Chinese leasing companies say the effect of the pandemic on shipping will be short-lived for most sectors.
Their main worries are growing trends towards anti-globalisation and geopolitics.
Speaking at an online conference organised by Capital Link on Tuesday, the leaders of two major Chinese leasing houses said they were confident that shipping has successfully navigated the challenges of the virus crisis.
Fang Xiuzhi, head of shipping at Bank of Communications Financial Leasing, revealed that his company had booked an impressive drawdown of $3bn during the first half of the year.
While the onset of the pandemic did impact market trends, “we have already seen the recovery of all niche sectors. We are paying more attention to anti-globalisation”, he said.
Jack Xu, deputy head of leasing at CMB Financial Leasing shared Fang’s view that anti-globalisation and geopolitical factors, such as the trade war between the US and China, will have a greater effect on shipping.
CMB slowed down its leasing activity in the first half of the year as it took a more cautious approach. It will probably maintain its leasing portfolio this year at $7bn, which is the same as last year.
Xu said most shipping sectors managed to weather the pandemic, and CMB plans to expand its portfolio in the future.
Fang added that the significant drop in newbuilding orders this year should also bode well for shipping in the future, as vessel supply will be less than the market demand.
“The challenge this has created for us is that the need for financing in the market is more limited. It is difficult to find enough good projects.”
However, Fang noted there are still opportunities for lessors to build their portfolios as traditional European ship finance banks continue to exit the market.
Mainstream financing
Although Chinese lease financing is a relative newcomer on the ship finance scene, it has been quickly established as an important participant.
James Chen, director of financial arranger Smarine Advisors, estimated Chinese leasing has grown by 25% year on year, achieving a $59bn portfolio in 2019.
Its market share is between 20% and 25% of the global ship finance sector.
“It is mainstream, it is no longer just an alternative,” Chen said.
Ji Woon Kim, shareholder of law firm Vedder Price, added that Chinese lessors have become a mainstay partner of shipowners globally and can no longer be considered as just a gap filler.
He said that Chinese lessors are becoming increasingly sophisticated, looking carefully for the right projects and are cautious about how and who they lend to.
Chen said leasing companies are focusing on stronger balance sheets and more liquid assets.
Xu said CMB was prioritising assets attached to long-term cargo contracts that brought in steady cash flows.
“What is also important are the people running the company, who the investors are and who manages the fleet. We look for a good track record, good cash reserves and are well prepared for market fluctuations,” he said.
Xu added that CMB is still willing to work with asset player investors, although this will be a smaller role in the portfolio.
