Ship Finance Research Articles

ANALYSIS OF SHIPPING FINANCING SOURCES IN THE CONTEXT OF UNCERTAINTY

The article is aimed at identifying the peculiarities of financing shipping under conditions of uncertainty and analysing the sources of financing of shipping companies. Methodology. This study is based on the analysis of trends in the socio-economic, military-political and environmental situation, which cause global uncertainty and limit the ability of shipping companies to obtain external financing. The article compares the Petrofin Global Ship Finance Index with the dynamics of seaborne trade volumes for the period from 2008 to 2022, determines the correlation coefficient of these indicators and identifies the leaders among the banks-creditors of the shipping industry in terms of the volume of shipping loans in the loan portfolio. Results. The study shows a direct correlation between the shortage of shipping financing and the three main forms of global uncertainty. The results of comparing the Petrofin index with the growing dynamics of seaborne trade indicate a decrease in the role of banks and an increase in the role of alternative sources to cover the shortfall in shipping financing, such as raising resources from capital markets, financial and leasing companies, private equity funds, private equity and venture capital investments, investment platforms, hedge funds, state capital, and capital from international organisations. The main reasons for the change in the structure of shipping companies' funding sources are the conservative lending policy of banks in the crisis, tighter regulation, higher interest rates, lending only to borrowers with a positive credit history, and increased loan collateral requirements. Instead, the advantages of alternative sources of financing are flexibility, speed, less regulation compared to banks, the ability to provide large volumes, new types and forms of financing, and more competitive rates. Practical implications. The volatile external environment complicates the process of finding financing for shipping companies, which directly affects fleet renewal, the increase in the cost of ship construction and refurbishment, and the digital and environmental modernisation of shipping. Therefore, shipping companies should diversify their sources of financial resources, have a margin of safety in equity, and redistribute their borrowing portfolio between bank loans and alternative forms of financing. Value/Originality. The analysis of traditional and alternative sources of financing for shipping in the context of macroeconomic instability allows to identify key trends in investment policy towards shipping companies, to identify the specific needs of shipping companies in the face of various forms of global uncertainty and to outline the features of the most common sources of financing.

Financing shipping of Russian Federation: Modern instruments, methods and markets. The shipping IPO market

The research contained in this article discusses ship finance, analyses modern instruments, methods, and markets that shipping companies employ to fund their investment projects. In a highly dynamic and volatile business environment, ship finance becomes highly sophisticated, innovative and complex. Emphasis is placed particularly on financial position employed by Russian shipping companies that rank on insufficient place of international shipping. Offered new financing instruments include new forms of bank lending, leasing and syndication, international equity initial public offerings (IPOs)

Effectiveness of Revised Merchant Marine Policy and Long-Term Financing for Shipping Sector in Pakistan

In the contemporary globalized world, a strong national shipping sector and healthy state of national flag carriers is the reflection of a thriving economy. In case of Pakistan, unfortunately, the number of national flag carrier is just 11 ships; whereas, the contribution of private entrepreneurs is almost nil. There is an enormous growth potential for shipping industry in Pakistan which needs to be harnessed through enabling policies, processes and regulatory framework. In this context, Pakistan Merchant Marine Policy (MMP) 2001 was formed which was amended by the Federal Government in November 2019, extended till the year 2030 and launched in July 2020. Moreover, the State Bank of Pakistan (SBP) has issued the rules for ship financing under Long Term Financing Facility (LTFF) in July 2020. A question arises regarding the effectiveness of MMP and financing instruments. This study has examined the revised MMP 2001 document and the SBP’s LTFF for the Shipping Sector, by employing qualitative method. Based on analysis, this study has identified that the existing policy and legal framework has several issues due to which active engagement of private sector couldn’t be achieved and always remained a big challenge for shipping sector of Pakistan. MMP 2001 is fragile as it lacks the legal status enjoyed by an act of the parliament / ordinance and the provisions are subject to the Cabinet / ECC decisions made from time to time. Capacity gap is also among key challenges at the level of MoMA to address shortcomings in policy and legal framework through meaningful consultation with stakeholders. Channeling of finance through MoMA causes procedural delay while MMP does not promote ease of doing business for private investors. However, the documents are beyond the capacity of being amended and need to be drafted afresh including; MSO 2001, MMP and LTFF. It also argues to have an active role of a think tank or an academic institution to assist MoMA on long-term basis.

