Chinese banks becoming global leaders in ship financing

An ICBC branch in Hong Kong. In October, ICBC Financial Leasing announced it would provide 18 tankers to BP Shipping over the next 10 years, a deal estimated to be worth $869 million. [Paul Boursier/For China Daily]

Within such a context, Chinese banks were able to secure deals with some of the world's largest ship owners, such as Mediterranean Shipping Co, BP Shipping and Bourbon, all of which are considered the most attractive borrowers because their size means the risk of loan default is almost zero.

A recent example of a Chinese finance deal is ICBC Financial Leasing providing 18 tankers to BP Shipping over the next 10 years, a transaction announced in October, estimated to be worth $869 million.

"Shipping finance entities compete with each other on three aspects, which are volume, pricing and structure of deal, and ICBC was able to outperform other lenders on all three levels," said Dmitri Mikhno, director of London-based Clarksons Platou Debt & Leasing Solutions.

Alun Hatfield, managing director of Clarksons, added that Chinese banks' more recent entry into the leasing business means they have more capacity to take on new loans because their capital is not tied to existing shipping portfolios. In comparison, many Western banks already have billions of dollars of shipping loan portfolios on their books, which makes further lending difficult.

In addition to financing new vessels, some experts believe opportunities exist for Chinese banks to purchase existing shipping loan portfolios of Western banks that are looking to exit ship financing to free up capital.

Sellers in this market are plenty. Lloyds Banking Group exited the shipping market in 2014 when it sold the last $500 million of loans from its ship finance portfolio. That same year, Commerzbank sold a shipping portfolio worth 160 million euros ($182 million), and in 2015, Reuters reported that RBS put up $5 billion of shipping assets for sale.

Christoforos Bisbikos, a Hong Kong-based partner at shipping finance experts WFW, said buying existing loans allows Chinese banks to get a good assessment of the credibility of ship owners. "Buying existing loan portfolios is the best credit check you can get, because you can get trade records of the ship owners that could go back decades, so it reduces the risks of lending to those owners."

Harry Theochari, global head of transport at London-based law firm Norton Rose Fulbright, said that the downside risks for Chinese banks to own these shipping portfolios is smaller than for Western banks, because they would probably buy these portfolios at a discount to market value.

Andreas Povlsen, founder and CEO of the London-based maritime finance firm Breakwater Capital, added that Chinese banks should make sure that their financing activities do not distort the market.

"It is important that Chinese banks study the quality and specification of the ships they finance carefully. They should focus on efficient procedures to monitor the assets and effectuate the closing of the deals, and make sure the deals are structured appropriately," Povlsen said.