Update on Chinese banks and ECA activity

Contributed by Madeline Leong, Partner, Watson, Farley & Williams Asia Practice LLP

Over the last 10 years, the profile of Chinese commercial banks has developed significantly in international ship finance. Up until a few years ago, such banks were becoming more active in financing foreign shipping companies acquiring Chinese newbuildings. The global economic downturn in the last few years however appear to  have taken its toll on the pace of such financings from Chinese commercial banks and resulted in a shift in the lending policies of these banks. Although Chinese banks show keen interest in extending financing to foreign shipping companies, they are  generally more enthusiastic if a Chinese export credit agency (ie, Export and Import Bank of China (also known as CEXIM) or China Export and Credit Insurance Corporation (also known as Sinosure)) is involved.

CEXIM has responded to the increasing demand (in China and the rest of the world) for export credit agencies’ participation in shipping finance transactions by remaining committed to extending financing to foreign shipping companies (either as participating as a lender or an issuer of standby letters of credit or guarantees). CEXIM has also recently vocalised its intention to increase its resources in its foreign branches thus expanding its global reach in order to maintain its support of the Chinese shipbuilding industry. CEXIM has noticeably, in recent months, demonstrated such continued support as we have continued to see them involved in international shipping finance transactions. Whilst doing so however, CEXIM remains justifiably prudent and cautious in selecting its counterparties and in determining its commercial terms. Continue Reading

China Rongsheng Inks Another Massive Credit Facility

On Monday, Hong Kong listed China Rongsheng Heavy Industries Group Holdings signed a strategic collaboration agreement worth RMB 30 billion (USD 4.7 billion) with China Development Bank in the Chinese city of Nanjing. A large chunk of the facility will go towards its offshore engineering division. We note that Rongsheng has signed many similar corporative agreements with numerous Chinese lenders including China Exim, Bank of China, China Everbright Bank, China CITIC Bank and Agricultural Bank of China since August 2010, of at least total of over RMB 129.5 billion (USD 20.2 billion!).

We also have more details on Rongsheng’s recently completed USD 220 million offshore syndicated loan. Sole book runner Credit Agricole took up the biggest slice in the loan of USD 40 million while four lead arrangers Societe Generale, Aozora Asia Pacific Finance, Bank of East Asia and Bank of Tokyo-Mitsubishi UFJ committed USD 30 million each. Cathay United Bank chipped in USD 20 million. Italian bank Banca Monte Dei Paschi di Siena, Taiwanese lenders Chang Hwa Commercial Bank and Hua Nan Commercial Bank, as well as Metropolitan Bank and Trust in Philippines rounded up the syndication and contributed USD 10 million each. The loan offers the lenders a margin of LIBOR plus 130 basis points and is guaranteed by China Exim Bank.

Chinese Banks, Greek Owners

In a press release from DVB Bank last week, CEO Wolfgang Driese has expressed great optimism on the future role of China, both in the global economy, and in global transport financing. Commenting on his recent trip to Beijing, he is convinced that Chinese banks will gain greater importance in the global syndication market, given that “a number of Western Hemisphere banks that were active before the crisis may well not return”. While we continue to harbour mixed feelings about the development of Chinese banks as emerging global ship financiers given recent concerns over their USD liquidity positions, they have clearly established themselves in the industry and this is evidenced by several new deals below.

At least two Greek shipping companies are said to have secured Chinese money in the past few weeks. Containership owner Danaos has secured approval for a USD 203.4 million Sinosure backed credit facility from Citi and China Exim Bank. The funds will be ultilised for the financing of three 8,530 teu boxships, currently under construction at Shanghai Jiangnan Changxing Heavy Industry.   Continue Reading

The Action Continues at China Exim!

Even as many are trickling back from their summer holidays, the Export-Import Bank of China (“China Exim Bank”) has no time to rest on its laurels as the bank continues to work hard in providing financing to both foreign shipowners and domestic shipbuilders. Last week, the policy bank signed a massive RMB 50 billion (USD 7.35 billion) long-term strategic agreement with Jiangsu Rongsheng Heavy Industries. This is the largest agreement that the policy bank has ever signed with a non-state owned shipbuilder. The cooperation will entail the provision of the different types of bank guarantees required in Jiangsu Rongsheng’s business which include refund guarantees, tender bonds, performance bonds, payment guarantees and seller’s credit. Over RMB 10 billion (USD 1.47 billion) will be set aside for seller’s credit. The latest strategic alliance will greatly enhance Jiangsu Rongsheng’s competitiveness in attracting new shipbuilding orders. Jiangsu Rongsheng is also rumoured to have appointed Morgan Stanley and JP Morgan to revive its IPO plans to raise at least USD 700 million in Hong Kong in the fourth quarter of this year. Continue Reading

