When Ship Finance Market Will Recover

By Liu Wei

Bank credit terms are the key index to reflect the situation of finance market. For the time being,the bank credit terms are more lenient than in 2009. In 2009,very few shipping loan items would provide a loan ratio of more than 60%. Since the beginning of 2010,many banks are willing to accept a loan ratio of 70%. During the worst time of financial crisis,banks required ship owners to provide risk premium of more than 300 or even more basic points.For the present,the risk premium fluctuates between 200-300 basic points. For certain projects,risk premium can be as low as 200 basic points. But it needs to point out that compared to the loan ratio of 70%~80% and the risk premium of around 100 basic points,the current bank credit terms are still cautious.

From the perspective of demand,the demand for shipbuilding fund is still on the rise. In the first half of 2010,the completed total output of ships in the world reached 69.4m DWT. It is predicted that year-round completed total output for 2010 will reach 150m DWT,and for 2011 would also achieve 150m DWT. Most of these orders were for high-value ships and were placed during 2007 and 2008 when the price of ships reached the peak. With incessant delivery of ships,shipping enterprises will have a rigid demand for fund in the next year and a half,and demand for finance will also maintain the same tendency.

From the supply prospective,fund supply is far from meeting the increasing demands. According to statistics,total volume of syndicated loan is still on the decline in the fi rst half of 2010 and only reached $9.8bn,a decline of 48% compared with the same period of 2009. There is also a tendency of month on month decline. According to statistics,60 syndicated loans have been provided in the first half of this year,with 42 totaling $6.7bn for the first quarter and 18 totaling $3.1bn for the second quarter. Against the decline of syndicated loan,more banks choose to lend by bilateral loans. Although banks are still suspicious about syndicated loan which is larger in size and would prefer to choose the loan whose sums are lower but has more control over enterprises and has risk control.

Stock market is the only bright spot in the fi nance market in the first half of this year. In the first four months in 2010,the stock market in every country in the world continued to inherit the growing trend which started in the latter half of 2009. At that time,obtaining fund by way of issuing shares became easier. In the capital market of the US,Norway,Singapore and China,old ship owners and new comers are obtaining funds for shipbuilding through IPO or re-fi nancing.

All in all,shipping finance market is still facing many uncertainties in the latter half of this year,whether judged from macro-environment or from the financial situation of banks and ship owners. Though compared with the previous year,shipping finance market has shown some sign of recovery with the gradual stabilization of the world’s fi nancial market,the provision of fund is still tight compared with the period prior to the crisis.