The role of London and the UK as a provider of shipping finance is much reduced from what it once was. However, this could soon change again and a closer look is worthwhile.
Banks like RBS (Royal Bank of Scotland) – once the largest lender to Greek shipowners – and NatWest have exited the sector[ds_preview], although there is talk of the latter becoming interested in maritime-related lending again.
In their recent study of London’s competitiveness as a maritime cluster, consultants PwC ranked London as only 8th among the world’s major international shipping hubs in the category of Finance, compared to 1st in the other maritime business services of Insurance, Law and Shipbroking.
But the UK is now trying to rebuild its position as a centre of expertise in ship finance, most notably with a focus on the emerging field of Green Finance, as detailed below. At the same time it could be argued that the amount of traditional ship lending by banks is itself much reduced, with alternative sources of finance such as US private equity and Chinese leasing companies having stepped in to fill the gap. Until recently, bank debt finance accounted for as much as 70-80% of global ship lending, it is reckoned, but now only has a share of more like 50%.
In addition, London’s role as one of the world’s leading financial centres means virtually every major bank and financial institution has representation in the UK capital. To draw an analogy with personal banking, the convenience lies in having a bank with a local you can visit for consultation when needed, rather than one actually headquartered nearby.
Then there is the aforementioned presence of insurance, shipbroking and in legal expertise in London, the latter in particular being an increasingly important factor in today’s complex finance deals.
»Every serious shipping financial institution will be part of it as soon as possible« Michael Parker, Citigroup
International law firm Norton Rose Fulbright conducted a survey relating to maritime financial services in 2015 in which 40% of respondents in the shipping sector reported that London was the financial centre most able to meet their financing needs, with other competitors ranked substantially lower – New York at 14%, Singapore at 7%, Frankfurt at 6%, and Hong Kong at 5%. No surprise then, the firm’s Global Head of Transport Harry Theochari, widely considered one of the world’s leading ship finance lawyers, is based in London.
A similar situation exists at US multinational investment bank Citi, where its Chairman of Global Shipping, Logistics & Offshore, eminent ship financier Michael Parker, resides in London despite Citigroup’s headquarters being in New York.
Speaking recently at London International Shipping Week 2019 (LISW), Parker described London’s role as one of the world’s most important financial centres as »the really essential requirement for any major maritime cluster,« especially given ongoing consolidation and corporatisation of the shipping industry.
The presence of the IMO (International Maritime Organization) is also »absolutely crucial« to London as a maritime cluster, he added, because it gathers all parties interested in regulatory matters to the city, and will become increasingly so as the IMO steps up its role in policing CO2 emission goals for the shipping industry, seeking to extend its remit over to ports as well in order to achieve the same.
Parker has a particular reason for highlighting environmental matters as he chaired the Drafting Committee of the new Poseidon Principles of »responsible ship lending« that a group of major banks and other industry players launched in June and is now chairman of the initiative’s Steering Committee.
The Poseidon Principles establish a global framework for assessing and disclosing whether ship finance portfolios align with the IMO’s 2050 goal of reducing shipping’s total annual greenhouse gas emissions by at least 50% by 2050. They take as their basis IMO’s Data Collection System for ships that came into force for vessels over 5,000 GT this year, requiring them to provide details of their quantity and type of fuel consumption; distance travelled; hours underway; and technical description of the ship including design deadweight.
Eleven shipping banks were founding signatories to the Principles – Citi, DNB, Soc Gen, ABN Amro, Amsterdam Trade Bank, Credit Agricole CIB, Danish Ship Finance, Danske Bank, DVB, ING and Nordea – with a combined shipping loan portfolio of around 100 bn $, roughly 20% of the global total. Other providers of shipping finance, including Chinese leasing companies and export credit agencies, are now being actively canvassed to join.
While the Poseidon Principles are truly global in scope, with Parker saying that he hoped »every serious shipping financial institution will be part of it as soon as possible«, the UK capital played a key role in their gestation, both through Parker and British law firm Watson Farley & Williams (WFW) which provided legal oversight and drafting input via its London-based Partner and Global Head of Maritime, Lindsey Keeble.
»Lenders, lessors and guarantee providers will take carbon intensity into account when considering providing finance,« WFW explained in a briefing paper on the Principles. »Owners of non-aligned ships might find the pool of financiers reduced.«
During LISW, this sentiment was echoed by Tony Foster, Chairman and Founder of London-based Marine Capital, which seeks to attract institutional investment to shipping. »Banks are leading the way with Poseidon Principles,« he said, which will »constrain investment in old technology.«
Foster also said he viewed London as a promising market for his institutional investors – mainly international pension funds – going forward, given its solid reputation for »probity and standards« in areas such as financial transparency. But he added: »We can’t discuss with institutional investors any more without talking about the environmental impact of their investments.«
Indeed, the UK is now seeking to take a lead in environmental matters having earlier this year launched a Clean Maritime Plan as part of a wider Maritime 2050 Strategy. The latter stated that »Government will work in partnership with the British banking sector to encourage the provision of finance towards zero emission shipping technology development and manufacturing.«
»In reality both green bonds and equity have been outperforming markets in the last two years«
Sir Roger Gifford, former Lord Mayor
Hence a Green Finance institute has been set up by the UK Government, together with a Green Finance Taskforce tasked with accelerating growth of green finance and the UK’s low carbon economy. A separate »Greening Finance/Financing Green« for Maritime Initiative is due to be launched shortly.
Chairman of the Green Finance Taskforce Sir Roger Gifford, a former Lord Mayor of financial district the City of London, said that the reality today is that »people want low carbon in their investment« and that despite the perception this is driven by climate concerns, »in reality both green bonds and equity have been outperforming markets in the last two years.« The Maritime 2050 Strategy and Clean Maritime Plan »can lay the foundations for the UK becoming a leader in green shipping finance,« he confidently predicted.
