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UAE ship finance – a difference of opinions

UAE ship finance – a difference of opinions
The great and the good of the UAE shipping industry came together in Abu Dhabi at the fourth UAE Summit of Marine and Maritime Leaders this week with the subject of finance and the availability of funding dominating much of the proceedings.   

In the opening address to around 300 delegates and industry professionals, Bora Bariman, head of energy & marine corporate and institutional banking group at National Bank of Fujairah, said that the outlook for finance is more positive than it was 12 months ago, with more than 50 banks in the UAE active and available to owners and operators.

He did caution that banks are unlikely to “be a one-stop-shop that can write a cheque and solve all problems”, but appealed to the shipping industry and private financers to foster closer relationships with banking institutes.

“I think the solution is to put together a number of relationship focused banks, alongside private equity. We want to work together with owners, fellow banks and equity funds to support the shipping industry. We know the business is there, and it is important to the region. It would be foolish to ignore.”

Bariman’s remarks were met with, if not outright hostility, a number of counter claims from the assembled shipping community.

Banks were accused of being “greedy” during boom periods, pulling back when times get tough, and offering unrealistic finance terms, where ship owners are expected to raise upwards of 50% of the cost of a new build or venture. One delegate asked the panel: “What is the point of this? If I had $800m I wouldn’t be coming to the banks for another $800m” – a remark which drew applause from other industry professionals.

Marcus Machin, principal at Tufton Oceanic (Middle East) Limited – a man who has a great deal of experience when it comes to investing in shipping – presented an admirable defence of the banks and investment vehicles, pointing out that financial institutions seek consistent and reliable returns first and foremost – a difficult claim for shipping in current market conditions.

He added that a spike in funding had been seen in 2012, when confidence in the sector was up and when banks had sizeable capital derived from government quantitative easing programmes. Suffice to say neither of those factors are in play today, resulting in a lack of dearth of funding.

It was not enough to stem the tide of criticism, however, as members of the banking community were accused of not properly supporting its domestic shipping industry. One ship owner said that after being turned down for financing from a bank in the UAE, he went to the same bank abroad and was approved for funding.

“What is it that international banks see that local banks do not?” the panel was asked.

Not finished, delegates raised the examples of China, Japan and Europe, where it was claimed local businesses are given preferential treatment – a philosophy many would clearly like to see replicated in the UAE.

Putting her head above the parapit, Jasamine Fichte, managing partner of Fitch & Co, said that “bashing UAE banks” did nobody any good, and that funding thresholds had rightly been changed to protect banks, shipping companies and the wider economy.

“A big part of the problem the industry currently faces is cheap and easy money that was being leant ten years ago. Banks were lending millions of dollars and that worked while everyone was making money, but local banks had to step back as a result of lots of toxic debt when things went wrong. There is no point in playing the blame game.

“As a local bank, I have to be persuaded [to approve finance] for this industry, because of what has happened previously. The banks are in a good position, there is no bad debt and we are setting up funds, so there are opportunities for good companies. But the threshold [for funding] it is much higher; it is harder to get finance, but that is right. Put yourself in the banks’ shoes, would you be prepared to finance? Shipping is only in the news when something bad happens.”

Fichte acknowledged the support the given to Chinese shipping companies by domestic financial institutions, but added that the lending is backed by the government, which is a scenario very unlikely to be replicated in the UAE any time soon.

Bringing the often spiky conversation full circle, Fichte backed closer collaboration between all stakeholders and even suggested a national shipping fund, but admitted any meaningful alliance is some way off yet.

“Why not look at creating a Dubai Government shipping fund, for example? Private equity on its own doesn’t understand shipping, so this could be properly explained by the banks, who in turn could deal with the funds they trust and work well with. That would be a proper shipping fund, bringing together all the stakeholders, but the government does not want to take the risk of backing a fund. The first step is getting all parties around the table.”

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