Global ship financing is undergoing its biggest transformation for decades as sector stakeholders seek new forms of ship financing, some of which will demand significant changes to the way shipping companies are run and the way they raise finances, a report by KPMG claims.
The report “Ship financing in flux – searching for a new course” surveyed German shipping companies and gauged their views of current market trends.* It also discusses alternative methods of ship financing and requirements which shipping companies must meet in order to gain access to these new sources of financing.
According to the report, the overwhelming majority of respondents (90%) said that the future direction of the market will depend on “securing new equity sources” and almost two-thirds (62%) think the “transparency of company structures” will become increasingly important. 59% regard “economic stability” and 49% the “consolidation of shipping companies” as key factors that will determine the future direction of the market.
John Luke, KPMG’s global head of shipping comments: “Considering Germany’s importance as a key market for maritime capital this report should be a must read for stakeholders across the sector.”
“Everyone involved in shipping will be aware of the impact of the credit crunch on the sector, either indirectly via suppressed demand from developed economies or directly via the tightening of credit. The banking sector’s current imperative to reduce its own balance sheets only exacerbates the depressed prospects for shipping in this context.”
“Many maritime lenders in particular appear to want to vote with their feet and exit the sector completely – if only they could. The demand for capital in the sector – to fund the order book and refinance existing borrowings – appears to far outstrip the supply from either operations or from the traditional sources of maritime capital. Our research tries to identify how some of that gap may be bridged.”
Other key findings of the report:
- 90% of respondents say that the traditional KG model will continue to be relevant but alternative forms of financing need to be found if Germany wants to keep its status as a key market for maritime capital**
- 33% see a fundamental threat to the KG model
- 64% of respondents have already taken steps to procure new equity capital sources (apart from funds) and 47% to procure new loan capital sources (apart from German banks)
- 80% of respondents expect a rising significance of ratings or growing capital requirements in future financing agreements
- 80% say the competitive pressure from China will increase but only 50% percent say that China has a strong influence when it comes to ship financing
John Luke comments: “There is no doubt that the combination of the enduring suppression of shipping rates and broader economic woes of maritime lenders means that the KG model is, for now at least, no longer effective. However that is not to say a headlong rush to wind up every non-performing single-ship KG will provide a solution. Instead the market must seek more sustainable and beneficial long term alternatives perhaps such as warehousing multiple ships in portfolio based solutions.”
“In fact, our survey clearly shows that many ship owners are already actively exploring new financing sources. The future belongs to those shipping companies which come to terms with the new environment, find new business models and actively incorporate them into their operational trade.”
Note to editors:
*The survey was conducted in the second half of 2011. Participants represent approximately 43% of German tonnage in merchant shipping. The number of ships owned by these companies is approximately 1,600 or roughly 42% of the German fleet.
**KG model stands for Kommanditgesellschaft; it is a German form of legal incorporation suitable for a limited liability investment partnership. Under this model, intermediaries solicit investments from the public to buy ships that are then chartered out.
For further information please contact:
Katrin Boettger, Senior PR Manager
Tel: +44 207 896 4232 / 0782 4475168
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.