Friday, October 1, 2010

Significant Changes in Chinese and Greek Ship Finance

As the Chinese local banks were used to distribute the stimulus package in 2009, local financial markets were flush with liquidity last year. Unlike Western markets, there was plenty of finance available for shipping companies. Today there is growing a shortage of US dollars in the market because China’s Central Bank is soaking up the foreign inflows from Chinese exports. Presently growing need in China for international finance sources is leveling the playing field on the finance front.  Hopes now seem frustrated that China might be a new source of senior debt finance for the hard-pressed Greek local market.

There was a big hope in the cash-starved market in Greece that China might be a new source of finance for Greek owners. The Greek public debt crisis has effectively locked up small, medium market Greek owners from senior debt financing from local Greek banks.

Chinese banks had expressed an interest in targeting more international ship finance business, even if there is not a domestic element. In practice, very little actual business has been done.

The majority of these smaller Greek shipping companies are very healthy economically with good reserves from the boom years and most of their fleet paid off, but domestic banking crisis has deprived them of bank finance for fleet renewal.

There is considerable potential in the Greek market for foreign lenders interested in medium term asset lending with attractive pricing. Also this situation makes lease financing a viable alternative. The high loan pricing makes leasing more competitive than credit conditions prior the 2008 meltdown.

Earlier this year DnB secured a Renminbi currency licence to extend their loan business to the local Chinese market. The Chinese domestic fleet is almost equal in size to the international fleet and is basically Renminbi currency dominated. DnB NOR Bank's Espen Lund recently said  "With this shortage [sic in China], we now have the big shipping companies coming back to us and our business is now back on track."

If the moribund situation in Greece prevails over time, it will result potentially in more rapid consolidation of the Greek fleet in fewer and larger companies with access to public markets and international banks. It may also lead to a longer term shift, where the Chinese-controlled fleet grows in proportion to service more of its cargo transport needs.

1 comment:

  1. As a postscript, there were announcements over the weekend with the Chinese presidential visit to Greece. The Export-Import Bank of China sealed its first ship financing transactions with Greek shipowners in cooperation with DnB NOR Bank in a series of landmark agreements signed in Athens. These agreements were with large owners, concerning newbuilding tonnage that they had placed in Chinese yards. The Chinese President Wen said that a US$ 5 bn shipping fund will be set up to facilitate the construction of ships in China by Greek owners. None of this covers bank finance for the acquisition of second-hand tonnage. This is vendor finance to foster the Chinese shipbuilding industry.