Several shipping companies are issuing business bonds and thereby raising new capital to the industry. Bonds are a good source of financing, Erik I. Lassen, CEO of Danish Ship Finance, says.
“We think that the issuance of business bonds is a fantastic development. It is a sort of increase of a company’s equity which we think increases the sturdiness of the market. It is definitely positive that we see a lot of companies using bond issuances but on the other hand, we still have not seen it leading to an increase in growth. It is a natural supplement to the existing financing and as a secured lender we are naturally happy that capital is available”, Erik I. Lassen tells ShippingWatch at today’s meeting for clients and interested parties in which the Danish Ship Finance half-yearly Shipping Market Review.
He underlines that his statement is not based on the Maersk Group bond issuance but on a general background. Recently, J. Lauritzen has raised USD 80 million on a bond issue.
The bond issuances take place in a time in which several major international shipping lenders are reluctant to issue loans. Danish Ship Finance has seen its number of loans grow in recent years. Danish Ship Finance wishes to loan out money as the credit institute considers the crisis in the shipping industry as an opportunity to enter into new agreements as the credit institute has saved money for a rainy day and therefore has money to resist present challenges. During the past five years, Danish Ship Finance has had an overall lending value of USD 8.62 billion.
“Not many of the major shipping banks have seen their shipping loans grow in recent years. The largest banks are reducing their loans while the smallest ones are increasing them. There is an exchange of some very interesting businesses taking place as the smaller banks are collecting in. It is possible to make some attractive agreements”, Danish Ship Finance Senior Vice President, Peter Hauskov, says.
Of the 20 largest banks, including Danish Ship Finance right in the middle, eight of the ten largest banks have lowered their lending levels while eight of the ten smaller banks have increased their levels of lending, Peter Hauskov says.
The Danish Ship Finance investors include Danish banks, pension funds and investment companies and these investors have to an increased extent monitored the rating given to Danish Ship Finance by Moody's in February 2012 and the following downgrading by three grades in May. Previously, the Danish Ship Finance CEO, Erik Lassen has expressed his dissatisfaction of the reasons for the rating and today, Danish Ship Finance informed that the downgrading has had no major consequences on business.
“Investors rate us a little better than the actual rating does”, Peter Hauskov says.
Equity funds no threat
The entrance to the global shipping market by the equity fund is another thing raising capital to the market and which creates an alternative to the traditional financial institutions in the industry. Erik I. Lassen thinks that many and bigger acquisitions will have to be made in order for the equity funds to change the market.
“There is a lot of hype surrounding equity funds. Some of the funds have entered the very solvent and specialised sectors but it is difficult to determine now, and very different from sector to sector, if the funds will have an effect”, says Erik I. Lassen, adding: “As long as they just supply capital and use this capital to buy up existing ships thereby evolving the solvency in the market then private equity funds entering the market will be positive. We are worried that they will begin to invest too much and e.g. buy new eco-ships. Even though an investment in eco-ships will make sense in itself, a supply that is too big will ruin the market for everybody in the sectors which already have too many ships, including the ones ordering the eco-ships”. However, it is his estimate that such a develop is far from likely.