Decline in traditional ship finance, lack of provision from regional banks threaten ME shipping
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Delegates at Seatrade Offshore Marine & Workboats Middle East (SOMWME), opening at Abu Dhabi National Exhibition Centre (ADNEC) on 25-27 September 2017, will hear how shipping faces a capital shortfall of tens of billions of dollars, this year alone, as European banks restructure products and scale back ship financing operations.
According to reports verified by Reuters, the substantial decline in finance from European banks, compounded by a lack of shipping finance provisions from regional banks, has caused liquidity in the shipping industry to tighten, forcing marine operators to seek alternative finance in order to continue operations.
The discussion will be tackled during the SOMWME Finance Update, in a session titled “Taking stock – how to make the most of your company assets,” which concludes the first day of the conference programme.
The session will analyse the viable financial options and trends shaping the offshore marine and workboat industries. The panel features renowned industry experts such as David Manuel, Senior Marine Specialist — Petrodata, IHS Markit; Knut Mathiassen, Managing Partner, NorthCape DMCC; Bora Bariman, Head of Energy & Marine, Corporate & Institutional Banking Group, National Bank of Fujairah and Tien Tai, Partner, HFW.
Calling for the Middle East shipping industry to urgently reassess how it secures liquidity, Tien Tai commented: “The traditional European banks with ship finance desks are no longer lending the historic amounts they once did and this is compounded by a number of European banks retreating from the ship finance sector altogether.
“In the Middle East, we see some new lenders coming into the shipping industry but this does not replace the capital shortfall left by the exiting banks. There has been an ascendancy of alternative capital providers in the last 18 months, offering liquidity at a higher pricing, although these are more suited to one or two ship projects and not a substantial refinancing.”
The industry has weathered many storms since the global credit crunch impacted operations in 2009, however, there is hope on the horizon.
Islamic finance is widely regarded as a positive means by which to generate equity and maintain health in the sector, although growth is hampered currently by muted enthusiasm from major local banks to operate active shipping desks.
Recognising that liquidity was tightening, earlier this year Dubai Maritime City Authority was examining the possibility of creating a US$1 billion shipping fund to support the emirate’s maritime sector during this time. According to ship valuation company VesselsValue, the UAE’s shipping fleet is estimated to be worth up to US$10 billion.
“The session will analyse the viable financial options and trends shaping the offshore marine and workboat industries.”
Tai added: “In terms of what it takes to get financing these days, you really have to be a top tier owner with a strong credit rating – but not everyone is a strong owner. The owners in the Middle East dominate the small and mid-tier space and it is these owners feeling the squeeze in the decline of traditional ship finance.
“The companies we see receiving finance from banks all demonstrate a strong track record of previous borrowing, contributions from owner and shareholder equity, and a transparent structure and a young fleet.”
Commenting on the importance of the finance session at SOMWME, Emma Howell, Group Marketing Manager, Seatrade Portfolio, UBM EMEA commented: “The finance update is always an essential element of every SOMWME event we organise and the 2017 version will no doubt contribute vital insight to a very timely conversation. The issues that face the global industry are amplified in this region by the fast pace of growth and the economic importance of shipping and trade
“The ability for the regional banking industry to identify and react to the gap in the market will be vital to the health and agility of the sector in future as countries across the region realise their developmental ambitions.”
Moving away from the conference – new to the exhibition floor this year will be ‘Drone Zone’ in partnership with ABS and Drone Pro. With three live demonstrations shown daily, this exciting Zone will showcase new tools such as wearable technologies, unmanned aerial vehicles /drones, and remotely operated vehicles.
“These live demonstrations reflect the growing use of advanced inspection technologies across the shipping and offshore sectors as the increasing complexity of assets and operations shifts how classification services are delivered,” added Howell.
ABS, which is bringing the presentations to SOMWME with Drone Pro, is currently conducting field studies to evaluate how the current capabilities of wearable technology, particularly eyewear, are best applied to enhance asset-inspection practices. The pilot programs, which include a range of vessel and offshore asset types, are focused on improving the efficiency of class operations, streamlining the capture and visual display of information and creating a more collaborative environment for remote interaction.
Seatrade Offshore Marine & Workboats is the largest workboat and offshore marine event outside of the USA, attracting more than 100 offshore marine and workboat companies.
Questions & Answers
Q.What is causing the current capital shortfall in the Middle East shipping industry?
What is causing the current capital shortfall in the Middle East shipping industry?
The substantial decline in finance from European banks, coupled with a lack of new shipping finance provisions from regional banks, has caused liquidity to tighten. This situation is forcing marine operators to seek alternative funding sources.
Q.Which types of companies are most affected by the decline in traditional ship finance?
Which types of companies are most affected by the decline in traditional ship finance?
Owners in the Middle East who dominate the small and mid-tier space are particularly feeling the squeeze. Banks are currently prioritising top-tier owners with strong credit ratings, good borrowing track records, and young fleets.
Q.How is Islamic finance viewed as a potential solution for the shipping sector's funding issues?
How is Islamic finance viewed as a potential solution for the shipping sector's funding issues?
Islamic finance is considered a positive way to generate equity and maintain sector health. However, its growth is currently limited by a lack of enthusiasm from major local banks to operate active shipping desks.
Q.What alternative finance options have emerged recently to address the capital shortfall?
What alternative finance options have emerged recently to address the capital shortfall?
Alternative capital providers have emerged in the last 18 months, offering liquidity at higher pricing. These options are often more suitable for funding one or two ship projects rather than substantial refinancing efforts for larger needs.
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