Posidonia 2012: Lloyd’s List panel of experts predict the rise of the shipping banker
TRADITIONAL shipowners are an endangered species due to be usurped by a generation of hybrid banker-shipowners better able to survive in an era of increasingly complex public and private financing, according to a special panel of industry experts convened by Lloyd’s List.
Speaking at the inaugural Lloyd’s List Business Briefing held in Athens to mark the opening of Posidonia 2012, shipowner Bertram Rickmers said the shipping industry was facing a paradigm shift that would require a radical change in company structure for many traditional operators and the ability to secure more sophisticated sources of equity and debt.
“Everything has changed. We have to change our companies and make them more transparent, make them ready for capital markets and we need to be in a position to have corporate governance in place. We can’t continue as private shipowners as my grandfather and father did,” he said.
“Here we are talking about the future of shipping and actually we are talking about banking. Perhaps we need a new term — shanking. I certainly think we will all need to be shankers if we want to be successful shipowners in the future.”
According to fellow panellist and Navios Group chairman Angeliki Frangou, there has been a generational shift that requires financial innovation where shipowners had previously focused on technical operations.
The retrenchment of many European banks from shipping lending due to tighter regulations and the subsequent de-leveraging process is now irreversible, she argued, meaning that shipowners must tap alternative sources of financing in order to secure growth.
Given that a large percentage of owners would inevitably be looking towards the bond or capital markets, that would require significant preparation from companies in terms of reporting requirements, access to ratings agencies and corporate structure in order to participate.
“Banks just won’t be able to lend in the same way. They will not be able to lend in a dollar denominated industry that is not national, so you have to prepare and you have to prepare for the crisis before the crisis,” said Ms Frangou.
Citing her own company as an example, Ms Frangou suggest that the bond market offered well run shipping companies an attractively deep pool of potential finance that was long-term, non-amortising and gave companies the ability put their cash to work during a crisis while leaving commercial banks feeling more comfortable in lending for longer periods. The key, she suggested, was in how companies structured themselves and how they managed their balance sheets.
While the Lloyd’s List panel of experts agreed that the bond and capital markets could offer a route forward for some of the better managed but cash starved companies, not all shared Ms Frangou’s optimism for alternative sources of financing.
The KG market is well and truly dead, according to Bertram Rickmers. Sovereign wealth funds have money but a very limited interest in shipping, according to Norton Rose head of shipping Harry Theochari. The small amount of traditional debt that is available will be lent on much shorter terms at higher costs, according to V.Ships president Roberto Giorgi.
Shipping economist Martin Stopford pointed out the scale of the issue at hand: the world fleet is worth $700bn, but only $293bn of that is controlled by publicly listed companies. Much of that figure represents Asian interests and government controlled companies, but the biggest slice of publicly listed independent companies remains in the US. The rest of the market, however, is not listed, meaning that some $400bn of vessels are in effect controlled by small private companies. The average shipping company today controls just seven ships.
“Accessing the capital markets requires a change in structure, reporting, management... everything has to cope with the requirements and smaller companies are not ready, would not have access and cannot grow. The real challenge is to prepare for growth,” said Mr Rickmers.
While George Cambanis, senior partner and global shipping leader at Deloitte, argued that there were tools available to help certain smaller companies access capital markets, he warned that preparation was key. He added that private equity, the subject of much anticipation in the market, was also now looking for similar levels of corporate governance as the bond and capital markets, so while deals were being done, they were taking longer than many shipowners had initially anticipated.
According to Mr Theochari, the private equity interests now looking at shipping are a “very different animal compared to the vulture funds that initially made plays for distressed assets in 2010”. However, he also pointed out that the amount available represented a drop in the ocean compared to what the industry needs.