HSH Nordbank is the world’s leading ship financing bank, with ship finance lending of € 30 billion. The bank’s restructuring plans include letting some 1,100 of the 4,400-strong workforce go and shrinking the balance sheet by about half to € 100 billion.
“I can confirm that we will remain in the container business as regards shipfinancing – what we are pulling out of are the containers themselves – the boxes, shipping as such remains our core business,” says Isa Lamielle, Senior Vice President and Head of Market and Risk Analysis. According to Lloyd’s List, the German bailout fund SoFFin has approved the restructuring plans for HSH (Hamburg Schleswig-Holstein) Nordbank, providing guarantees for € 30 billion that the bank can use once approved by the local German state governments of Hamburg and Schleswig-Holstein. In addition, the bank will receive guarantees from the two states amounting to € 3 billion in addition to another batch of guarantees for € 10 billion.
“When it comes to container ship financing, there is of course the current problem of too many ships in the market, with many other ships coming into service this year and in a couple of years’ time. Already there are some 450 ships in lay-up and the number of idle container ships in ports worldwide is increasing. We take a long-term view of the current overcapacity crisis,” says Frank Bünte, HSH Nordbank’s Domestic Market Manager.
“This means that a container ship has an asset value even if it goes more or less directly from the yard to a lay up position. A ship like this is intended to have a 25–30-year operational life, and maybe some four or five years from now that asset will start earning money and do so for a period of time, repaying both the owners’ and our investments. This is actually the only way we can view the container ship business these days – neither we nor the owners can pull out of it or want to pull out of it. So when will this market turn, we can ask ourselves? We believe that the upturn in the global economy will come, and that the need for container shipping will increase again, hopefully from 2010/11, but this forecast is uncertain at best,” says Bünte.
Over the past few months, several governments around the world have injected billions of Euro – and other currencies – into banks and finance institutions. However, the availability of funds is an increasingly large problem for anyone in business, including shipping.
“It is really a circulatory problem,” comments Lamielle on this question. “The money is injected into the system and unfortunately remains in the system. This means that many of the financial institutions worldwide will not fund much at all unless the customer has a very solid base and the projected earnings from the purpose are equally solid. It is really like a circulatory system where there is a clog and this brings almost everything to a halt. Of course, the injection of funding into the system is helping to get the circulation started again, but I believe we are in for a very slow start up as the global recession is continuing to worsen,” says Lamielle. “It is a system fault and we will probably see more national protectionism in the future – this is all poison for the global economy.”
“Another trend in container shipping is that the north to south traffic is the most stable, whereas the east to west traffic, such as that from China to the United States or to Europe, has declined significantly,” says Bünte. “Consumer confidence is low, unemployment is on the rise and this of course reduces the demand considerably. What this again can lead to in terms of social unrest, potentially also in China and other countries, is hard to predict. In this overall rather gloomy picture, shipping is faced with many challenges and, as one of the world’s leading shipping banks, many of these problems end up here at our table. One consequence of this is that owners will have to come up with at least 30 per cent of the capital for new ships – but then, no one is really in the market for new ships these days.”
He adds that emergency financing solutions are provided for contracts that have already been signed and are for delivery this year and in the next couple of years, as the 30 per cent requirement cannot always be met. “After all, some 45 per cent of the global fleet is in the building pipeline with a huge price tag attached. It’s impossible to stop it all.”
“We’re in shipping for the long term, so the feeling here is that of at least a little optimism about the future. We believe that world trade may start to pick up again as early as in 2010,” concludes Isa Lamielle.