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Poseidon Principles gaining traction and creating opportunities

The three-day Connecticut Maritime Association (CMA) virtual conference came to a close, ending a busy North American Maritime Week where the future of fuel for ships was a dominating topic.

The final day included a highly informative panel on the Poseidon Principles- the framework for shipping finance that rewards efforts at decarbonization. Jeff Pribor, Chief Finance Officer at listed tanker owner International Seaways detailed a shift in emphasis within ESG, in the maritime context, from the “G” (Governance) to the “E” (Environmental).

In January 2020, International Seaways had closed on a $390m loan  facility with a consortium banks that were Poseidon Principles signatories, refinancing higher cost debt from 2017 shortly after it had been spun out from Overseas Shipholding Group. Some $300m of the new loan contained provisions where pricing would be adjusted according to successes in reducing the carbon efficiency of its fleet.   

Pribor said, “We took a small but important step in trying to tie our lending margin to [the IMO trajectories embodied in the] Poseidon Principles in terms of reporting.” He added that the “IMO has been very helpful in developing different trajectories for different ship types”, and described the company’s loan as “a good example of just what is going to mushroom into the many ways to use Poseidon Principles in finance for shipping. We are pleased to have played our part.”

Georgios Plevrakis - Director, Global Sustainability, from the American Bureau of Shipping (ABS)- with four newly opened “Sustainability Centers,” explained the regulatory timetables for carbon reduction, and then said: “Shipping is probably going to reach [IMO targets] by 2050 unless we do not have decarbonization initiatives and policies that go across the value chain.” He said that the role of ABS “was to act as a verifier and RO that provides validation of the calculations, and certifies the alignment with required objective.”

Banker Evan Uhlick, from DNB, one of the institutions participating in the recent International Seaways loan, alluding to said: “The Poseidon Principles are still in the opening innings- we are definitely in a data collection mode at present.” He pegged the overall portfolio size of the 18 signatory banks, up from 11 original signatories as of mid-2019, at around $150bn.

Uhlick also provided additional insights into the link between meeting and exceeding carbon reduction targets and ship finance measures. He explained that banks assessing shipping (and other) credits look at a suite of financial ratios, but also look at likely monetary recoveries in the event of a loan default. Uhlick suggested that more compliant/less polluting vessels would likely see higher valuations than their inefficient peers- leading to a more favorable credit metric.

Signatory banks are now in the home stretch of preparing reports of their climate alignment scores for their shipping portfolios- with the first year’s reports due in November.

The Poseidon Principles are a delight for the burgeoning coterie of number crunchers  at consultancies, universities and Class societies now coming to the aid of shipping companies which must supply data to the European Union (in many cases), Flag States, and now- to the banks, who, in turn, must map out the trajectories of their shipowner clients in meeting a decarbonization pathway.

On the panel, Marsoft’s Julia Zhan detailed a host of economic models being developed and noted that: “In terms of the…data collection, several banks have engaged Marsoft and our business partner Umas- who is a co-author of the Poseidon Principles technical guide,  to help them throughout this process.”

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