4th Mare Forum Indonesia 2012 “the next Maritime Eldorado of the East” Exploring the global ship-financing outlook Dimitris Belbas, Managing Director

Eurofin Group of Companies

Who we are EUROFIN: Independent, privately held advisory group Ø  Ø  Ø  Ø  Ø  Ø  Ø  Ø 

28 Years 200 years Flexibility Recognition Commitment US$ 20billion Strong Relationships Global Coverage

Presence and Commitment in the Ship-Financing Industry Cumulative Ship-financing experience Tailor made ship-financing structures Representatives of KfW IPEX-Bank in Greece Team of 15 professionals dedicated to the shipping industry Successfully arranged Ship-Financing Transactions (globally) With all major ship-financing Providers and many key Shipowners Presence in major shipping centers

Eurofin Group offices

London

Athens Singapore

Eurofin Group is the oldest, largest, specialized ship-financing investment boutique with global coverage

2

Ship financing environment: US Stormy waters out there

157 140

92

25

2000

01

02

03

04

05

06

07

08

09

10

Source: FDIC (January, 2012)

11 3

Ship financing environment: EUROPE Any guesses? Stormy waters out there plus…Scylla Total debt (% of GDP) of Greece, Italy, Ireland, Portugal, and Spain Greece

Italy

62

65

45

82

132

7

267

111

76

Households

314

Nonfinancial corporations Financial institutions

Portugal

Spain

Ireland

94

82

124

128

55

134

76

194

79

71

Government

356

363

259

663

85

Source: McKinsey Global Institute (January 2012)

4

Ship financing environment: EUROPE Stormy waters out there plus…Scylla and Charybdis Net direct exposure1 to debt of Greece, Italy, Ireland, Portugal, and Spain Banks participating in ECB stress test, $ billion

507

Sovereign

294

Private sector 186

173 120 65

France

United Kingdom

105 35

Germany

Spain2

74

52

42 8

Belgium

Cyprus

3

19

Denmark

36

15

Netherlands

14

1

Italy2

1 Net direct exposure defined as gross cash long minus gross cash short. 2 Excludes exposure to domestic debt.

Source: McKinsey Global Institute (January 2012)

5

Ship financing environment A statement of the obvious In all three main shipping sectors Freight Rates and Asset Values have declined to recent historically low levels Shipping Charter Rates (Indexed - as at Q.1 2012) 200

Dry   Tanker Bulker

150

Asset Values (US$ mm - as at March 2012) 150

~(77%)

5-year Peak: $150m % Change to Current: ~(77%)

34

5-Year old Capesize

Container July 2008

Container  

65

100

March 2012 ~(62%)

25

5-Yr 3,500 Teu vessel

5-year Peak: $65m % Change to Current: ~(62%)

% Change

50

(60%) (73%)

0

2005-Q1 2005-Q2 2005-Q3 2005-Q4 2006-Q1 2006-Q2 2006-Q3 2006-Q4 2007-Q1 2007-Q2 2007-Q3 2007-Q4 2008-Q1 2008-Q2 2008-Q3 2008-Q4 2009-Q1 2009-Q2 2009-Q3 2009-Q4 2010-Q1 2010-Q2 2010-Q3 2010-Q4 2011-Q1 2011-Q2 2011-Q3 2011-Q4 2012-Q1

(76%)

July 2008

Tanker  

79

5-Year old Aframax

July 2008

March 2012 ~(58%)

5-year Peak: $79m % Change to Current: ~(58%)

33

March 2012

Source: Clarkson’s Research, Baltic Exchange

6

Ship financing environment The impact of risk migration on bank capital An example: 5,300 TEU containership delivered in 2009 and financed with a US$ 71m loan 18

US$m Vessel Value

Oct 06

June 08

April 09

Aug 09

Jan 10

89

95

51

46

40

16

14

Rating

LGD

9 (BBB)

16.1%

10 (BBB-)

13.5%

12 (BB)

25.2%

14 (B+)

26.7%

20 (D)

28.6%

10

8

6

4

Capital Costs

Bank Capital (EURm)

12

1.1

1.4

3.8

5.0

16.7

2

(EURm) 0 9

11

13

15

17

19

Bank internal rating

Ø  Internal ratings downgrades have an exponential effect on bank capital Ø  Reduced collateral values also increases capital requirements Source: ING 7

Ship financing environment Pressure on bank finance availability Pressure

Effect

Provisioning

Risk costs increasing as borrowers come under financial pressure.

