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Singapore’s growth as the shipping hub of Asia has made it necessary for banks with shipping portfolios to have a presence in the city-state. Selectivity is the buzzword, while Chinese lenders smell opportunities

At a recent expert event in Singapore, representatives from DNB Bank, Deutsche Bank, Nordea, HSH Nordbank, Standard Chartered Bank, Nord[ds_preview]/LB, Citi and Sumitomo Mitsui Banking Corporation said that having branches in Singapore has enabled them to better serve their Asian clients.

Since 2003, when the Maritime and Port Authority of Singapore began developing the city-state into an international maritime centre, international shipping lines have established a presence in the South East Asian country. This has in turn, attracted banks and other maritime service providers to Singapore. DNB Bank’s global head of shipping, offshore and logistics Kristin Holth said: »Singapore is very popular now and Singapore is DNB’s headquarters for Asia. It’s extremely important for servicing clients in India and in this part of the world. So it’s extremely important for us to have a strong presence in Singapore.«

Echoing similar thoughts was Deutsche Bank managing director Klaus Stoltenberg. He said: »Certainly, there’s been one disappointment and that’s the capital market. We hardly see any companies in the maritime space listed in Singapore. That’s definitely a big difference from the Western Hemisphere where you see lots of companies listed in New York. Apart from that, Singapore has been a good environment.«

The banking executives stressed that there is no difference in the way they treat Asian and Western clients. Holth said: »Shipping is global and you have to have a global platform for the maritime industry. Banks have to compete for clients so you cannot have differences in the way you handle your clients, regardless where they are in Singapore or New York. I would say that Asian banks are closer to Asian companies and you see less of them in Europe. While European banks are closer to European companies, they are also in Asia so they are more global, so that’s the difference in the Asian market.«

These multi-national banks have asserted that they are committed to shipping in the long term and will support their clients regardless of shipping segment. HSH Nordbank’s head of shipping (Asia) Lee Keng Mun said that it all boils down to selectivity.

There is very limited cash flow from dry bulk carriers and the bull run for tankers is coming to an end, causing banks to struggle to find the right deal.

»Bankers are trying to find the right balance in terms of managing the risks and getting the returns. Liquidity is still out there, but the key word is selectivity,” Lee said.

Lee added that the HSH Nordbank has a fresh budget for 2017 and is open to all segments, though it has taken a very conservative approach to the offshore oil and gas sector. The bank is having internal discussions as to whether the latter sector is in for a long-term recession or just a temporary downturn, revealed Lee. Uniquely, due to the sheer number of offshore support vessel (OSV) owners in Singapore, this group is mainly financed by local banks. OSV owners have been hit hard by the oil shock, as vessel utilisation rates have fallen after oil majors scaled back on capital expenditure.

In July, Singapore-based OSV owner Swiber Holdings filed for judicial management after backtracking on a winding-up application. The company has USD 1.43 billion of debt and its largest lender, Singapore’s DBS Bank, has SGD 721 million (USD 530 million) of exposure.

While HSH Nordbank is trying to determine the state of the OSV sector, many of its peers are pulling back from this segment for now, preferring to focus on commercial ships. This is despite market consensus that while the dry bulk freight market has bottomed out, a sustained recovery is not imminent. Speaking at the same conference, Drewry managing director Arjun Batra said: »Our view is that the bottom has passed but it is still going to be a long road to recovery. The positive part is that there is little else to see the market go down even further, but in looking at the fundamentals the upside is also very limited.«

Noble Group’s head of chartering Michael Nagler said that unless demand for commodities rebounds, it is hard to imagine a sustained freight recovery for the dry bulk sector.

In any case, the banks still think that the OSV sector presents a higher risk than merchant ships. Nordea’s senior relationship manager Tom Zachariassen said: »We are open to all asset segments (in the next 12 months) with the exception of offshore.«

James Tong, Citi’s managing director and regional head of global shipping and logistics, said that his bank has limited its exposure to OSVs and upstream exploratory assets such as floating production, storage and offloading (FPSO) vessels, rigs and drillships.

This is because such assets are capital-intensive, highly leveraged and »very technical« for banks.

Tong added: »I am never really a big fan of OSV as the structure is not attractive, and you get a contract for 12 months if you are lucky. This makes our pricing very expensive for these ‘boats’.«

Sumitomo Mitsui Banking Corporation will only go for bigger offshore projects such as drillships and FPSOs that are on long-term contracts, staying clear of OSVs which tend to be on short-term charter, according to its head of shipping Asia, Noriyuki Kawachi. »We will be very conservative but open for business though we see very little new projects. There is going to be very slow development for the industry, which is in a way good,« Kawachi said.

However, Standard Chartered Bank, which has finance lease agreements with OSV owners, is taking a different perspective. The bank’s managing director and head (ASEAN, South Asia and Middle East), Abishek Pandey, said that Standard Chartered has been looking at new structures to mitigate its risks on its current portfolio.

Standard Chartered is known to have a sizable offshore portfolio after it entered this area of business during the last oil price boom. Pandey said: »Obviously everything is in question now and we have taken a fresh look at the value of the assets and our portfolio. The increased costs and regulatory burden have made the market even more challenging, plus the risks that the shipping industry typically poses, pricings have become quite dislocated. We are focusing on value acquisition and we don’t take the asset view.«

While traditional shipping banks are becoming more cautious, Chinese leasing companies and banks are seeing an opportunity in shipping as some European lenders are pulling away from shipping.

China’s Bank of Communications Leasing, for example, recently financed the construction of some ultra-large container ships for Mediterranean Shipping Company (MSC). Jerry Yang, chief marketing officer of China’s Minsheng Financial Leasing, said at the conference that his company aims to expand its ship financing deals by 10-15% in 2017, from this year. Year-to-date, Minsheng, co-founded by China Minsheng Banking Corporation and Tianjin Port Free Trade Zone Investment, has approved five to six deals worth USD 1.4 billion. »We’re here for the long run, looking at long-term returns,« said Yang. 

The Export-Import Bank of China (CEXIM) is also looking to widen its shipping portfolio.

CEXIM’s senior project manager (shipping finance division) Wu Haoxin, said that the bank’s shipping deals have grown since 2014. He said: »Many owners have come to us asking us to provide high financial leverage but we are unable to do that, so we have proposed to them to consider either financial leasing structure or debt finance.«

Not only do ship owners get access to finance through the Chinese lenders, but traditional European shipping banks also have an avenue to bridge the funding gap.

DVB Bank’s senior vice-president (Singapore) Ang Toon Beng, said that 3% of the bank’s shipping portfolio involves Chinese leasing firms.

He added: »I am very happy to see this given the situation of the shipping market and at a time when many banks are not very keen in shipping. We see them as our partners and competitors but they are an important player to the shipping industry.«

Zeng Xiaolin