Despite the current gloomy market conditions, shipping companies are exploring a variety of alternative funding through different financing options as evidenced by our recent The way ahead transport survey.
Export credit agency (ECA) financing has become one of the most popular sources of alternative funding in recent years. Before 2008, ECAs accounted for approximately 10 per cent of shipping and offshore-related debt finance. Since then, their contribution has increased to over 33 per cent.
One example of how ECAs are supporting capital markets financings is a $200 million fixed rate bond offering by ICBC Financial Leasing. This transaction, which completed in February 2016, was a combination of a commercial facility, an ECA-backed facility and a bond offering. It was also a debut collaboration between a Chinese financial lessor and the Export-Import Bank of Korea, which guaranteed the bond as the ECA lender, to support the financing of high-end ships built in Korea for use by leading global operators. This deal demonstrated that even during downturns, the capital markets are still open for the right kinds of transactions. The stability provided by an ECA-backed bond with major banks as underwriters sparked sufficient interest to support a bond deal at favorable pricing terms.
Another recent trend is the use of debt and equity private placements to obtain financing. According to IHS Fairplay, in the first half of 2014 and 2015, private placements accounted for less than 1 per cent of proceeds raised in the capital markets by US-listed ship owners, whereas in the first half of 2016, private placements accounted for approximately 70 per cent of such proceeds. With public investors on Wall Street reluctant to invest in a volatile market, the shipping industry has turned to smaller and more targeted private placements, including private equity funds created by capital management companies focusing on the shipping industry. Debt capital markets transactions are also attractive to shipping companies since they provide longer maturities, fixed rates and higher flexibility in extending credit for riskier projects that banks do not finance.