VACCINE treatments for coronavirus will boost economic activity and shipping in its wake, but ship finance is likely to get more expensive as a result, says Andy Dacy, global head of transportation at JPMorgan.

He highlighted ongoing polarisation in the ship finance market, with big players still able to borrow cheaply from banks, and small to medium borrowers increasingly forced to turn to alternative lenders.

Despite being an arm of an investment bank, Mr Dacy’s JP Morgan Asset Management arm sees itself essentially as a major shipowner, and borrows money from third party banks rather than funding itself internally.

Most of its deals are not in the public domain, although it did reveal late last year that it is involved in a deal that will see energy major Shell charter eight newbuilding LNG carriers underway at Hyundai Heavy Industries in Korea.

“If the vaccine gets disseminated and we see a return to normalcy over the next nine to 12 months, borrowing costs will go up generally speaking,” he said. “That will likely put more pressure on all types of borrowing, whether you’re a well-capitalised company or a smaller company.”

Levels of transaction activity certainly did slow up as the pandemic spread in spring and summer, with few buyers or sellers emerging.

Key factors here included uncertainty over where things were heading economically, and restrictions on travel that made it impossible to inspect vessels personally.

Such deals as were done mainly involved older ships with relatively small price tags attached, often with cash buyers who did not require finance.

A big pick up has been evident since September, most evidently in containers. Banks are open to conversations, and loans can be had for viable deals, Mr Dacy believes.

“We still have the winter to get through, from a coronavirus perspective, and all that this might entail in walkdowns and depressed economic activity. Once we do see vaccine getting disseminated, there will be a big uptick in general economic activity. I would imagine the shipping market would follow.”

More broadly, Mr Dacy has also noted a tendency for the minority of banks that remain active in shipping to prefer larger companies with bigger balance sheets. Realistically, others will have to look to Asia or to alternative lenders.

Bank margins are still competitive for those who make the cut, but advance rates have contracted to the 50-60% range, well below the far more permissive loan to value ratios seen in the early 2000s.

Higher leverage opportunities are available, but that will entail eating into returns on equity, which is a big downside.

“From what we have seen at least, it seems there is a bit of a barbell out there. You have the traditional lenders, focused on larger and more well-capitalised companies. Then you have the alternative lenders, focused on smaller companies at higher margins, and more structuring in terms of asking equity kickers or participation in the profitability.”