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Research Project Report

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Measures to vitalize shipping finance by improving the role of the capital market
Report No. 2014-03 Research Manager Kim,Tae Il
File

The financial market serves a role of enabling a series of financial activities that make investments in vessels. To achieve this, the financial market provides various sources from stake investment, mezzanine financing, senior loan to lease.


- While stake investment categorizes into stake holding in shipping companies, private companies, shipping investment funds and public offering, mezzanine financing is financing from private equity fund. And senior loan classifies as financing with bond issue, bank loan, credit offering in shipyard and private equity fund. Financing lease is classified into finance lease and operating lease.


In global shipping companies, bank loans take up the largest share with more than 50% of their shipping finance. Starting from the financial crisis in 2008, however, global companies significantly increase the financing from the capital market.


- According to Petrofin Research, 75% of 40 major European shipping companies predicted that shipping finance from non-bank sources will dramatically increase in 2~3 years.


Korea’s shipping finance market accounts for 18~38% of global new ship orders, most of which financing from ECA (Export Credit Agencies) and overseas financial institutions.


- The domestic shipping finance market is an ECA-dominated market and in its transition from loan to investment-intensive market. Also, the investment is concentrated on non-regular liners with freight contracts on collateral.


European countries have driven the global shipping finance market until 2008, boosted by exceptional tax breaks. However, Asian shipping market is on the rise based on the strong support of policy-based financing.


Major deterrents to the domestic shipping finance market are as follows;


- Credit risks spreading the overall shipping companies

- The financial market’s reluctance to offer loans due to high debt ratio of shipping companies

- Loan conditions of shipping companies have deteriorated; banks significantly increased interest rates for handling shipping finance; loan maturity was shortened from more than 10 years to 5~7 years; leverage ratio has cut from around 80% to 50~60%.

- Korea’s shipping finance market shows high dependency on foreign capital since foreign financial institutions account for 61.2% of total market.

- The shipping finance market is primarily a dollar-oriented market, being exposed to currency risk which is another stumbling block for developing a competitive shipping finance product.


The current status and awareness survey of domestic shipping finance institutions are as follows.


- The domestic market strongly indicates government-led shipping finance market. While 36.4% of shipping finance handled by domestic financial institutions were less than 500 million dollars with 45.5% less than 1 billion dollars, ECA institutions mandated more than 3 billion dollars as of the end of 2013.

- Also, senior loans (62%) were the most frequently used type of shipping finance, followed by subordinated bonds (18%) and capital investment and others (insurance etc.) (10%) The average margin is 130 bps ranging largely from 40 ~ 310.

- The awareness survey on shipping finance was conducted to domestic financial institutions based on its expertise, market value, accessibility with reference to service quality. The competitiveness of Korea’s shipping finance scores 2.3, indicating that the service quality is not high.

- Therefore, improving the competitiveness of the shipping finance market requires efforts to strengthen responsiveness by expanding physical infrastructure and encouraging the participation of the private sector. In sequence, banks need to suspend job rotation for shipping finance business in order to nurture skilled workers.


Based on the analysis of the shipping finance market both home and abroad, the study suggests 1) short-term strategies to secure liquidity for shipping investment 2) mid- and long- term measures.


- Short-term strategies are as follows; improve the role of the capital market by utilizing Shipping Investment Guarantee Fund strengthen the role of Ministry of Oceans and Fisheries(MOF) to manage funds and develop securitization structure of shipping funds expand investment to shipping finance by using national pension secure financing through IPO

- As for mid- and long- term strategies, strengthen the investment role of private financial investment companies nurture workforce in the shipping finance market establish pro-cyclical shipping finance system come up with incentives for private investors.

 

Research Project Report 상세보기
Measures to vitalize shipping finance by improving the role of the capital market
Report No. 2014-03 Research Manager Kim,Tae Il
File

The financial market serves a role of enabling a series of financial activities that make investments in vessels. To achieve this, the financial market provides various sources from stake investment, mezzanine financing, senior loan to lease.


- While stake investment categorizes into stake holding in shipping companies, private companies, shipping investment funds and public offering, mezzanine financing is financing from private equity fund. And senior loan classifies as financing with bond issue, bank loan, credit offering in shipyard and private equity fund. Financing lease is classified into finance lease and operating lease.


In global shipping companies, bank loans take up the largest share with more than 50% of their shipping finance. Starting from the financial crisis in 2008, however, global companies significantly increase the financing from the capital market.


- According to Petrofin Research, 75% of 40 major European shipping companies predicted that shipping finance from non-bank sources will dramatically increase in 2~3 years.


Korea’s shipping finance market accounts for 18~38% of global new ship orders, most of which financing from ECA (Export Credit Agencies) and overseas financial institutions.


- The domestic shipping finance market is an ECA-dominated market and in its transition from loan to investment-intensive market. Also, the investment is concentrated on non-regular liners with freight contracts on collateral.


European countries have driven the global shipping finance market until 2008, boosted by exceptional tax breaks. However, Asian shipping market is on the rise based on the strong support of policy-based financing.


Major deterrents to the domestic shipping finance market are as follows;


- Credit risks spreading the overall shipping companies

- The financial market’s reluctance to offer loans due to high debt ratio of shipping companies

- Loan conditions of shipping companies have deteriorated; banks significantly increased interest rates for handling shipping finance; loan maturity was shortened from more than 10 years to 5~7 years; leverage ratio has cut from around 80% to 50~60%.

- Korea’s shipping finance market shows high dependency on foreign capital since foreign financial institutions account for 61.2% of total market.

- The shipping finance market is primarily a dollar-oriented market, being exposed to currency risk which is another stumbling block for developing a competitive shipping finance product.


The current status and awareness survey of domestic shipping finance institutions are as follows.


- The domestic market strongly indicates government-led shipping finance market. While 36.4% of shipping finance handled by domestic financial institutions were less than 500 million dollars with 45.5% less than 1 billion dollars, ECA institutions mandated more than 3 billion dollars as of the end of 2013.

- Also, senior loans (62%) were the most frequently used type of shipping finance, followed by subordinated bonds (18%) and capital investment and others (insurance etc.) (10%) The average margin is 130 bps ranging largely from 40 ~ 310.

- The awareness survey on shipping finance was conducted to domestic financial institutions based on its expertise, market value, accessibility with reference to service quality. The competitiveness of Korea’s shipping finance scores 2.3, indicating that the service quality is not high.

- Therefore, improving the competitiveness of the shipping finance market requires efforts to strengthen responsiveness by expanding physical infrastructure and encouraging the participation of the private sector. In sequence, banks need to suspend job rotation for shipping finance business in order to nurture skilled workers.


Based on the analysis of the shipping finance market both home and abroad, the study suggests 1) short-term strategies to secure liquidity for shipping investment 2) mid- and long- term measures.


- Short-term strategies are as follows; improve the role of the capital market by utilizing Shipping Investment Guarantee Fund strengthen the role of Ministry of Oceans and Fisheries(MOF) to manage funds and develop securitization structure of shipping funds expand investment to shipping finance by using national pension secure financing through IPO

- As for mid- and long- term strategies, strengthen the investment role of private financial investment companies nurture workforce in the shipping finance market establish pro-cyclical shipping finance system come up with incentives for private investors.

 

이전글, 다음글 읽기
이전글 Change in Global Trade Patterns and Response Strategies of the Shipping Industry
다음글 A Study on Growth Potential and Development Prospects of the Coastal Cruise Industry