Risk Migration

Increased capital costs with limited portfolio growth

Poor market outlook

Oversupply remains; demand recovering from a low base

Internal competition for capital

Other sectors (eg offshore) currently have better risk/ reward characteristics

Exits

Well-known shipping banks have exited the market or scaled back

Several banks still struggling

Moderate demand outlook

Massive orderbook

Limited availability for ship-owners

8

Ship financing environment Unprecedented drop of global shipping banks’ capacity 40   2010  

32.6   30  

Change  from  2008  

29.9   27   22   21.9  

20  

Acquired HBOS Portfolio 19.8  

17.9   17.6  

15.8  

14.7   14.6   14.3   13.7   10  

US$  Billion  

10  

0  

2.5  

3.6  

1.1   -­‐2.8  

-­‐10  

-­‐9   -­‐14.9  

1.6  

3.1  

9.5  

9.4  

-­‐0.9   -­‐1.3   -­‐0.1   -­‐1.9  

9  

8.6  

-­‐1  

8.1  

0.4  

5.9  

5.6  

-­‐1.4   -­‐0.6  

3.4  

4.9  

3.9  

3.7  

3.6  

-­‐0.1  

-­‐8.1   Note: BNP Paribas &Bank of China did not report their portfolios in 2010

-­‐20  

Source: Marine Money, May 2011 -­‐30  

-­‐25.4  

9

Ship financing environment Unprecedented drop of global shipping banks’ capacity 40   2010  

32.6   30  

Change  from  2008  

29.9   27   22   21.9  

20  

Acquired HBOS Portfolio 19.8  

17.9   17.6  

15.8  

14.7   14.6   14.3   13.7   10  

US$  Billion  

10  

0  

2.5  

3.6  

1.1   -­‐2.8  

-­‐10  

-­‐9   -­‐14.9  

1.6  

3.1  

9.5  

9.4  

-­‐0.9   -­‐1.3   -­‐0.1   -­‐1.9  

9  

8.6  

-­‐1  

8.1  

0.4  

5.9  

5.6  

-­‐1.4   -­‐0.6  

3.4  

4.9  

3.9  

3.7  

3.6  

-­‐0.1  

-­‐8.1   Note: BNP Paribas &Bank of China did not report their portfolios in 2010

-­‐20  

Source: Marine Money, May 2011 -­‐30  

-­‐25.4  

10

Ship financing environment Unprecedented drop of global shipping banks’ capacity 40   2010  

32.6   30  

Change  from  2008  

29.9   27   22   21.9  

20  

Acquired HBOS Portfolio 19.8  

17.9   17.6  

15.8  

14.7   14.6   14.3   13.7   10  

US$  Billion  

10  

0  

2.5  

3.6  

1.1   -­‐2.8  

-­‐10  

-­‐9   -­‐14.9  

1.6  

3.1  

9.5  

9.4  

-­‐0.9   -­‐1.3   -­‐0.1   -­‐1.9  

9  

8.6  

-­‐1  

8.1  

0.4  

5.9  

5.6  

-­‐1.4   -­‐0.6  

3.4  

4.9  

3.9  

3.7  

3.6  

-­‐0.1  

-­‐8.1   Note: BNP Paribas &Bank of China did not report their portfolios in 2010

-­‐20  

Source: Marine Money, May 2011 -­‐30  

-­‐25.4  

11

Ship financing environment: Asia Asian Banks to the forefront?