Maritime cluster relatedness and policy implications

Despite existing debates on the maritime cluster's institutional composition, geographical boundary, or evolutionary patterns, few studies have empirically scrutinized the relatedness of industrial sectors inside a maritime cluster. This study aims to develop an industry-relatedness model to quantitatively measure the paired industry relatedness among three maritime sectors: port-related, shipping-related, and maritime business services. Maritime sectors can be labour-intensive or capital-intensive, and thereby we constructed a compound ratio of capital per capita to address the heterogeneity issue in evaluating the industry relatedness. Instead of focusing on a specific maritime cluster, we applied the model to three representative maritime clusters, namely Western Europe, Guangdong-Hong Kong-Macao Greater Bay Area (GBA), and the Yangtze River Delta (YRD), to enhance the generalizability of our findings and implications. Findings suggest that the maritime cluster in Western Europe is characterized by more inter-sector connections. In Western Europe, Ship owning and operating, and Ship management and agency are found to operate with the highest relatedness; GBA has a polarized maritime industry structure with Hong Kong specializing in Ship finance and Shipbroking; cities in YRD operate with a speciality in Shipbuilding and repairing. This study found that differences in industry relatedness are mainly attributable to the focal region's evolutionary history and governance structure. We also provided a valuable reference for policymakers to plan and improve local and regional maritime cluster development.

An investigation on behavioral biases in ship investments of small-sized shipping companies

Purpose This study aims to explain the facts about behavioral biases that cannot be explained by rational patterns in ship investments of small-size shipping companies. Design/methodology/approach A qualitative approach was adopted in this study. The systematic approach of Wolcott (1994) and the action flows proposed by Miles and Huberman (1994) were taken into consideration. Findings Factors affecting ship investments are classified as ship finance, market timing, ship specifications and profile and business models of ship investors. In addition, behavioral biases that stand out under each theme are explained in the light of behavioral finance literature. Originality/value The originality of this study rests on the lack of studies on behavioral aspects of ship investments.

A Comparative Analysis of Risk-to-Performance of Sale and Lease Back: Based on the cases of ship investment company investment and ship acquisition

Purpose - I analyzes risk-to-performance evaluated in the market using data from sale and lease back. Specifically, I analyze from the perspective of financial institutions that purchase sale and lease back based on the cases of investment by ship investment companies and acquisition of ships. Design/methodology/approach - I use 49 sale and lease back data from 2017 to 2019 for empirical analysis. Findings - The main results of this paper are as follows. First, after sale and lease back of domestic ships, the average amount of sales by the leased shipping company is 25.1 billion won, the average amount of investment by the purchased financial institution is 14.6 billion won (60%) and the average length of the ship is nine years. In ship finance, sale and lease back is deemed to be appropriately used as a means of restructuring for a large amount of money. Second, the main risk factor for sale and lease back of domestic ships is credit risk and can be measured in VaR in practice. As a result of the empirical analysis, the average credit risk burden ratio is 9%. As a major risk factor, low creditworthiness of restructuring companies is the key. Third, as a result of measuring the profitability of financial institutions that purchase sale and lease back of domestic ships at a net current price, it has an average value of 300 million won, but the deviation by case is very large. Fourth, the risk adjusted performance of sale and lease back of domestic ships is 0.54 on average compared to the total risk capital, and 0.52 compared to the stock-risk capital, and as with profitability earlier, the deviation of each case is very large and misaligned. In order to boost the sale and lease back market for large and long-term assets, in order to overcome low profitability as a prerequisite for future participation of commercial purchased financial institutions, it is expected that purchase decisions based on expectations versus risk will be necessary. Research implications or Originality - The results of this paper are expected to broaden the understanding of sale and lease back and foster the ability to assess long-term risk and performance. Based on this, it is believed that rapid restructuring of companies through sale and lease back of large amounts of long-term assets will greatly increase the utility of the domestic financial market.

