At the Tanker Shipping & Trade Conference Awards & Exhibition, held in Athens, Greece, in November 2022, the receiver of the Lifetime Achievement Award, Mr Harry Theochari OBE of Maritime London (and Norton Rose Fulbright) painted a picture of the shipping finance landscape and where London fits in.
As a shipping finance lawyer based in London for the best part of four decades, Mr Theochari has seen the industry overcome many challenges and hurdles. Setting the latest IMO environmental shipping goals in context, he noted that in 2007 (a year before the banking crisis), US120Bn of new money was flowing into the shipping and offshore industries. According to the latest figures available (2020) only US$40Bn was made available to the shipping and offshore industries.
A study from the University Maritime Advisory Service estimates that achieving the IMO position of a 50% reduction in emissions by 2050 is going to cost between US$1.5Bn and US$1.9Bn. Therefore, a large amount of capital will be required to enter the market.
“Shipping must fit in if we want the money, and it is all about the money”
But why have the banks left the shipping sector? Mr Theochari had some explanations. The first included the increasing level of capital ratio required under the terms of the Basel agreements, which classified shipping as a special case and required more capital to be set aside for shipping projects. Naturally, banks choose to use capital on projects that absorb smaller ratios, and shipping suffered.
“There is not one single British bank in shipping, but we at Maritime London are working hard to rectify that,” said Mr Theochari. Private equity entered the shipping sector soon after the banking crisis of 2008 but their aims proved to be short term, with interest concentrated on scooping up cheap assets. “I don’t know of many private equity houses that have actually made money at shipping,” he told delegates.
Could the US public markets provide the shortfall? Almost certainly, but Mr Theochari noted that there has not been a shipping IPO in the US since 2015. There have been funds raised on the London markets, and Maritime London is available to aid shipowners looking for placements on a London stock exchange.
The bond market fever for shipping paper proved to be short lived. One region that is providing funds into shipping is China, noted Mr Theochari. Chinese leasing is now one of the main sources of funds for vessels built in China, but recent geopolitical events have introduced doubt in this area.
“I don’t know of many private equity houses that have actually made money at shipping”
Another element that has proved essential in tanker and vessel newbuildings in general is the presence of export finance guarantees. Maritime London CEO Jos Standerwick said: “A recent market report stated that 90% of financial providers within the industry regard ESG as having a crucial importance within their decision-making processes.”
He warned that shipping is not going to receive special treatment and will have to adapt itself to fit the requirements of authorities and financial institutions if it is to access funds. “We [shipping] must fit in if we want the money and, in my view, it is all about the money,” said Mr Standerwick. “This is not a subjective issue … this is deeply commercial.”
