Ship Finance ‘Opportunities and Challenges’

Andy GeorgiouHead of Global Shipping Coverage

24th June 2015

Efficient Shipping Finance;The Seminar

RBS Shipping

2

What we do:

Unique 'one-stop' service to the shipping industry, providing banking products and services to owners, charterers, P&I and insurance brokers

We provide primarily:

• Ship finance• Operational banking• Shipping risk management• Wider banking opportunities

Who we are:

• History in Shipping related finance for over 250 years.

• Banker to c100 of the world’s largest shipping companies, c.75% of which are private.

• Shipping bank with a portfolio in excess of cUS$13bn with secured on modern high quality vessels (85% under 10 years of age).

Efficient Shipping Finance

Approach to Ship Finance

Efficient Shipping Finance 3

What approach do commercial banks that lend in the Shipping sector take?

Transactional Banking Relationship Banking

– Big ticket deals

– Volatile market - risk / reward relationship– Maximise loan return

– Capital intensive

– Economies of scale

– Short term gain

– Value behind the assets

– Ancillary business to enhance transaction returns e.g. treasury products

– Operational banking

– Private banking

– Long term

– Both approaches can lead to capital Market opportunities

The Relevance of Ship Finance Today

Efficient Shipping Finance 4

Commercial Bank Mortgage Finance

Mezzanine Finance Top-up finance (Substitute for equity)

Bond Markets Debt Capital Markets (Corporate/Convertible Bonds)

Equity Markets IPOs, Follow-on Equity Offerings

Private Equity A growing trend of medium term investments into shipping

Insurance Market Historical involvement in tanker industry, e.g. RV insurance

Leasing Tax efficient structure

ECAGovernment-supported financing to clients of local exporters (shipyards)

Trends in Ship Finance Sources

2008 - Value of Shipping Deals by Transaction Type (mil)

4%

0%

0%

4%4%

1%

5%

82%

Corporate Bond: $3,872

Convertible Bond: $325

Bank Loan: $83,630

IPO: $4,095

Follow-on: $4,155

Private Placement: $859

Equity (Other): $0

Leasing: $4,892

2013 - Value of Shipping Deals by Transaction Type (mil)

18%

1%60%

2% 6%7%

3%

3%

Corporate Bond: $11,330

Convertible Bond: $842

Bank Loan: $39,290

IPO: $1,565

Follow-on: $4,159

Private Placement: $4,469

Equity (Other): $2,204

Leasing: $2,306

• Bulk of financing to the Shipping industry was provided by banks (82%)

• Total value of deals (across all transaction types) amounted to US$104.8 bn

• Bank debt has dropped to 60% of financing provided to Shipping

• Total value of deals (across all transaction types) amounted to US$66.2 bn

2008 2013

Source: Dealogic

Efficient Shipping Finance 5

Ship Finance – Banking Portfolios Across Time (1)

Efficient Shipping Finance 6

2008 Shipping Portfolio League Table58

44.8

36

30

20.7 19.5 18.714.6 13 12.2 12 11.3 11.3 11.2 10 9.6 9.5 8.2 6.5 5.1 5 3.5 2.7 2.2 2 1.8 1.8

0

10

20

30

40

50

60

70

Tot

al P

ortfo

lio (

US

$ bn

)

Source: Marine Money International, April/May 2015

Market – Figures

• US$380 bn of bank debt made available to Shipping by 27 Banks• Aggregate shipping exposure of top 5 Banks amounts to US$190 bn

Industry – Comments

• The size of the respective

shipping loan portfolios was also

inflated to a degree by the

continuous y-o-y increases in

vessel values and booming

conditions for Shipping between

2002-2008 (Shipping super cycle)

Market – Comments

• 2008 was the last year before

shipping banks’ portfolios were

affected by the global financial

crisis (post Lehman bankruptcy)• This is evidenced by some of the

large exposure to Shipping some

of the banks above reported

proportionate to their aggregate

balance sheet

Ship Finance – Banking portfolios Across Time (2)

Efficient Shipping Finance 7

Market – Figures

• US$380bn of bank debt made available to Shipping by 39 Banks• Aggregate shipping exposure of top 5 Banks amounts to US$107 bn

2014 Shipping Portfolio League Table29.0

19.8 20.1 20.018.5

17.515.8 15.1 14.7 14.0

12.4 12.011.0 11.0 10.5 10.0 9.9

8.3 8.26.5 6.5 6.0 5.8 5.7 5.5

4.4 4.0 4.0 4.0 3.5 3.0 2.5 2.4 1.9 1.8 1.6

18.9

13.5

0

5

10

15

20

25

30

35

DNB

HSH Nor

dban

k

KfW IP

EX-Ban

k

Norde

a

KEXIM

Bank o

f Chi

na

Credit

Agr

icole

CIB

CEXIMDVB

Comm

erzba

nk

SMBC

BNP Par

ibas

Nord

LB RBS

China

Dev

elopm

ent

SuMi T

rust Citi

ABN AM

ROSEB

Danish

Ship

Fin

ance

Brem

er L

ande

sbank

Dansk

e Ban

kKDB

Ekspo

rtfin

ans

Stand

ard

Charte

red

Unicr

edit

Swedba

nkBof

A

SocG

en C

IB

Bank o

f Am

erica

Soc G

en C

IBIC

BC

Comm

. Ban

k of

Aus

tralia

SocG

en C

IB

Alpha

Ban

kCIC

Heleb

a

Deka

Bank

Tot

al P

ortfo

lio (

US

$ bn

)

Source: Marine Money International, April/May 2015

RBS Shipping

• Provider of finance during all

markets.• #1 lender to Greek Shipping

(Petrofin Research).

Market – Comments

• Traditional banks have decreased their exposure to Shipping

• Changes in banking landscape (mergers, rebrandings)

• Non-core divisions have been set up (balance sheet treatment differs)

Spreads paid by Borrowers, 2005-2014 (bps)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

50

100

150

200

250

300

350

<100

100-199

200-299

300-399

400-499

Average Spread

Average Ship Finance Loan Pricing

Source: Marine Money Bankers Survey 2015

Efficient Shipping Finance