An Empirical Study on the Determinants of the Debt Repayment Capability of Shipping Firms in Recession

In this study, an empirical analysis of 55 ship finance cases executed by a specific ship finance bank from 2009 to 2016 during the recession period was conducted. The purpose of this study was to find the factors affecting changes in the debt performance of Korean shipping companies. The main factors were the loan nature (investment purpose, loan-to-value (LTV), syndicated loans, loan terms, put-option, balloon, and spread), financial nature (total assets turnover, net profit-to-sales ratio , debt ratio, quick ratio, total borrowing, bonds payable to total assets, interest expenses-to-sales ratio, debt service coverage ratio (DSCR), and total assets), and the company nature (company age, chief executive officer’s (CEO's) shares, and listing status). In this study, the factors affecting the debt repayment capability of domestic shipping companies (loan nature, financial nature, and company nature) were verified. The credit rating was used to measure the dependent variable, debt repayment ability. The variables of investment purpose, put-option, balloon, and spread in the loan nature, debt ratio in the financial nature, and the CEO's shares and company age in the company nature were found to be significant.

Legal aspects of ship financing structures and related guarantees (ship finance and maritime lien)

Legal aspects of ship financing structures and related guarantees (ship finance and maritime lien)

A Study on the Current Status and Market Revitalization of Ship Financing in South Korea

글로벌 물동량의 대부분을 차지하는 해상운송은 대외 교역을 위한 필수 수단이라고 할 수 있다. 이와 연관된 선박의 도입 및 유지 · 운영을 영위하는 해운산업은 규모와 성격면에서 경기순응적(Pro-Cyclical)이고 변동성(Volatility)과 자본 집약적(Capital intensive) 속성이 강하다. 따라서 해운산업은 상당한 금융리스크(Financial Risk)가 수반되는 만큼 전통적으로 전문적인 경영노하우(know how)와 금융기법이 발달 된 유럽 국가가 주도해 왔으며 이와 연관된 선박 금융시장 또한 전통적으로 유럽계 금융시장을 중심으로 성장해 왔다. 이와 함께 우리나라의 해운산업도 그 동안 지속적으로 발전하여왔으며 최근까지 세계적인 위상을 확보하는 등 많은 성과를 거두었다고 할 수 있다. 하지만 선박을 건조하는데 필요한 자금과 관련한 선박 금융시장은 기능적인 측면과 제도적인 측면에서 상대적으로 규모가 미미하며 자금 조달을 위한 각종 제도 및 시장여건에도 많은 과제를 안고 있다. 본 연구에서는 국내 선박금융 시장의 현황과 운영 실태를 심층적으로 분석해 보고 시장 활성화에 저해 요인이 어떤 것인지를 경제적인 측면은 물론 정책적인 측면에서 해결 방안을 도출함으로서 향후 선박 금융시장의 안정적이고 효율적으로 운용되는데 실질적인 대안이 되기를 기대하며 아울러 향후 글로벌 아시아 시대를 맞아 우리나라 해운산업의 지속적인 성장을 위한 선박금융시장 육성 방안을 제시하고자 한다.

FINANCING SHIPS WITH WIND-ASSISTED PROPULSION TECHNOLOGIES

The issue of financing green ships as well as of financing decarbonization of maritime operations has already attracted the interest of experts from the academia and the industry. Given that green ships do not enjoy a freight premium and their operating expenses are at the level of conventional assets, the inherently higher capital expenses required for green assets deteriorate profit margins and deter investors from relevant outlays. Hence, financial engineering is required in order to make investors indifferent to cost and riveted to the decarbonization aspects of any ship financing project. This paper summarizes research results and presents illustrative cases and structures. The analysis considers sharing economy models, such as the ‘pay as you save’, that perfectly suit solutions involving wind-assisted propulsion, and will also identify risks and ways of mitigating them. The approach considered may assist in the analysis of various wind-assisted and power-boosting technologies.

