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

STX Pan Ocean Raises USD 384 million Debt

In today’s credit market, banks are increasingly conservative in their lending and as a result, export credit agencies provide the necessary credit enhancement to turn large deals into a reality. South Korea’s STX Pan Ocean has recently been tremendous successful in tapping the two largest export credit insurers in Asia, K-Sure and Sinosure for the financing of three VLOCs and three capsize bulk carriers.

In the first transaction, Norddeutsche Landesbank Girozentrale (“NordLB”) and Banco Santander S.A. have teamed up with K-Sure to provide a pre and post delivery loan facility of up to USD 247.2 million to part finance the acquisition cost in relation to three 400,000 dwt Very Large Ore Carriers presently being constructed by STX Offshore & Shipbuilding. The vessels will upon delivery be bareboat chartered to STX Pan Ocean and will be subject to certain long term time-charter arrangements with Vale International S.A. Continue Reading

Chinese Ship Finance – On Hold?

By Nigel Ward, Partner, Norton Rose LLP

In 2008/9 the Chinese banks were looked to as the only remaining hope for international ship finance – the last pool of bank debt that could be harnessed to replace the withdrawing European banks and to satisfy the capital requirements of owners with existing new building orders in the shipyards of the world. Just as many other countries, but on a larger scale, China responded to the global financial crisis by injecting significant liquidity into its domestic market.

A large part of that liquidity was funnelled through the public sector banks and much of it was deployed in support of infrastructure projects sponsored by regional and municipal authorities, to pump up domestic consumption and to fund state owned enterprises in support of export  manufacturing, business investments and the acquisition of strategic resources abroad. Continue Reading

Bits and Bobs on China

For everyone interested in China, we found some recent headlines that you might appreciate. Enjoy!

Hui Shang Bank Joins Hands with Dong Fang Shipbuilding: China Exim Bank is certainly not the only financial institution, offering domestic shipbuilders credit support. Based in Anhui province in China, the regional bank has recently provided RMB 250 million (USD 36.8 million) credit to China Dong Fang Shipbuilding. 

Pacific International Lines secures ECA Support: Old news but still relevant news! Pacific International Lines has joined the group of foreign shipowners who has successfully tapped Chinese ECA support. The second largest containership operator in Singapore secured a USD 517 million 10 year buyer’s credit from Bank of China in 2009. The Sinosure backed facility will be used towards its newbuilding orders at Dalian Shipbuilding Industry. This is also Bank of China’s very first ECA backed transaction for a foreign shipowner.   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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Showing Resilience

Last Thursday, Pacific Shipping Trust (“PST”) released its full year results and as expected, there were no surprises. Key figures – revenue, operating profit and distributable income were largely in line with analyst expectations. Gross revenue in 4Q09 grew 8% to USD 15.6 million from the corresponding quarter in 2008, boosted by contributions from a vessel chartered to Compania Sud Americana de Vapores S.A. (“CSAV”). Net profit for the full year of 2009 increased 49% to USD 27.4 million while distributable income grew correspondingly by 46% to USD 27.1 million. With a fleet of 12 containerships all on long term charters, PST has contracted charter income of USD 300 million over the next 7 years.

For shipping trust investors, credit risk remains a top concern. And unlike the other two shipping trusts, PST has only two charterers – its sponsor Pacific International Lines (“PIL”) and CSAV and both have been facing immediate challenges in the container shipping business. PST has chartered 10 vessels (2 Panamaxes and 8 Handymaxes) to PIL for 6 to 8 years and 2 Panamaxes to CSAV for 5 years. Questions at the results briefing were therefore naturally centered on the financial standings of both companies.  Continue Reading

Bank of China in Action Again, What’s New

Bank of China has extended a USD 179.55 million buyer’s credit facility to STX Pan Ocean recently in relation to the South Korean shipper’s acquisition of three 17,600 DWT bulkers ordered at Jiangsu New Century Shipyard. Jiangsu New Century Shipyard is one of the largest private shipbuilding groups in China who has built over 100 ships for owners in Denmark, United Kingdom, Germany and Italy. This successful transaction was initiated by Bank of China’s branch in Jiangsu province, upon news of STX Pan Ocean’s difficulty in securing finance for the ships. This year, STX Pan Ocean has earmarked USD 203 million to invest in 6 vessels. Continue Reading

ECA to the Rescue

Undeniably, export credit agencies (“ECAs”) has played an important role in satisfying part of the financing gap needed by the shipping industry. In China, China Exim Bank plays an instrumental role in supporting the maritime industry, having granted shipping/shipbuilding related loans of over RMB 102.5 billion (USD 15 billion) in the domestic currency and USD 7.45 billion in greenback at the end of 2008. In 2009, the policy bank extended a USD 389 million, 12 year secured facility to New York listed Overseas Shipholding Group (“OSG”), in its first ever loan facility to a US company. It would be nearly impossible to secure a 12 year ship finance loan today, let alone this quantum from a single financial institution. Continue Reading

Setting Sights on Overseas

Danish shipowner Torm has signed a ten year USD 167.3 million loan facility with a syndicate of banks led by Bank of China and Societe Generale. The funds will be used to cover 60% of the cost of six 53,000 dwt MR product tankers, each ordered at USD 46.5 million a piece from Guangzhou Shipyard International. Out of the USD 167.3 million facility, USD 83.7 million will be unsecured loans and the other USD 83.7 million in the form of buyer’s credit. This is also the very first time in a foreign syndicated loan that China Export & Credit Insurance Corporation (“Sinosure”) will underwrite the country risk in relation to the buyer’s credit. Torm will have to fork out the remaining 40% equity. 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