Axis Bank Bank of India Bank of Baroda State Bank of India ICICI

Bank of China ICBC China Construction Bank Bank of Communications Minsheng Banking Corp The Export Import Bank of China China Development Bank Sinosure

Busan Bank Solomon Financial Group Korea Export Import Bank K-Sure Mizuho BTMU SMBC JBIC NEXIA CHB Chinatrust Mega Bank Land Bank

Bank of Ayudhya Kasikornbank Krung Thai Bank Thanachart Bank PT Bank ICBC PT Bank OCBC PT Bank UOB

Standard Chartered Maybank CIMB

DBS OCBC UOB

Affin Bank AmBank Group CIMB Group RHB Maybank

12

Ship financing environment: Asia Recent transactions Indonesia Client

Bank

US$ (m)

Remarks

Berlian Laju Tanker

NIBC DnB Nor Nordea ING BNP Paribas Standard Chartered

685

5 year term loan to prepay existing loan facilities and fund remaining payments for the acquisition of 3 new ships

Trada Maritime

SMBC Maritime IFC

50

Debt facility to finance an FSO conversion

Pelayaran Kartika Samudra Adijaya

PT Bank OCBC PT Bank ICBC PT Bank UOB PT Bank OCBC NISP

61

4 term loan and a 3 year revolver to refinance existing debt and acquire vessels

Wintermar Offshore

IFC

45

Loan for the expansion of its offshore supply vessel fleet

Source: Marine Money 13

Ship financing environment: Asia Export Credit Agencies: Competition at a political level JAPAN Ø  NEXI: Nippon Export and Investment Insurance Ø  JBIC: Japan Bank for International Cooperation KOREA Ø  K-sure: Korea Trade Insurance Corporation Ø  Korea Exim Bank CHINA Ø  Sinosure: China Export & Credit Insurance Corporation Ø  China Exim Bank

14

0

Source: Relbanks (January 2012) BBVA

Sumitomo Mitsui Financial

China Merchants Bank

50

Bank of Communications

UBS

Goldman Sachs Group

BNP Paribas

US Bancorp

National Australia Bank

Standard Chartered

Bank of Nova Scotia

ANZ Banking

Sberbank of Russia

Banco Bradesco

Mitsubishi UFJ Financial

Westpac

Banco Santander

Toronto-Dominion Bank

Bank of America

Royal Bank Canada

Commonwealth

Citigroup

Itau Unibanco

142

Bank of China

JP Morgan Chase

150

Agricultural Bank of China

HSBC Holdings

Wells Fargo & Co

200

China Construction Bank

250

ICBC

Ship financing environment: Chinese banks

Chinese Banks, an emerging ship financing power 30 Biggest Banks (by market cap, $ billion)

300

241

196 129

100

48 45

15

Ship financing environment: Chinese banks Chinese Banks, an emerging ship financing power?

§  Total Portfolio estimated* at:

RMB 600 bn‐700bn (US$ 88bn -102bn)

Market Share to finance ship owner and shipbuilder Others, 25%

ICBC, 25%

CEXIM, 25%

BOC, 25%

§  Leaders: BoC, CEXIM, ICBC §  CDB, CCB, CMB, MB, SPDB, ABC §  and…SINOSURE

* Estimate of BoC 2009: (includes shipping, shipbuiding, as well as refund guarantees) Source: BoC

16

Ship financing environment: Chinese banks Recent transactions

235 mil 149 mil

1,112 mil 400 mil 2,400 mil

389 mil

40 mil 65 mil

180 mil

17

Ship financing environment: Chinese banks Recent transactions

74 mil

111 mil

203 mil 83 mil

18

Ship financing environment: Chinese banks How feasible for non-PRC companies? Ø  For a non-Chinese owner, it is very challenging to assess counterparty risk, requiring therefore: Ø  “Best in Class – Household name” (note that big is not necessarily beautiful) Ø  Easily credit scored Ø  Chinese link: State Owned Shipyards, State Owned Charterers

Ø  If successful… Ø  Non preferential terms and conditions Ø  More expensive pricing

19

Ship financing environment: Chinese banks Soft landing under continuous pressure (1) •  Easing inflationary pressures: 3.2% (yty in February)

