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ESG and alternative financing in the spotlight

A New York Maritime (NYMAR) with the breakfast wrap-up event to Marine Money 2019 coming two days after the Global Maritime Forum’s high profile launch of the Poseidon Principles meant the importance of ESG investing (Environment, Social and Governance), as well as alternative finance and consolidation.

Jeff Pribor, cfo of International Seaways, explained that ESG funds were “evolving rapidly” and tended to be “long only” and as such were looking for shares with more liquidity than most shipping stocks can offer.

Christa Volpicelli, who runs maritime investment banking at Citigroup, commented that ESG was really part of a larger package where a well rounded company is integral to the investment proposition.

Read more: The Poseidon Principles and a 'green transformation' of shipping

A related discussion, a topic from previous years, concerned the role of different types of investors, how “alternative capital” was fitting in, and whether European shipping banks would re-emerge into the dominant position that they once enjoyed on the right side of balance sheets. Kevin O’Hara, from AMA Capital, lamented that: “We do other things, but our main business over the past 10 years has been restructurings…” with mainly weak shipping markets.

Martin Lunder, who oversees Nordea’s shipping and offshore activities, described typical shipping loans comprising 50% - 60% of asset values, with margins on Libor reaching up to 4%.

Panelist Michael Kirk, of RMK Capital, noted that “alternative capital” offerings, his firm’s specialty, will become more efficient in filling the void left as banks move out of shipping finance.

Pribor added context, explaining that International Seaways’ large money raise, as it purchased six VLCCs from Euronav in late 2017, included both bank debt and alternative funds at a higher Libor margin- which he says “made sense for us at that time”.

The discussions of consolidation focused on financial scale- as shipping companies might transition from being viewed as “Value” investments with valuation based on Net Asset Value, or NAV through the “Growth” mode, to more highly regarded “Dividend” stocks [valued based on cash flows].

Hamish Norton, StarBulk’s President, explained that its acquisitions of “vessels compatible with our fleet”,some through “ships for shares” transactions were structured to maintain the company’s existing financial ratio.

The result, he said, was a bigger company with more liquidity- more appealing to investors, that was more competitive with reduced overhead per vessel per day. Citibank’s Christa Volpicelli highlighted that the bigger company would support higher valuations, and bring in additional institutional investors but that “we’re not quite there yet”.

On scrubbers, the panel conceded that possible spreads of low sulphur fuels over high sulfur fuels could not be predicted with any certainty, but in the words of Jeff Pribor even at low spreads- “it’s still good capex,” referring to the capital expenditures required to purchase and install scrubbers.

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