Following the substantial reduction in the availability of financing from traditional banks, shipowners are increasingly having to turn to alternative financing sources. This is particularly the case for small to medium-sized shipowners, as traditional lenders are generally focusing on larger shipping clients due to regulatory and risk management requirements. As a result of this, shipowners are now becoming increasingly interested in considering structures such as high-yield bonds, convertible debt, capital and operating leases, as well as preferred equity structures.
The last few years have seen some of the larger players within the shipping market turning to the capital markets in order to meet their funding requirements. Many of these transactions have involved the US and Norwegian capital markets, with the Norwegian bond market being seen as particularly favourable for shipping assets. The London markets are also actively looking to attract their first shipping listings since 2006/2007.
Export credit agencies (ECAs) have been common participants in the ship finance industry in recent years, either via direct lending through bilateral transactions or co-financings, or through guarantees and insurance policies.
Chinese banks and leasing companies are becoming increasingly active within the shipping industry. This activity is likely to increase as a result of China’s Belt & Road Initiative, through which China is seeking to create a modern-day silk road, aimed at supporting the Chinese shipbuilding industry.
Private equity entered the shipping industry following the global financial crisis and has prompted a great deal of discussion around its long term role in shipping. Many private equity funds initially entered into joint ventures with shipowners. Recently, however, we have seen that a number of these funds are more interested in buying loans from traditional banks, at a large discounts, in order to see immediate profits.
Along with these more traditional private equity players, a number of new alternative financing outfits have recently entered the market. These new entrants are targeting small / medium-sized shipowners and are directly lending to these companies through primary or, more typically, mezzanine financing. Alternative finance tends to come with a higher price tag, so it is often not as attractive to shipowners as traditional bank debt. However, alternative capital providers may be long-term players within the shipping industry particularly if traditional commercial lenders are not be able to re-enter the industry in the medium term due to the increasingly stringent regulatory environment. Alternative structured capital providers are typically interested in creative investment structures which will often involve leasing structures and preferred equity as well as more traditional debt structures.
As we approach 2018, we can expect to see further developments in the ship finance market. As asset values gradually rise, banking regulation becomes ever more stringent and new participants enter the market every sub-sector of the ship finance market, across banks, funds and individual investors, will continue to feel the impact of these changes, and no doubt be encouraged to evolve further.