"I don’t think it will cease to exist,” said Robert Perri, chief financial officer of Greek shipowner TMS Cardiff Gas. “But I do think it’s cyclical, and the last couple of years of aggressive financing are not what we will see going forward.”
Did somebody say “cease to exist”?
Perri was talking about the most powerful force in ship finance, Chinese lease financing, which goes up and up and up and never goes down.
Last year, shipowners drew down a record $12.6bn from the top 10 Chinese leasing companies, according to Shanghai-based Smarine Advisors. Chinese lessors hold $51bn in shipping assets — perhaps a 30% global market share.
But some observers say the swollen numbers include drawdown on already done deals, and that the lessors may not be as eager for new business as before.
Principals and executives of major Greek shipowners at this week’s Marine Money conference in Shanghai all have warm feelings towards Chinese lease financing and would hate to see it go.
But several are grieving — hypothetically — over losing access to a form of funding of which they have grown fond. And even some of the lessors say their rocketing growth trajectory may be flattening out.
Since 2007, when the authorities in Beijing gave the go-ahead, ICBC Leasing, Bank of Communications Financial Leasing (Bocomm Leasing), CMB Financial Leasing, Minsheng Financial Leasing and others have built up a collective portfolio of thousands of internationally trading vessels. The shipping portfolio of ICBC Leasing, which has about 280 vessels, broke the $10bn mark in 2017, followed by Bocomm Leasing in 2018, and some of the smaller players are still in a growth phase.
For many global shipowners, the leasing houses became an indispensable ingredient of the business because they entered the market just ahead of a retreat by traditional European banks.
The Greeks want to have their cake and eat it — to enjoy the flexibility of lease financing but with call options that allow them to do asset play with other people’s assets
But traditional lenders are showing signs of emerging from an extended hibernation and the Chinese leasing behemoth may face credible competition again, never mind the deep pockets and seemingly inexhaustible appetite.
Last year, the gushing current of announcements of new Chinese lessors in shipping slowed to a trickle. The volume of new business the leasing houses are writing has come off its peak, and one of the biggest players tells TradeWinds that although his company expects to do new transactions, drawdowns on already announced deals will be enough to meet its shipping investment targets for 2019.
Perri would hate to see them go, not least for their superpower of being able to swallow the ocean in a single gulp. “A four-ship, $640m LNG carrier deal done by a single bank? European banks today could never do that without syndication,” he said.
Jerry Kalogiratos, chief executive of Capital Product Partners, agrees. “The Chinese leasing houses can do big tickets in a single transaction that would previously have had to be a big syndicate deal with several lenders,” he said.
The Greeks came bearing suggestions for improvement this week. Simpler terms and conditions would help fend off the competition. More opportunities for medium-sized owners that European banks are increasingly courting would be good, too.
And they warn against throwing cash at projects.
“If they continue to give 80% leverage in a good market, they will regret it,” said John Fostiropoulos, a co-principal of Almi Tankers.
But what the Greeks want more than anything else is to have their cake and eat it — to enjoy the flexibility of lease financing but with call options that allow them to do asset play with other people’s assets.
“If anything is in the DNA of Greek shipping, it is asset play,” Kalogiratos said.
“To have the flexibility to sell the ship is essential to shipping,” pleaded Alexandros Tsirikos, chief financial officer of Top Ships.
Like the others, Tsirikos believes the Chinese houses will meet any challenges, not least because of the depth and professionalism of the shipping teams they have built so rapidly.
“These are big players, and they’re here to stay,” he said. “But I agree that [Chinese financial leasing] will transform. We will see some improvement.”
“I hope they are here to stay,” Fostiropoulos added. “But they will have to be cautious.”
The Greeks are surely right. There’s no reason to fear that Beijing will turn off the ship finance taps any time soon, but the question is how they will continue their rapid evolution in a more competitive, less shell-shocked market. Their rivals and their customers are going to be watching closely.