Source: National Bureau of Statistics of China (Mar 2012)

6.5

6.1 5.5

Feb 12

Jan 12

Dec 11

Nov 11

Oct 11

Sep 11

Aug 11

Jul 11

Jun 11

4.5 4.1 3.2

May 11

Apr 11

Mar 11

Feb 11

Jan 11

Dec 10

Nov 10

Oct 10

Sep 10

Aug 10

Jul 10

Jun 10

May 10

Apr 10

Mar 10

Feb 10

Jan 10

–  Continuous wages increases / Labor force shortages –  Strong bank lending in 2009-10 from the PRC Banks and a rising money supply –  Despite the visible drop in official figures on net new loans from PRC Banks, in reality lending has not moderated; 5.3 it was diverted into/through other channels 4.9

20

Ship financing environment: Chinese banks Soft landing under continuous pressure (2) •  Gradually tightened monetary policy to curb excessive lending through… 12 increases and two decreases of reserve requirements over the past 25 months 21.50% 20.50%

16%

Source: National Bureau of Statistics of China (Mar 2012)

21

Ship financing environment: Chinese banks Soft landing under continuous pressure (3) •  Gradually tightened monetary policy to curb excessive lending through… 5 increases of interest rates in a period of fifteen months 6.56% 6.31% 6.06% 5.81% 5.56%

Oct-10

Dec 10

Feb-11

Source: National Bureau of Statistics of China (Mar 2012)

Apr-11

Jul-11

22

Ship financing environment: Chinese banks Soft landing under continuous pressure (4) •  Individual reserve requirement ratio •  Hedging against expected increases in bad loans –  Losses from bank loans to Local Governments (LGIVs): US$ 220 to 600bn

•  Ongoing volatility in Global, Chinese, and Shipping Markets •  Continuous intervention from PBRC •  Appreciation of Renminbi –  Shortage of USD –  Preference in Renminbi denominated loans

23

Ship financing environment: Global banks Biggest mismatch in the global ship-financing industry Ship-Finance DEMAND

Ship-Finance SUPPLY

for Debt remains strong

of Debt continuously decreases

Estimated Debt Required for the Shipping Industry

Global Debt Ship-Financing Advanced [by Volume],

(2012 - 2014+: Newbuildings Only)

(2005 – 2011) Syndicated and Significant Bilateral Shipping Transactions

Orderbook stands at: US$247bn

140

140

Debt

120

80

100

76

60

48

40 20

120

51

32

0 2012

2013

24 16 2014+

Debt Requirement (at 60% leverage): US$ 99 bn.

Source: Clarksons

US$ Billion

100

Equity

Includes Re-financing Q4 Q3 Q2 Q1

80 60 40 20 0 2005 2006 2007 2008 2009 2010

2011

Source: Dealogic 24

Ship financing environment: Capital Markets

Considerable help but…not for everyone…



Ø  Big number of rights issues post 2008 (follow on listings / ATMs commonplace), but subject to window of opportunity Ø  Bond issues served already listed companies, all in the form of non-investment grade with high yields: ASIA ON THE RISE Public Equity Raised (2001 – 2011 )

Bond Issues (2001 – 2011 )

16,998

(In USD millions)

16,631

(In USD millions)

13,458 11,015

9,944

9,992 9,078 8,857

6,999 5,757 3,513 295 855

6,517 5,169

7,457

5,340

3,799

1,056

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1,947 350

200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Marine Money

25

Ship financing environment: Asia Recent transactions EQUITY

Issuer

Underwriters / Advisors

(US$ M)

Structure / Pricing / Comments

Buana Listya Tama

Danatama Makmur, J.P. Morgan securities

121

Berlian Laju Tanker

Deutsche Bank, Danatama Makmur, DnB NOR, Standard Chartered Ciptadana Securities, Bahana Securities, CIMB Securities

