Bank lending has made a big comeback in Greece, alongside a growing ecosystem of alternative finance platforms offering cheaper, more accessible capital.
Konstantinos Mexias, a partner at Ince’s Piraeus office, told TradeWinds that although owners in Greece have plenty of finance options, the main issue is cost.
“If you are happy with the leverage ratio and the terms provided by traditional bank financing, you could probably obtain lower-cost debt,” he said.
“But if you are interested in high leverage, or you have a specific transaction where you need to deploy capital sometimes very quickly, you can obtain financing from alternative finance providers, [but] this can be a little bit more costly.”
But although bank finance is there, lenders in Greece are being conservative and trying to manage their risk. Rising asset prices have added to the complexity.
Existing shipping loans with banks are being refinanced on the basis of higher market values of vessels, Mexias said.
“But generally, we see that the banks — all banks, Greek and international — are somewhat more conservative because of how high the current market values are compared to the historic values,” he added.
“This could mean that if banks provide the normal leverage ratio of 50% to 60%, if the market values go down, then it could be a facility that will be very highly levered.”
This is particularly relevant in the container segment, where ship values are currently “extremely high”.
“We have seen refinancing transactions with very, very low leverage ratios — sometimes even below 30%,” he added.
There is even some similar concern for the bulker segment, another vessel market that has done well over the past couple of years and in which asset values have appreciated.
It is, of course, easier to gain bank finance where there is employment coverage that will de-risk vessels’ future cash flows. Typical leverage is “a little over 50%”, depending on the transaction, the age of the vessel and its forward employment.
On the flip side of this, liquidity for owners of boxships and bulkers has been so positive that some companies have been prepaying loan facilities, Mexias added.
But alternative finance is not without its drawbacks. For one thing, owners need to be aware of the equity stake they may be giving away. Documentation can also be complex and require a keen legal eye, whether for shipowners, leasing firms or banks that provide back leverage to alternative financiers.
“When it comes to alternative finance, because the structures are generally not plain vanilla, they require a little bit more of a careful review and consideration by the parties,” Mexias said.
“In leasing, the usual structure provides that the lessor — being an entity or advisor advised or managed by the alternative finance provider — that they are the owner of the vessels, while what we would consider a shipowner are simply verbal ‘charterers’.
“They don’t have legal title to the vessel, although they will generally have the right to purchase the vessel for a specific price that fluctuates during the tenor of the financing,” Mexias explained.
“In those instances, it is very important to be careful on how the equity interests of the lessee/shipowner can be protected — how the verbal charter is to be terminated; how the transfer of ownership can take place if the shipowner defaults, how the leasing platform can enforce its rights, repossess the vessel and so on in the contractual aspect.”
This is particularly important in lease financing because the rights of the parties must be agreed specifically on certain issues, whereas in traditional bank financing the mortgagor would be able to rely on legal and equity protections, he said.
Banks in Greece do provide back leverage to alternative financiers, but it can be difficult to come by. This has led to tie-ups and partnerships with established owners, Mexias said.
Ince’s Piraeus office has expanded over the past 12 months with the addition of four new lawyers and a paralegal, Mexias said.
The team acts “very regularly” in ship finance transactions on behalf of both shipowners and financiers, he added.
“In order to make investments, some of the alternative capital providers also make investments in the form of equity, doing JVs [joint ventures] with shipowners and taking equity positions,” he told TradeWinds.
“At least one” shipowner has even launched a private fund over the past year to back up an alternative financing platform.
Greece’s contribution to the ship finance world runs deep. Even if alternative finance platforms are not themselves backed by Greek equity, all have Greek officers and relationship managers who are in direct contact with their clients in Greece, Mexias added.