Year in Review: Shipping Finance and Transactions
When trying to sum up the year 2019 from a ship financing perspective, the conclusion has to be that financing have been available to those who look for it, but the funds might come with an expensive price tag.
Financing trends in 2019
2019 became the year when the Frankfurt-based DVB bank decided to withdraw from shipping and start the process of closing down the shipping related offices. The withdrawal is, together with not taking on new projects, likely to take the form of natural repayments and refinancing in the case of value preservation for the bank only.
Nor-Shipping in June this year took the temperature on the industry and shed further light on the shipping banks ever increasing reluctance to (re-)finance smaller and/or more risky projects, and the alternatives popping up to fill the gaps as a consequence. We have assisted a great variety of ship financiers in 2019; from the traditional shipping banks, private equity funds alternating between lending and leasing, crowdfunding, Chinese leasing houses with long term perspective and Japanese leasing with speculative bets.
Chinese leasing houses continue to invest big with the right Norwegian shipowners at a competitive price and long terms to maturity. PE funds with owners experienced in also operational shipping representing capital with a high appetite for risk, including financing of the medium term project companies.
The project companies have found a challenge in the AIF regulations in 2019; yet based in established legislation a circular published by the Financial Supervisory Authority of Norway in 2019 has caused some stir among the project brokers and managers. The regulations entail additional criteria for the project facilitators with respect to choice of company structure, investor base, management and control. We have assisted clients with complying and adapting to the regulations, which in our view are likely to melt into the project finance business with the result of creating a higher degree of professional investors, full operational control for the investors and a careful eye to the degree of advice on the big decisions by the facilitators.
Global trend in 2019
Above all did Nor-Shipping emphasize a second trend that has taken the global scene across all industries in 2019; sustainability and greener solutions. Sustainability on all levels globally guided by the UN , including inter alia worker health and safety with ship breaking as an example, a tight net of anti-corruption and anti-money laundering regulations, protection of biodiversity seen in the ballast treatment regulations, air and water pollution seen in the IMO 2020 sulphur cap regulations and scrubber discussions, and the incipient focus on greenhouse gas emissions with improving technology around alternative fuel cells, batteries and onshore power in port.
Institutional investors, including the world’s largest owner in NBIM, continue to raise the bar for the companies eligible to their investments and put pressure on companies in their portfolio to shift its business into more sustainable practices – most notably in media when the Norwegian pension fund KLP announced that they would exclude Nordic American Tanker from its investment universe after several instances of NAT having sold vessels for dismantling on beaches in Bangladesh and India.
Further, we see that traditional shipping banks are impatient to see more projects available under the green financing banner, however the volume remains a minor portion of their overall portfolio.
The trend that will be the catalyzer
A third trend, albeit found itself in the shadow of sustainability in 2019, which however continues to be an important tool to reach the goals for the aforementioned is the technology development with ever increasing focus on digital solutions connecting data to improve performance. This is seen inter alia within refinancing and new financings of scrubber solutions, albeit heavily debated in advance of the 1 January 2020 deadline. The Norwegian ferry industry remains in the forefront of electrification of the short sea fleet and we are proud to have assisted with Norled’s newbuilds this year.
Further, we have continued to follow and assist the Yara Birkeland projects which on many aspects will be in the forefront of what digitalization aims to do with clean fuel, crewing and the entire chain of logistics.
What will 2020 bring?
In 2020 we will finally see the effects of the IMO 2020 regulations on sulphur cap and how the bets on bunker and scrubbers will play out. We expect nothing less than shipowners being quick to position themselves to the ever changing market, now including a less certain future for conventional bunkers since the phase out of steam engines.
In some segments we are hopeful that the newbuild activity with return, while we might see the next round of restructurings in other.
Finally, we would take the opportunity to thank our clients for the collaboration and loyalty in 2019, and we already look forward to work together with many of you in 2020.
We wish you all a peaceful and merry Christmas and a prosperous and happy New Year.
This article is part of a series of articles where the different practice groups in SVW will summarize the most important regulatory happenings in Norway in 2019.