The turmoil in China’s ship finance industry has revealed a real conflict between traditional brokers and the whole lease finance world — especially the financial deal arrangers associated with the Chinese leasing houses.
It goes beyond professional jealousy to the suspicion that the industry would be better off without their influence.
The criticism comes after two waves of detentions this year. Some of the top names in global ship finance still remain out of sight in undisclosed locations in China, in a secretive Communist Party investigation of unprecedented scale.
TradeWinds has reported extensively on the detentions, whose targets include well-known financiers and brokers from companies such as the Export-Import Bank of China, ICBC Leasing, Minsheng Financial Leasing, Bank of Communications Financial Leasing, Smarine Advisors and Landmark Capital.
It is important to mention that the people whose detentions have been reported are being subjected to the internal discipline of a political party — and not just any political party. None has been accused of any wrongdoing, legally arrested or brought before a court.
But the detentions have rattled the Chinese ship leasing community — which remains, believe it or not, as busy as ever, with a huge deal flow in newbuilding finance and secondhand refinancings.
“Everyone is doing new transactions every day,” a prominent broker with a close view of the Shanghai ship finance scene told TradeWinds this week. Like several others, he had no interest in speaking on the record on the subject.
More current deals are low-profile than in the past, and this can give the impression that lessors whose officials have not been detained are more active than lessors whose heads of shipping are incommunicado.
In fact, the broker said, all the houses remain active, and some like CDB Financial Leasing may seem more so because they are publicly listed and have to disclose large transactions.
“Of course we have all worried,” said the broker, who described several individual detainees as people he respects personally and considers friends.
Shipping people in or adjacent to lease finance feel eyes on the back of their necks. But despite the personal risks, business goes on.
“We are shipping people, and there is no alternative for shipping people,” he said. “And for the Chinese banks, there are few markets that are as reliable as shipping.” Low-margin deals like international aviation and domestic renminbi-denominated deals are less attractive.
“So, yes, there is risk, but we keep calm and carry on.”
Party officials in China have long been suspicious of financial intermediaries in general, perhaps because they know from experience some of the uses to which a commission structure can be put.
Another Chinese broker pointed out that traditional newbuilding brokers are less liable to such suspicion, because foreign owners rarely want to disclose their financial data to brokers, and do their financial negotiations directly with a lessor after a mere introduction by the broker.
Meanwhile, even as the deals churn on, newbuilding brokers and leasing sources agree that the leasing houses are more wary now of relying on financial brokers.
Not all see this as a bad thing.
“We all have the opinion that these financial brokers do not play a role like that of other shipbrokers,” said one veteran Chinese newbuilding broker, who believes he speaks for many peers.
The mildest of his criticisms are merely commercial — that the close relationship between leasing companies and lease brokers tends to inflate the prices owners are paying for newbuildings, because it represents a financially and not commercially driven approach to shipping.
“The leasing companies don’t negotiate hard,” said the critical broker. “Traditional newbuilding brokers negotiate very hard on price for their clients, but the leasing companies will simply assess the prices the yards offer.”
But he went further, suggesting that in some cases financial intermediaries may not really be advisors but mere ornaments to a deal. They may even be called in by the leasing house to take part in a transaction after it is arranged.
It is no exaggeration to say that many traditional brokers, especially newbuilding brokers, believe the business would be better off without their finance-oriented competitors, both commercially and otherwise.
One prominent lease financier speaking to TradeWinds made it clear that this view is not a new one to him.
“Everybody would be better off without somebody,” he laughed.
