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Home » EU, Greek Market, International, Shipping

THE GREEK SHIP-FINANCING MARKET: NAVIGATING THROUGHT STORMY WATERS

Submitted by on 05 Mar 2014 – 10:43
Director of Executive and Professional DevelopmentShipping Financier World Maritime University

Director of Executive and Professional Development Shipping Financier
World Maritime University

 

by Dr. Ilias Visvikis & Ioannis Alexopoulos

In December 2013, according to Lloyd’s List Intelligence, Greek shipowners maintained a leading position in the international maritime industry controlling a fleet with a total Deadweight (Dwt) capacity of 243 million tonnes. Japanese, Chinese and German interests followed the ranking, controlling 240, 152 and 134 million Dwt, respectively. According to the latest data by the Greek Shipping Co-operation Committee, Greek shipowners control 3,677 vessels, representing 22.2% of tanker and 16.4% of dry-bulk global Dwt capacity, whilst the average age of the Greek controlled fleet stands at 10.2 years, as against 20.3 years in 2000. The above figures clearly indicate that over the last decade, the Greek shipping community’s needs for financial resources and capital have increased tremendously as the Greek controlled fleet has expanded, modernized and diversified into new specialised maritime sectors.

 

During the period 2000 to 2008, the Greek shipowners’ capital needs were largely catered for by European shipping banks. UK, German, French, Dutch and Greek banks largely supported Greek shipowners’ activities in the international shipping arena. Notable examples are Royal Bank of Scotland, Deutsche Schiffsbank, HSH Nordbank and other European banks, which set up offices in Athens and built up sizeable Greek shipping portfolios. Since September 2008, however, events such as Lehman Brothers’ collapse, the sub-prime crisis and the on-going sovereign debt crisis in Europe, created severe liquidity problems in the European banking system. Furthermore, European shipping banks were also faced with sharply deteriorating conditions in the shipping markets.

 

During these past five years (the post-Lehman collapse period), the Greek shipowning community found itself in a challenging ship-financing environment. European shipping banks, which traditionally supported the Greek shipowners, initiated a significant deleveraging, as most of these did not have adequate capital to properly support the capital-intensive shipping business. A number of well known, traditional lenders to the Greek shipping market are in the process of either sharply reducing their shipping portfolio or exiting the ship-financing market. Regretfully, the resulting gap in the ship-financing market has not been adequately covered, as there have been few new shipping banks entering the market.

 

In addition to the challenges in the ship-financing front, Greek shipowners, in the same way as all the other players in the industry, were faced with a sharp (and prolonged) correction in freight rates and asset values in the traditional shipping sectors. Greek principals were quick to respond, either by committing additional capital or by successfully entering into debt restructuring agreements with their lenders, or a combination of the two. With bank lending becoming extremely difficult and more expensive to obtain, Greek shipowners investigated and successfully tapped a number of alternative capital sources for their shipping projects.

 

On the debt side, a number of Greek shipowners relied on Export Credit Agencies (ECA), such as Korea Trade Insurance Corporation (KSure), Garanti Instituttet for Eksportkreditt (GIEK) of Norway, the Export-Import Bank of Korea (KEXIM) and other agencies. Other Greek shipping companies with a solid corporate structure, such as Navios, Gas Log and Eletson, successfully tapped the US high yield bond market whilst others, such as Ocean Rig, tapped the US Term Loan B market (senior term loans extended by institutional investors in the US).

 

On the public equity side, the US capital markets played an important role as Greek shipping companies that were already listed, successfully raised additional capital through repeated follow-on offerings. Furthermore, Dynagas successfully completed its IPO in the US in 2013. The Norwegian Over-the-Counter (OTC) market also attracted interest for Greek shipping companies and Dorian LPG successfully raised capital from this market.

 

On the private equity side, Greek shipowners witnessed the “invasion” of private equity funds, primarily from the US. A number of these funds joined forces with shipowners to form Joint Ventures (JVs), which have invested money in modern tonnage at attractive prices. The timing for a number these JVs (such as Oceanbulk – Oaktree, Costamare – York Capital, Poseidon – Kelso) is rather appropriate.

 

Overall, maybe because of the sheer size of the Greek market or the traditional and conservative Greek shipping (family) approach, Greek shipowners fared well. Many of them took advantage of the attractive, historically low ship asset values to expand and renew their fleet and, in a growing number of cases, to enter into specialised shipping sectors, such as the Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG), drill ships, offshore, and other. Especially in the LNG sector, Greek shipowners are already playing a leading role controlling a considerable share the global LNG fleet.

 

The problem with the prevailing Greek ship-financing environment is that most shipping banks that are still able to lend, tend to go after the same (large) Greek shipowners, who as a result also enjoy decent margins. The small and medium sized shipowners, on the other hand, irrespective of their track record, find it increasingly more difficult to raise financing for their projects. The fact that the Greek banks that used to cater to the mid-sized / smaller owners, have effectively stepped out of the market (due to their liquidity issues) has not helped matters.

 

As a summary, the difficulties in the European banking industry have had a transformational impact on Greek shipping. In view of this new reality, a number of Greek shipowners transformed their traditional shipping set-ups into well structured, transparent and investor friendly shipping corporate entities. This has allowed them to tap alternative capital sources for their long-term ship-financing needs and successfully adapt to the challenging ship-financing landscape.