Investing in the Maritime Future Stephan Vetter
Who we are KfW Established in 1948 Domestic Loan Programms Development Aid KfW IPEX-Bank Established in 2008 Corporate-Project-Export Financing Shareholder 80% Federal Republic 20% federal states Rating AAA (S&P) / Aaa (Moody's) / AAA (Scope) Shareholder 100% KfW Rating AA+ (S&P) / A2 (Moody's) Headquarter Frankfurt am Main Headquarter Frankfurt am Main Offices 80 (Developing Countries) Offices 9 (Europe, Asia, America, Middle East) Employees 5,944 Employees 666 Balance Sheet EUR 507 bn (3rd largest German Bank) Loan Portfolio - EUR 69,4 bn 2
IPEX s footprint in the maritime space Strong Partner in Maritime Finance Bn USD 25,0 20,0 15,0 10,0 5,0 2016 Shipping Portfolio League Table ($ bn) Portfolio Composition by Subsector as of December 31, 2016 21.0 18.1 17.7 16.8 17.0 15.9 16.2 15.2 14.6 13.9 15.1 14.1 10.3 10.2 8.9 8 6.3 6.2 5.9 5.8 Maritime Energy; 10% Others; 5% USD 18.1 Container; 12% Product/Chemical / Crude Oil Tankers; 3% LNG/LPG Tankers; 8% Bulker; 2% Misc. Trade; 2% 0,0 Ferries; 7% Source: Own Ilustration based on Marine Money International, June 2017 Tourism; 51% 2nd largest ship finance bank Shipping portfolio of USD 18.1 bn across all subsectors Providing full range of financing solutions in ship finance if there is a European link (Ship owner, shipyard, equipment, etc.) Arranging and underwriting mandates from about USD 50 million to USD 1.5 billion Supporting green shipping Active commitment to the maritime industry 3
Our customers and our Network Shipping Offshore Cruise Antony Veder CMB Toisa Stolt Nielsen Sources: Containership - istock.com EvrenKalinbacak; Offshore Supply Vessel - istock.com claffra; Cruiseship istock.com - 26ISO 4
Selected Maritime Transactions Active across all subsectors USA Germany Switzerland Cruise / Ferries Hermes-covered Term Loan Facilities 2x Cruise Vessels Overall financing volume 1,496,300,000 KfW IPEX-Bank share 300,000,000 Bookrunner, MLA, ECA & Facility Agent 2015 Finnvera-covered FEC Term Loan Facilities 2x Cruise Vessels MLA 2015 Coface-covered Term Loan Facility 2x Cruise Vessel Overall financing volume 1,200,000,000 KfW IPEX-Bank share 198,700,000 Lender 2015 Merchant Shipping France K-Sure covered French Tax Lease Post Delivery Facility 2x 14,000 TEU Container Vessels ECA Agent, Co-Lender 2016 Canada Term and Revolving Credit Facility Overall financing volume $ 900,000,000 KfW IPEX-Bank share $ 75,000,000 MLA, Bookrunner 2016 Great Britain Multi-currency Revolving Loan Facility 43x Chemical Tankers Overall financing volume $ 650,000,000 KfW IPEX-Bank share $ 45,000,000 Arranger 2016 Norway Offshore Reducing Revolving Credit Facilities Refinancing/modification Deepwater Subsea Equipment Support Vessel Overall financing volume $ 220,000,000 KfW IPEX-Bank share $ 50.000.000 MLA 2015 ECAs 5
How will Shipowners invest in Maritime Future? Three Major Investment Trends drive the Industry Investment Trends Optimal Investment Opportunities in 2017 according to Shipowners Investment opportunities/requirements are becoming more diverse: Consolidation Green Shipping Digitalization and new technology Investment need for new technology by means of upgrading the ships and preparing them for the future Continous investment demand for cruise vessels Source: Norton Roose, Hellenic Shipping News; 29/06/2017 6
Major Investment Trend I Consolidation on the corporate and ship level Consolidation on corporate level High M&A activity in the last two years driven by consolidation in the container & other segments 38% of shipowners consider M&A, joint ventures, pools or alliances the best investment for the industry today Expectation of big economies of scale, synergy effects and increased demand Five biggest container liners already control about 60% of the container market Consolidation of vessel sizes Ship size has been constantly increasing over the last years to achieve economies of scale The largest container ship in 2017 and has a carrying capacity at 21,413 TEU. Only 12 years ago, the largest container vessel had not even reached a size of 10,000 TEU 30,000 TEU containerships in 2025? Source: JOC.COM (07/07/2015): Largest container ships on order to rise 13 percent by 2020 7
