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New financing models and sources of finance New financing models and sources of finance

New financing models and sources of finance - PowerPoint Presentation

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New financing models and sources of finance - PPT Presentation

Nicholas Valenzia Mamo TCV Advocates Malta Maritime Law Association Developing Trends in ship finance Current Market Overview 2008 Global Financial Crisis GFC Prior to GFC shipping was typically a strong secure sector good quick returns fairly stable market ID: 754829

ship finance asset market finance ship market asset lease traditional exim 356 sources financial financing global sector instruments leasing

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Slide1

New financing models and sources of finance

Nicholas Valenzia - Mamo TCV Advocates

Malta Maritime Law Association – Developing Trends in ship financeSlide2

Current Market Overview

2008 – Global Financial Crisis (GFC);

Prior to GFC – shipping was typically a ‘strong’ secure sector – good / quick returns – fairly stable market;

GFC:

Global fall in demand for commodities – effecting freight rates;

Protracted market difficulties (recovery was not immediate as initially anticipated);

Default on ship building contracts – ship ‘dumping’;

Resultant ship oversupply.Slide3

Current Market Overview

Heavily hit sectors:

Dry Bulk

Container Ships

Tankers (depends on type and area of use)

Stronger sectors:LNGAHSV/TugsSpecialist vessels/off shore/ alternative types Slide4

Resultant effect:

Banking sector down turn/restrictions:

Traditional financiers needing to curb their ‘high risk’ portfolios and ensuring that the financed assets value were in accordance with Basel III requirements;

Initial repossession and sell offs of entire fleets – (has it worked ?);

Traditional finance model would be reserved to assets which did not suffer from a drop in demand and/or freight/hire rates;

Extensive restructuring exercise of shipping groups has to be implemented. Slide5

New Sources of Finance/Financial Instruments

Restricted access to traditional financiers due to lack of appetite or otherwise inability to source funds has resulted in the emergence of ‘new’ models for ship finance:

Capital Markets;

Private Equity;

IPO;

Exim/EF support;Lease financing.Slide6

New Sources of Finance/Financial Instruments

Why?

Less consolidation restrictions when compared to traditional banks;

More flexibility granted to owners in a refinancing scenario – subject to the usual caveats (asset value, group strength);

Possible long term low margin yield for investors who do not have any other avenue where to ‘place’ their investment;

Supported by flexible regimes – US bonds/notes - Norwegian OTC;Still subject to the traditional security regime (mortgages);IPOs – initially an interesting prospect – however, the protracted lack of recovery of the bulk/container ship market has resulted in a decline of interest in this option.Slide7

New Sources of Finance/Financial Instruments

Exim/Export Finance:

Supporting entities based/operating from a particular state;

Used to prevent/control a defaulting scenario or otherwise to provide financing where operators are finding difficulty in sourcing financing;

Used to support leasing groups.Slide8

Finance Leasing & Leasing

Is it that new? Not really

Common in France and Italy especially in the yachting sector;

Principally derived from equipment finance models (including rail finance);

Used quite frequently in Exim/EF scenarios, where Exim/EF banks would lend money to a lease financier which would in turn finance lease the asset to the end user/owner/operator;

Used by lease finance arms of ship builders having difficulty in sourcing finance;Advantages:Flexibility;

Allows for a longer loan period/spread;

Downside:

Could be expensive;

Default scenario (e.g. yachting market in 2009)Slide9

Looking ahead

Growth factors and Stability:

Tipping point: when will the containership/dry bulk market recover?

tipping point between supply and demand for these ships;

Recovery from global recession;

Realistic valuations.Key factors today to kept into consideration when sourcing finance today:Asset, Asset, Asset;

Consolidation of group structure and strength.Slide10

Looking ahead

Malta:

Possible new initiatives?

Revision of shipping organisation/company regime – rights upon insolvency;

Multi-tier registration of lease interests;

Facilitation measures.Slide11

Thank You

Malta Maritime Law Association

Mamo TCV Advocates

Telephone: (+356) 21231345 ; (+356) 21232271

Fax: (+356) 21244291 ; (+356) 21231298

Email:

nicholas.valenzia@mamotcv.com

www.mamotcv.com