The Changing Topography of Ship Finance in China

By Rodricks Wong

Whether it is the 2008 Beijing Olympics, Shanghai’s USD 44 billion World Expo, or the upcoming Asian Games in Guangzhou, China is seizing the opportunity to showcase its ascension into the upper echelons of world economies. Today, China is the world’s largest exporter and second largest importer, and has officially overtaken Japan as the world’s second largest economy during the second quarter of this year. China’s emergence as an international maritime nation is a recent phenomenon, but its influence has been far-reaching. China owns one of the world’s largest merchant fleets worldwide, is the second largest shipbuilding nation, and its banks are gaining prominence in the global ship financing landscape. The current economic environment presents significant opportunities, but is not without challenges. Chinese shipbuilders are facing a slowdown in new orders. Chinese banks are relatively new to ship finance with plenty of room to grow. Small and medium local shipowners are still considered “un-bankable” by the domestic lenders, and the legislative environment remains ambiguous which, in turn, inhibits the growth of alternative sources of capital for the shipping industry.

A decade ago, China’s state-owned sector appeared to be a looming economic disaster, and many Western analysts boldly put forth their predictions on China’s imminent collapse. Over the years, most of them have been proven wrong, and China is one of the few nations to have emerged unscathed from the crises of global disequilibrium from the West. International relations expert Stefan Halper argued in his new book The Beijing Consensus that China’s “market-authoritarianism” model has provided the country with the environment for rapid growth and stability without the messiness of democratic politics. Everything in China is partly commercial and partly government driven, and this is evident when we speak to the banks in Beijing and Shanghai. Yet, while state-owned companies may still be domineering, the government is exposing them to cutthroat competition to ensure that they remain competitive.
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Citi and China Exim Support Toisa

While we are still on the subject of Chinese banks’ strong support for domestic shipyards, China Exim Bank has joined hands with Citigroup to provide offshore owner Toisa limited with a structuring financing solution of up to 10 years. USD 127 million of debt will be used to finance three anchor handling tug supply vessels (AHTS) and one platform supply vessel (PSV) ordered at Wuchang Shipyards. Wuchang Shipyards is one of the key shipbuilding units under the state-owned shipbuilder China Shipbuilding Industrial Corporation. Continue Reading

Bottoming Out?

Over the past week, we have experienced the first market rally from a recession trough. Asian stock markets rallied to some of their highest since mid October as investors take confidence in China’s economic recovery. The manufacturing purchasing managers’ index in China rose from 44.8 in March to 51.1 in April, passing the 50-point mark that separates contraction and expansion for the first time in 9 months.

In a market report published last Friday, JP Morgan presented an optimistic view, suggesting that “we are indeed very close to the bottom in global economic activity, and may already be there, with the world economy set to start expanding again in coming months” but acknowledged that there are still many inherent risks since banks and households are still in balance sheet repair mode and a swine flu pandemic cannot be ruled out. Continue Reading

China Exim Flexes Financial Muscle

The global financial crisis has accelerated a dramatic shift eastward in the centre of ship finance as the traditional European banks continue to struggle to put themselves together. European financial institutions have long been important lenders to the international shipping community but with many of them placed under state ownership, banks may be dictated to on how much and to whom they can lend. Market rumours suggest that some lenders are already in talks to sell some chunks of their shipping loan portfolios at a discount so as to boost their capital adequacy ratios.  

This stands in sharp contrast to China where shipbuilding has been identified as one of its ten pillar industries. Banks in China are stepping up their lending activities to support the sector currently in doldrums. According to the latest figures released by the People’s Bank of China, new loans extended by Chinese banks across all industries including shipping and shipbuilding grew to RMB 4.58 trillion (USD 670 billion) in the first quarter of this year. This is the third straight month new yuan-denominated loans exceeded RMB 1 trillion. Continue Reading

Let the Stakeholders Speak

During our conference in Hong Kong, the panel titled “Stakeholders Unite: Owners, Investors & Lenders on What Comes Next” generated a lively discussion on the many issues revolving around shipping today including the role of private equity in shipping, China’s increasing dominance in the global supply chain and the funding gap of the global orderbook. We bring you some of the highlights.    Continue Reading