Private equity and financing Greek shipping

Annually, the Ted Petropoulos headed, Petrofin Research presents an in-depth analysis of bank loan portfolios to Greek shipping as they stand on the first day of each year.

In 2013 there was an overall reduction of 6.5% with loans booked at the end of the year standing at $61.5bn, down from $65.78bn year-on-year, a decline at a time when Greek shipping is full ahead in expansion mode.

Petrofin reports that specifically, there continues to be a drop in the committed but undrawn Greek ship finance exposure by 11.58%. Drawn loans have dropped further, from to $60.014bn to $56.4bn.

The report notes there are now only five Greek banks lending and of these, the remaining “big 4” now show an increase of loan portfolios. Overall, however, the Greek bank total is the lowest it has been in many years, standing at $10.49bn, or 17.46% less than last year.

Banks lending to Greeks is down to 46 from 51 in 2012. The top 10 Greek ship financing banks now hold 62.38% of the total Greek portfolio, a rise in their market share for the first time in five years.

European banks continue to account for the vast majority of total loans, although they show a reduction from 92% to 90%.

Restructuring RBS remains the market leader but with a reduction of 16.5%. The lead managers in syndicated loans have reversed last year's increase in their managed portfolios and have reduced such exposure by 14%, down to $9.89bn.

Forward commitments to newbuldings have decreased as a percentage of committed loans.

And all this as the Greek-owned fleet was growing and now stands, all told at 3,901 vessels of 291m dwt, and rising by the day.

Greek ship finance has been hard hit as the industry's biggest lenders exited the market at precisely the time when Greek newbuilding orders and second-hand purchases accelerated, but still, ways have been found to fund fleet growth says Petrofin’s Petropoulos.

"With the Greek banks unable to provide new ship finance and caught by the difficulties of European banks as a whole, Greek owners turned to the remaining few active lenders, to Far Eastern lenders, linked only to shipbuilding orders and, increasingly, to US private equity funds," says Petropoulos.

"As the finance gap widened, PEFs were for many Greek owners often the only way to take advantage of what promised to be a healthy shipping recovery," says Petropoulos. "PEFs were not only active but often scoured Greece for opportunities to co-invest and lend to Greek owners believing the anticipated shipping recovery will provide them with the high returns they have been seeking. The result was an explosion of joint ventures most of which investing in eco-friendly vessels of a new design that is hoped will be the vessels of the future."

While Petrofin says there is no hard data on the Greek exposure, “we believe there are over 40 joint ventures in place today” with PEFs, saying "this explains the paradox of a 6.5% fall in Greek ship lending at a time when the Greek fleet grew to record levels”.

However, the Athens-based researcher believes if the shipping recovery continues, [a big “if”], it is expected PEF interest shall wane in 2014 / 2015 as the opportunity to invest at a low point in the cycle falls away. "In addition, over the last months, Chinese ship lending and, especially, lending to non-Far East owners has stumbled due to Chinese credit restrictions. These two developments will be counteracted by the increasing confidence and financial ability of western banks, both European and North American, which will be attracted by the high loan yields of Greek shipping based on modern eco-design vessels.

"It is anticipated, therefore, that mortgage lending will pick up globally, as well as in Greece, in 2014 / 2015," says Petrofin’s Petropoulos.