Major Investment Trends II Investing in Green Technology driven by regulation 2020 Global Sulphur Limit Ballast Water Treatment (BWT) Convention Ships will have to use marine fuels with a sulphur content of no more than 0.5% against the current limit of 3.5%. Retrofitting costs c. US$ 1-2 million per ship Technologies / Measures Low Sulphur Fuel Oil Convention aims to protect the marine environment from the transfer of harmful aquatic organisms in ballast water carried by ships Ships carry 3-5 billion tons ballast water each year** Costs for BWT systems c. US$ 1-2 million per ship Technologies / Measures Marine Gas Oil Scrubber New or Retrofit LNG New or Retrofit Source: Britannia P&I Circular; 19/07/2017 *If the first IOPP renewal survey following the date of entry into force of the Convention is completed between 8 September 2017 and prior to 8 September 2019. ** IMO estimate 8
Major Investment Trend III Investing in Digitalization and New Technologies Significant developments by digitalisation Big data and predicitive analytics as key drivers for the digital transformation in shipping Many positive effects as: - More efficient shipping (optimal capacity utilisation, anticipated maintenance, smart navigation, etc.) with positive cost effects in times where charters are low Significant driver of change in the shipping industry over the next five years - Digital platforms reduce transaction costs - Integrated logistics by connecting the whole logistics chain - Innovation of the business model along the whole value chain which offers customers additional service However: risks attached (i.a. Cyber attacks, technology risks, 3D printing on container shipping) with further need for additional investments To summarize: Digitalization with many positive effects but it is no free lunch : Considerable need for investment needed Source: Norton Rose, Hellenic Shipping News; 29/06/2017 9
How can banks contribute to the required investments in shipping? Key Message Banks can offer several financing alternatives for the Post Delivery Financing ECA Financing Advisor Acquisition / Bridge Financing IT Equipment based financing required investments Banker needs to become expert also outside from pure financing subjects Fleet Renewal Consolidation Digitalization for Established Companies Equipment /Technology based financing will become a more important financing product Crucial role for maritime startups: Banks to provide network and access to promotional funds for founding Providing acces to promotional programmes Connecting with investors Digitalization for Start Ups ECA-Equipment based financing Green Technology 10
Equipment Based Export Financing incl. Retrofitting Financings How it works NDA NDA German Equipment Exporters Yard Ship Building Contract Vessel Owner NDA Other Exporters Loan Aggreement German Other Yard Equipment Equipment Own Export Documents - Up to 80% of Vessel price Commercial Tranche Sinosure or K-Sure Other European Export Credit Cover Hermes Export Credit Cover German Equipment via GeMaX Target: Supporting German equipment exports for vessel newbuildings worldwide GeMaX supports vessel specification process Role of IPEX depends on German/European content IPEX supports with post-delivery Financing Tailor-made structures with export financing instruments 11
Funding Sources What will the primary source of founding for Billion Dollar Investments? Financing Trends Funding Sources Exit of several (European) banks in ship finance or reduction of their lending activity. However, bank lending will still play substantial role for shipping investment Non-bank financing will gain importance (Fintechs?) Asia Pacific offers the most investment opportunities in the shipping industry: Chinese Leasing is the Gorilla in the Room Small to medium sized companies will need more equity for investments (opportunity for PE Investors) Flight to quality / larger corporates" (ship finance is becoming corporate finance) Capital markets can only be tapped from big players Source: Hellenic Shipping News; 29/06/2017 12
Contact Details Stephan Vetter Vice President stephan.vetter@kfw.de KfW IPEX-Bank GmbH Postal Address Palmengartenstraße 5-9 60325 Frankfurt am Main Germany Fax +49 69 7431-3355 www.kfw-ipex-bank.de Sources: photographer Gaby Gerster and own photos 13