Redemption of HSH Nordbank

Reporter Xu Miaomiao

On February 28th2018, the HSH Nordbank announced that it had basically completed privatization. American private equity funds Cerberus, J.C. Flowers, Golden Tree, Centaurus and BAWAG Bank of Austria bid Euro 1 billion ($1.2 billion) for a 94.9% stake in HSH Nordbank. After the privatization, Cerberus held 40.3% of HSH Nordbank;J.C. Flowers increased its share from 5.1% to 33.2%;Golden Tree held 11.9%; Centaurus held 7.1%; and BAWAG Bank of Austria held 2.4%.HSH Nordbank is currently restructuring its shipping credit portfolio and, based on stricter regulatory requirements, has split up a "bad bank" to deal with non-performing assets. On June 30, HSH Nordbank transferred 5 billion portfolio of shipping bad loans to its local shareholders, Hamburg and Schleswig-Holstein. As Thomas Schwitalla, a spokesman of the shipping sector in HSH Nordbank, said, HSH Nordbank will usher in a new beginning, with a new shareholder background that will allow it to move lightly without any EU restrictions. Moody's and Finch, the world's leading rating agencies, also believe that if HSH Nordbank can be successfully privatized and its balance sheet performance strengthened, it will become a more robust and stronger bank.

2018 is a crucial year for the HSH Nordbank’s reform,although the privatization and restructuring process is not yet complete. According to Thomas Schwitalla,in 2018, HSH Nordbank will take a step further in its business that were developed well in 2017, further reducing all remaining debts; reducing large deposits,further developing and diversifying its small and sporadic deposits business model; and reforming its existing strengths to expand international business both in Germany and abroad, especially those with rich experience in financial services, and these new businesses will be brought under new brands. HSH Nordbank will focus on maintaining medium-sized customers, including those in the real estate, energy,infrastructure and shipping sectors.

At the same time, the core business development of HSH Nordbank in the future will be based on a good market positioning, the core business areas include two major parts, group customers and project financing.Project financing mainly includes new energy projects and infrastructure and logistics projects. HSH Nordbank will use industry expertise to customize customer solutions for large and medium-sized companies,differentiate according to different areas, enhance the quality of portfolio investment, expand new business in the field of real estate financing depending on good market penetration and outstanding expertise. As the shipping market recovers slightly after a period of stagnation and the differentiation of the ship type market intensifies, the HSH Nordbank will further strengthen its market positioning and develop new businesses with shipping companies with good credit ratings and further reduce risks.

Nevertheless, Thomas said, the future earnings forecasts and development of HSH Nordbank remain uncertain.In general, the biggest risk in the privatization process is that HSH Nordbank may move in an unfavorable direction, so the execution of the financing completion agreement is only part of the share purchase agreement.Plus the special risks associated with privatization,HSH Nordbank faces a series of other challenges in the future.

Obviously, under the background that the shipping financing industry as a whole is "rising in the East and declining in the West", these traditional European shipping banks are facing unprecedented investment challenges, and the whole industry is eager to find innovative breakthroughs in shipping investment.Capital has always been seen as the direction of industry development. In the past development of shipping finance, the banking industry has explored such hedging tools as forward freight agreements,interest rate swaps and fuel hedging and shipping derivatives; in the crisis of bad debts on ships, there have also been a large number of asset securitization products. Whether the HSH Nordbank can successfully transform and achieve self-redemption may provide a vivid example for the traditional banks in finding way out in the future.