Norwegian export credit guarantee agency GIEK has joined Germany’s KfW IPEX-Bank in providing a $72m loan agreement to Idan Ofer’s Quantum Pacific Shipping to buy scrubbers from manufacturer Clean Marine.
GIEK has issued a guarantee of about $56m against the $72m loan from KfW, which is another major provider of export credit to shipping.
The amount of equipment to be bought from Norway's Clean Marine was not disclosed, but Singapore-based Quantum Pacific is clearly ordering a large number of scrubbers to fit on its fleet of about 125 ships covering a wide range of vessel types and sizes.
Cyril Ducau, chief executive of sister company Eastern Pacific Shipping, said in a statement to TradeWinds that fitting scrubbers was part of both companies’ strong commitment to environmental and social policies. His company manages Quantum Pacific’s vessels.
The backing of GIEK on the loan facility involved a thorough approval process, which validated our decision to use exhaust-gas cleaning systems. We are happy to have taken this proactive approach to comply with IMO 2020.
“The backing of GIEK on the loan facility involved a thorough approval process, which validated our decision to use exhaust-gas cleaning systems," he said. "We are happy to have taken this proactive approach to comply with IMO 2020."
Tough nut to crack
Scrubber financing has been highlighted as a tough nut for shipowners to crack. Hugh Baker, a former HSH Nordbank lender who is now chief financial officer at Scorpio Bulkers, described it last month as one of the more difficult financing issues he had to deal with in his career.
The main problem is that scrubbers, once installed, essentially become a part of the ship. This makes it difficult for lenders to achieve the desired security to extend financing if they are not the existing ship-mortgage lenders. The scrubber financier would want a second mortgage on the ship, and the current financiers are unlikely to allow it.
That is where export credit guarantees can come into play, said Solveig Froland, GIEK shipping, yards and offshore director, and senior vice president Anders Gerlach Nielsen while in Singapore for the contract signing.
GIEK is a public-sector enterprise under Norway’s Ministry of Trade, Industry and Fisheries. Its purpose is to promote Norwegian exports and investments abroad through the issue of guarantees, which are issued on behalf of the Norwegian government.
GIEK can accept up to 85% financing of the export contracts’ value and can cover up to 90% of the loan. The most likely coverage would be 70% to 80%. The residual risk is covered by a commercial bank.
Norwegian content must account for at least 30% of the amount of Norwegian supplier contracts.
Some financiers have argued that export credit agency (ECA)-supported financing can be time consuming, strongly focused on top credits and likely not available to everyone.
Froland and Gerlach Nielsen readily admit that it is not for everyone.
“It is not that efficient to arrange ECA-financing transactions if it is only for a few scrubbers,” said Froland, who also stressed that GIEK’s evaluation criteria is just as stringent as that of lending banks.
“It is much easier to do it for large contracts like the one we have just entered into with Quantum Pacific.
“We do not select clients based on the perspective of customer strategy. We use the same processes banks do for assessing customer risk and compliance. We work in collaboration with the banks so we share the security and share the same terms.”
Taking a commission
GIEK earns a commission for providing guarantees and, while this may add to financing costs, Froland argues that the premium can be worth it in the long run as having a Norwegian AAA low-risk rating is reflected in the credit pricing.
The Quantum Pacific deal is the first large scrubber transaction that GIEK has been involved in, although it has received a lot of enquiries and had serious discussions with a number of parties. It expects to tie up more such deals in the near future.
GIEK’s involvement in the scrubber market has been very limited until now. We think this means that a lot of shipping companies are doing their own financing. I would guess that half have been funded by the companies themselves.”
“GIEK’s involvement in the scrubber market has been very limited until now," Nielsen said. "We think this means that a lot of shipping companies are doing their own financing. I would guess that half have been funded by the companies themselves.”
A clear trend that GIEK has noticed is that most of the interest being shown for scrubber financing has come from an international range of owners of large vessels that perform long voyages. Most are tanker and containership operators.
Debate still raging
The debate still rages about whether scrubbers or low-sulphur fuel will be the best way forward from both cost and environmental perspectives. There are also differences of opinion about the merits of open-loop, closed-loop and hybrid systems. Froland says it is not GIEK’s role to decide which is best.
“We are client-led," she said. "It is up to the buyers to decide what they want. We do not have the technical competence to figure out what is the best choice.”
Eastern Pacific’s Ducau is clearly in the growing scrubber camp.
"While other companies took a wait-and-see approach towards environmental regulations, we worked tirelessly to ensure exhaust-gas cleaning systems were our best option to reduce the environmental impact wherever we operate,” he said.
LNG-powered ships open other avenues for GIEK in traditional shipping.
Norway’s leading role in the technical development of LNG propulsion systems for commercial vessels should see GIEK further expand its presence in the ship-finance space as an increasing number of owners eye the possibility of ordering LNG-powered ships.
“LNG will add on to our activities and open up more space for our participation with traditional shipping segments,” Nielsen said.
GIEK has been active in the LNG space but mainly through the oil and gas sector. This is a high-value segment that it clearly likes.
On the shipping front, the agency has already participated in the financing of propulsion and tank systems for expedition cruiseships being built in Norway, and it expects this involvement will increase as exports of LNG fuel systems from Norway rise.
