessors need to remain “qualitative” in their offers rather than “quantitative”, warned Harrys Kosmatos, head of strategy & business development at Tsakos Energy Navigation.
“We all know what easy availability to finance capital could do to the shipping market,” Kosmatos said, referring to current problem of having too many ships as a result of too much easy money.
Today, the top five Chinese financial leasing companies in terms of asset value and number of vessels are ICBC Financial Leasing, Minsheng Financial Leasing Co, Bank of Communications Financial Leasing Co, China Merchants Bank Financial Leasing Co, and China Development Bank Financial Leasing Co.
Bank of Communications Financial Leasing, which entered the international market in 2013, recently opened a new office in Germany’s Hamburg to reinforce its presence in the western market. The bank currently has about 30 international clients with about 50% of them from Europe and 25% from Asia, according to its head of shipping finance Fang Xiuzhi.
A smaller and relatively new Chinese lessor is CM International Financial Leasing Co (CMIFL), which opened for business in Shanghai in June 2015. CMIFL is jointly established by China Minsheng Investment Co and Korea’s Hana Bank.
Angela Zhao, director, shipping & offshore at CMIFL, shared that the company’s portfolio is now valued at $1.8bn. Last year alone, the Chinese lessor completed three transactions worth $520m that included clients like CMA CGM and MSC.
She noted that while the Chinese financial leasing model is relatively new to the market, there is already competition among the handful of Chinese leasing houses on the back of the soft shipping market where potentially good deals are far and few.
“We have seen more competition but also found a model to cooperate with other lessors and this model enables us to provide our clients with better leverage, reasonable funding cost and flexibility to put assets on or off their balance sheets,” Zhao said.