136

Subsidiary of Berlian LajuTanker sold 6.65 billion new shares and raised IDR 1.03 trillion from the Indonesia Stock Exchange Concluded renounceable one-for-one rights issue to raise funds for acquisitions and working capital Offshore marine company sold 900 million new shares at IDR 380 a piece and listed successfully on the Indonesia Stock Exchange. 65% of the shares sold to foreign investors

Wintermar Offshore Marine

BONDS

Borrower

Berlian Laju Tankers

Arrangers / Advisors J.P. Morgan, RS Platou Markets

37

(US$M) Interest Maturit Purpose / Remarks Rate y 125 12.00% 5 Exercised the option to upsize its convertible bond offering to 125M USD

Source: Marine Money 26

Ship financing environment: Private Equity Need for a WILLING buyer and a WILLING seller Ø  Increased interest •  Growing number of private equity funds becoming attracted to shipping: equity / mezzanine debt providers •  Opportunity driven: shipping / hedge / distressed / vulture / sovereign etc •  Major focus on distressed situations Ø  Limited action •  Fund managers do not specialise in shipping: seek secure cash flows, high yield potential and controlled exit •  Few distressed deals available •  Banks preferred existing, knowledgeable counterparties •  Deals require lots of cheap, covenant - light, senior debt which is just not available, hence the difficulty to obtain satisfactory returns •  Valuation gap between Sellers and Buyers 27

Ship financing environment: Mezzanine Finance An alternative solution but numbers do NOT work (yet) Companies preferred debt intensive capital structures due to readily available cheap debt. Currently, companies look towards raising their equity levels.

WACC

Ø  Opportunity for owners

Yesterday

Today

Tomorrow

6.8%

11.6%

11.1%

15%

20%

20%

40%

to retain/unlock capital

15%

for other business pursuits Ø  Peace of mind to senior debt providers

30%

20%

12%

85% 4.5% Libor (3.5%) + Margin (1.0%)

Debt

60%

6% Libor (2.0%) + Margin (4.0%)

Mezzanine

55%

6% Libor (2.0%) + Margin (4.0%)

Equity Source: Nordea

28

Ship financing environment – Conclusions Debt Financing: A scarce commodity •  A totally new Banking environment –  The syndications’ market is pretty much closed –  Cost of funding for most banks has increased to unprecedented levels –  Shipping Departments have a much smaller say in the decision making process

•  Risk aversion for the willing banks –  Preference to Top & Core clients (ideally domestic) with LT employment –  Less onerous for Top Tier and public companies to establish new relationships –  Increased KYC assessment and due diligence processes

•  Current structures –  –  –  – 

Smaller tickets: Size of USD 75-150million with tickets of USD 15-30million Lower LTVs: Starting from 50-60% up to 70-75% in exceptional cases Shorter terms: Tenor 5-6 years, profile 10-12 years (sometimes no balloons) Much higher pricing / stricter terms 29

Ship financing environment – Conclusions Mind the…funding gap •  Personal equity –  Increased contributions from (cash rich) owners –  Inevitable for those who can afford it and still want to invest

•  Capital Markets –  Beneficial for already public companies but not any more –  Challenging task for potential IPOs/Bonds (unless you are in Asia)

•  Private Equity –  Mismatch in price expectations and availability of distressed opportunities

•  Export Credit Agencies (ECAs) –  Money is made available to the usual suspects –  Commercial bank (funding) is still required 30

Ship financing environment – Conclusions Capital sources are extensively constrained and… Ø  Banks have to re-organize their balance sheets and re-build

regulatory capital Ø  Limited capacity from alternative sources Traditional Sources of Capital for Shipping Limited Capacity

§  §  §  §  § 

Bilateral Lending Internal equity finance Shipyard finance Government Other

36.2%  

Equity funds

6%  

5%   Tax Lease investors KG / KS Public Equity & Bond

NO Capacity

Syndicated Loans

40.2%  

8%   Non-ship mortgage loans

Source: Abn Amro

31

4th Mare Forum Indonesia 2012 “the next Maritime Eldorado of the East” Exploring the global ship-financing outlook Dimitris Belbas, Managing Director

Eurofin Group of Companies

32