Diversi fi cation Road of Ship Financing

Reporter Xu Miaomiao

The shipping industry began to enter the trough followed by the global fi nancial crisis in 2008.Facing the market downturn, how could the shipping industry, as a typical capital intensive industry,crack the fi nancing conundrums and maintain a smooth operation?

The bank has always been the largest lender for the shipping industry. All the signs indicate that with deteriorating shipping loans, it may become a blasting fuse of European banking crisis, and Germany will likely be the next domino to fall in the European banking crisis. Therefore, the European Central Bank has begun to examine the loans that the banking sector lends to the shipping industry. The inspection of the banking supervision department under the European Central Bank has raised concerns about the banks which have already lent money to the shipping industry, especially the German banks. They fear that they may be required for more capital to the shipping industry, and to increase the loan loss provision. Since the shipping market once again caught in the doldrums in the third quarter of 2015, the banking industry, especially the European banking industry, has little patience to the shipping industry in prolonged bottom.

Has the shipping industry of China, a big shipping country, really no way to go in the face of such a predicament? In fact, besides bank loan, which is familiar to people, there are other financing channels for the shipping industry. According to industry insiders, the financing way for the shipping industry is divided into two main parts, i.e. internal financing and external financing. Internal financing means that shipping enterprises use their own funds to support the construction of ships. External financing refers to fi nancing from outside the enterprise.

Besides bank loans, external financing also includes fi nancing lease, stock fi nancing, bonds, funds and so on.Financing lease, which is more fl exible and convenient compared with bank loans, can solve the poor fi nancing channel problem facing the shipping enterprises wishing to expand capacity. Stock financing is a kind of way that shipping companies get capital through the stock market, and it is the ideal way for combining shipping enterprises and capital. Owing to their characteristics,shipping enterprises can not only rely on its own funds and loan funds, but can rely on stock market which can quickly meet the demand for funds. Bond financing is a way for shipping companies to obtain funds in the bond market. Due to the strict conditions for issuing bonds, the shipping companies intending to raise funds in the form of bonds must pass strict examination and approval procedures. In terms of the fi nancing risk, the highest risk lies in bond financing, followed by bank loans, while the risk of fi nancial leasing, stock fi nancing and internal financing are relatively lower. In terms of the financing amount, stock and bond financing could raise the largest amount of fund, fi nancing lease can be big or small, and bank loans are relatively limited. In terms of the fi nancing speed, lease fi nancing and internal fi nancing are faster, while bank loans, equity fi nancing and bond fi nancing are relatively slow.

Thus, the financing channels of the shipping industry are more flexible, and each channel has its own advantages. Shipping enterprises of different scales can choose the best fi nancing way according to the different characteristics of the financing channels. According to Research Petrof i n, since the bank began to tighten loans to the shipping enterprises, the role of banks, as a source of shipping funds, in fi nancing global fl eet is weakening in the past 8 years. This means that non-bank fi nancing channels have become more and more popular.

But how to realize the diversification of shipping fi nancing? Industry experts suggest that in terms of credit environment, the Chinese funded commercial banks should be guided to fully understand the particularity of the shipping industry and shipping enterprises, and be encouraged to provide loans for shipping enterprises to purchase and construct ships, as well as establish credit system adapted to shipping industry development; in terms of the setting of professional institutions, we can learn from the world shipping powers’ practice of establishing professional maritime agencies, establish government funded research institutions and set up the shipping finance consulting platform; in terms of the training and introduction of talents, we should introduce and cultivate the high-end talents in all areas covering shipping, fi nance,insurance, law, fi nance and technology.