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Decline in traditional ship financing sources threatens shipping

Decline in traditional ship financing sources threatens shipping
The decline in traditional ship finance and a lack of provision from regional banks have posed serious challenges to the shipping industry as a whole, but at the same time triggering the rise of alternative funding.

According to reports verified by Reuters, the substantial decline in finance from European banks in particular, compounded by a lack of shipping finance provisions from regional banks, has caused liquidity in the shipping industry to tighten, forcing marine operators to seek alternative finance in order to continue operations.

With shipping facing a capital shortfall of tens of billions of dollars, this year alone, industry experts will come forth to debate the issue at Seatrade Offshore Marine & Workboats Middle East (SOMWME) at Abu Dhabi National Exhibition Centre (ADNEC) on 25 – 27 September 2017.

The discussion will be tackled during the SOMWME Finance Update, in a session titled ‘Taking stock - how to make the most of your company assets’, which concludes the first day of the conference programme.

The session will analyse the viable financial options and trends shaping the offshore marine and workboat industries. The panel features renowned industry experts such as David Manuel, Senior Marine Specialist - Petrodata, IHS Markit; Knut Mathiassen, Managing Partner, NorthCape DMCC; Bora Bariman, Head of Energy & Marine, Corporate & Institutional Banking Group, National Bank of Fujairah and Tien Tai, Partner, HFW.

Calling for the Middle East shipping industry to urgently reassess how it secures liquidity, Tien Tai commented: “The traditional European banks with ship finance desks are no longer lending the historic amounts they once did and this is compounded by a number of European banks retreating from the ship finance sector altogether.

“In the Middle East, we see some new lenders coming into the shipping industry but this does not replace the capital shortfall left by the exiting banks. There has been an ascendancy of alternative capital providers in the last 18 months, offering liquidity at a higher pricing, although these are more suited to one or two ship projects and not a substantial refinancing.”

The industry has weathered many storms since the global credit crunch impacted operations in 2009, however, there is hope on the horizon.

Islamic finance is widely regarded as a positive means by which to generate equity and maintain health in the sector, although growth is hampered currently by muted enthusiasm from major local banks to operate active shipping desks.

Recognising that liquidity was tightening, earlier this year Dubai Maritime City Authority was examining the possibility of creating a $1bn shipping fund to support the emirate’s maritime sector during this time. According to ship valuation company VesselsValue, the UAE’s shipping fleet is estimated to be worth up to $10bn.

Tai added: “In terms of what it takes to get financing these days, you really have to be a top tier owner with a strong credit rating – but not everyone is a strong owner. The owners in the Middle East dominate the small and mid-tier space and it is these owners feeling the squeeze in the decline of traditional ship finance.

“The companies we see receiving finance from banks all demonstrate a strong track record of previous borrowing, contributions from owner and shareholder equity, and a transparent structure and a young fleet.”

Commenting on the importance of the finance session at SOMWME, Emma Howell, Group Marketing Manager, Seatrade Portfolio, UBM EMEA said: “The finance update is always an essential element of every SOMWME event we organise and the 2017 version will no doubt contribute vital insight to a very timely conversation. The issues that face the global industry are amplified in this region by the fast pace of growth and the economic importance of shipping and trade.

“The ability for the regional banking industry to identify and react to the gap in the market will be vital to the health and agility of the sector in future as countries across the region realise their developmental ambitions.”

Moving away from the conference - new to the exhibition floor this year will be ‘Drone Zone’ in partnership with ABS and Drone Pro. With three live demonstrations shown daily, this exciting Zone will showcase new tools such as wearable technologies, unmanned aerial vehicles / drones, and remotely operated vehicles.

“These live demonstrations reflect the growing use of advanced inspection technologies across the shipping and offshore sectors as the increasing complexity of assets and operations shifts how classification services are delivered,” added Howell.

ABS, which is bringing the presentations to SOMWME with Drone Pro, is currently conducting field studies to evaluate how the current capabilities of wearable technology, particularly eyewear, are best applied to enhance asset-inspection practices. The pilot programs, which include a range of vessel and offshore asset types, are focused on improving the efficiency of class opera­tions, streamlining the capture and visual display of information and creating a more collaborative environment for remote interaction.

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