Utilization of Crowd Funding for the Activation of Ship Financing in South Korea

해운업의 선순환은 선박의 발주로 시작하여 조선·철강·금융의 부흥, 안정적인 운송과 해운 운임 획득을 통한 선사 안정화로 연결되는데 그 출발점이 선박금융이다. 금융은 산업을 움직이게 하는 핵심 동력이지만 한국의 경우 전체 대출액은 대부분 가계대출 위주로 구성되어 기업대출 규모는 50%에도 미치지 못하는 수준이다. 특히, 국책은행과 정책보증을 중심으로 성장한 한국의 해운 금융시장에서 자본(금융)시장의 역할은 매우 중요한데도 여전히 부진한 실정이다. 크라우드 펀딩(crowd funding)은 아직 생소한 방식이지만 신규 자본시장 조달과 육성에 이바지하고 있으며 세계 각국은 크라우드펀딩과 더불어 다양한 자금조달의 방법을 활성화하기 위해 정책적 제도 개선에 힘쓰고 있다. 크라우드 펀딩이 도입된 지 아직 얼마 되지 않아 본격적인 선박을 통한 크라우드 펀딩시장이 활성화되지 못해 국내에서는 작은 규모지만 대출형 위주의 선박담보 투자 방식과 운영자금 조달 등의 사례가 발생하였다. 2002년 한국은 아시아 최초로 선박 투자(선박펀드)회사 제도를 도입하여 해운산업 경쟁력을 높이고 선박금융 역량을 확보했듯이, 본 연구가 크라우드 펀딩을 통한 침체한 한국 해운산업 전반에 새로운 촉매제가 되기를 기대한다.Purpose : As Korea’s first shipbuilding (ship fund) company system was introduced in 2002 to enhance maritime industry competitiveness and secure ship financing capabilities, we hope that this research will become a new catalyst for the overall stagnant shipping industry through crowd funding. Research design, data, methodology : We gathered multiple cases related to crowd funding, analyzed them in the perspective of maritime finance, and comparing them with cases in other countries. Results : Through the value of innovation with crowd funding, a new structure is needed to allow a lot of money to flow into ship financing. There is a need for a wave of innovation that breaks the conservative financial system and creates new and successful cases to gain profits from ship financing through crowd funding and reform the tax system. Conclusions : We look forward to bringing new vitality to the stagnant Korean maritime industry by minimizing regulations on actors and becoming a catalyst for investment revitalization by generating a competition for profit by showing a large number of market surplus funds through crowd funding

Aspects of Ship Finance: The Market, Ship Mortgages and Their Enforcement

The ship finance market has, during the past decade, undergone profound changes. Compared with readily available ship finance in the boom years of the early noughties, the Global Financial Crisis (GFC) has seen many traditional ship finance banks exit the market. For those banks that have remained in shipping, there are now significantly tighter funding parameters, in line with the imposition of stricter controls over banks by the Basel Committee on Banking Supervision. Those seeking ship finance have, increasingly, had to rely on other sources of finance. Whatever the source of finance, the lender typically will want to secure that finance through the tried and trusted mechanism of a ship mortgage. Following an event of default on the mortgage, the lender may wish to enforce its rights by possession, sale, and arrest (followed by sale) of the ship. This paper analyses how these choices play out, particularly in the context of recent decisions of the English and Singapore courts.

Optimal portfolio choice for ship leasing investments

ABSTRACTWe develop an advanced portfolio analysis method to determine the optimal ship mix for a portfolio. A typical business model of a ship leasing firm is to acquire ships for charter income. However, transportation assets (such as ships and aircraft) are different from financial assets (e.g. stocks and bonds) as they are tangible and have a limited useful life. Thus, methodologies for financial portfolios cannot be simply extended to portfolios of transportation assets. Recently, ship leasing represents a non-traditional source of ship finance. A ship leasing firm can manage a certain number of ships across different ship types. Based on portfolio theory and industry-related evidence, we construct an optimal ship portfolio consisting of a manageable combination of carefully chosen ships. The expected return of the asset combination is examined with respect to various ship types and sizes. We quantify the freight risk for different categories of ships in different sectors to investigate the characteristics of ship portfolios. The estimation of such freight risk is of considerable interest to academics and practitioners alike, because determining the behaviour of freight risk has important implications for investment decisions regarding ships. Our portfolio method should strongly support the decision-making process involved in leasing ships.

중국 선박금융 시장 연구를 통한 국내 선박금융 활성화

중국 선박금융 시장 연구를 통한 국내 선박금융 활성화

Research on Financing Methods of China’s Shipbuilding

Internationally, shipbuilding industry is in the low stage of development and its financing is in trouble now. According to Petrofin Research, a research firm, since the financial crisis in 2008, the global total ship financing has been reduced, and European banks tend to take a tightening policy towards shipbuilding financing, as the world’s top 40 banks reduce investment in shipbuilding industry year after year. In addition, shipping market is also sluggish, of which the global container shipping company in 2011 caused a total loss of up to 5.2 billion US dollars, and the BDI index fell below the lowest point in 26 years. In recent years, although the shipping market has occasionally recovered, but is only a flash in the pan, still difficult to get out of the stagnant situation. With western Banks reducing their support for ship financing, the ship industry began to shift to the east, especially China, and Chinese Banks were gradually favored by the outside world. However, Chinese Banks is less contact with the ship financing, and lack of industry experience, their financing model of the industry is not mature, combined with the high risk characteristics of shipbuilding industry, ordinary financial institutions and shipbuilding enterprises have no systematic understanding of risk influencing factors and preventive measures of shipbuilding enterprises’ financing. Under such circumstances, the financing difficulty of Chinese shipbuilding enterprises is even more difficult. This paper expounds the relevant theoretical basis and development status of ship financing, and summarizes the current situation of financing domestic and abroad and the main financing methods, as well as problems faced by shipbuilding enterprises during financing process. At the same time, this paper adopts the method of combination of factor analysis and multiple regression analysis to analyze the sample data of 12 listed shipbuilding enterprises in China during the five-year period of market downturn, to construct a financing mode selection model, and then provide scientific reference for the financing mode selection of shipbuilding enterprises.

A Study of Subsidy Policy in the Ship Financing Market

This study considers the case in which governments decide whether to support private commercial banks with a subsidy policy in order to encourage participation in the international ship financing market. We examine two cases: (i) identical efficiency between domestic and foreign commercial banks; and (ii) different efficiencies between these banks. In the first case, the domestic government has the incentive to provide a subsidy strategy for domestic commercial banks to maximize social welfare, while the foreign government does not use the subsidy support. Furthermore, in the second case, foreign governments and commercial banks always prefer the subsidy strategy in order to maximize both social welfare and profits. However, the domestic government uses the subsidy strategy depending on the efficiency gap between the two banks. Our model suggests that governments need to support commercial banks with an appropriate subsidy strategy (direct or indirect) to promote participation in the market.

A Study of Subsidy Policy in the Ship Financing Market

This study considers the case in which governments decide whether to support private commercial banks with a subsidy policy in order to encourage participation in the international ship financing market. We examine two cases: (i) identical efficiency between domestic and foreign commercial banks; and (ii) different efficiencies between these banks. In the first case, the domestic government has the incentive to provide a subsidy strategy for domestic commercial banks to maximize social welfare, while the foreign government does not use the subsidy support. Furthermore, in the second case, foreign governments and commercial banks always prefer the subsidy strategy in order to maximize both social welfare and profits. However, the domestic government uses the subsidy strategy depending on the efficiency gap between the two banks. Our model suggests that governments need to support commercial banks with an appropriate subsidy strategy (direct or indirect) to promote participation in the market.

최근 선박융의 법적 쟁점과 입법정책

최근 선박융의 법적 쟁점과 입법정책

The Latest Legal Issue of Ship Finance in Korea

The Latest Legal Issue of Ship Finance in Korea

Heading towards Cape Town? Some remarks on the preparation of a future Protocol to the Cape Town Convention with respect to ships and maritime equipment

The Cape Town Convention, prepared under the auspices of the International Institute for the Unification of Private Law, is a remarkable success in the field of the unification of private law. Particularly, the Aircraft Protocol thereto has significantly facilitated international aircraft financing. Unsurprisingly, given the parallels between ship and aircraft financing, there are initiatives to prepare a further Protocol to the Cape Town Convention with respect to ships and maritime equipment. This idea, however, is not uncontroversial. Some doubt that a future Maritime Protocol would fit the existing legal framework of ship financing and that it would meet the needs of market participants. This article discusses some specific aspects regarding the preparation of such a Maritime Protocol. After providing some background to the ongoing debate, it examines the possible relationship between a Maritime Protocol to the Cape Town Convention and a possible future Convention on the recognition of judicial sales of ships currently prepared by the Comité Maritime International. It finds that the Maritime Protocol and a Convention on Foreign Judicial sales of ships could serve as complementary instruments that would jointly facilitate shipowners access to credit. In a second step, this article discusses some concerns with respect to a future Maritime Protocol. A closer look is taken at the controversial issue of maritime liens that is perceived to have hindered previous attempts at unification. A possible Maritime Protocol to the Cape Town Convention would provide a flexible regime of maritime liens that strikes a balance between policy interests of Member States and creditors’ interests in securing their investment. Finally, a Maritime Protocol would offer a flexible regime of remedies on insolvency. Therefore, this article concludes that the preparation of a Maritime Protocol would manifestly simplify the legal framework of ship financing.