FINANCE SUPPLEMENT
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Can I Consider Novel Investment Pathways?
FATHOM MARITIME INTELLIGENCE
ISSUE 05. 2015
The current economic situation dictates that traditional financing routes for efficiency investments are difficult to secure. With the arrival of private equity alongside a wealth of private alternative investors, private public structures, third party structures, even self-financing models … (the list goes on), the deciding factor will be how industry can capitalise on the benefits and essentially the opportunities now present. To unlock the capital required for fuel efficient improvements, what is known as ‘alternative finance structures’ are both on the rise and gaining attraction alongside traditional bank finance. Look to public/private partnerships for financing routes. The European Commission’s TEN-T project is a great example of this type of financing with a budget of €26 billion to put towards air, rail, road, maritime and inland waterways with a focus on sustainability. Teaming up with a ‘public’ government party can act as a bridge to greater efficiency and efficient financing through improving the credit profile of the ship owner, making access to credit easier in the future. These sorts of governmentled funds are advantageous for first-time borrowers without a ‘credit profile’ recognised within the industry and can act as a bridge to secure credit. Alternatively, they could be very good for ship owners whose credit profile suffered in the recession. A number of initiatives that promote investment in ship efficiency and provide support and resources for the industry to act have transpired only over the last few years. For example, the Carbon War Room’s Self-Financing Fuel Saving Mechanism and the Sustainable Shipping Initiative’s Save As You Sail model.
When thinking about how to finance a technology solution investment, go to the technology manufacturer to discuss financing options as a starting point. A number of technology manufacturers are offering extremely competitive and innovative financing mechanisms to enable owners to invest in their solutions but not have to put up the CAPEX immediately to get the technology onto the ship and start generating fuel savings. The list of third party finance models for retrofits is growing, we know of examples within the hull coating industry and also some engine manufacturers that are offering third party finance options to their customers. For these third party finance options, the pathways for payback typically take the form of third party investors finance the technology installation and receive payback through a percentage of the fuel savings. One example of such third party financing support can be found at the Man Diesel & Turbo camp. This forward-thinking engine manufacturer recently installed fuel-saving engines and technologies onto 30 ships through working with lenders and banks to assist the loan process.
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What is the Return On Investment Profile of the Technology or Solution?
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Can the Technology Companies Provide Finance Options?
Whether driven by regulation or technological advances, it is often advantageous to retrofit new technologies over the long lifecycle of a ship, however, the cost of this can run from the tens of thousands right through to the millions. For some ship owners, retrofitting and seeing a quick payback is rapidly becoming a means of pure survival. For example, Euronav, the Belgium-based oil tanker owner and operator approach retrofitting from the angle of having experienced $27 million net loses. In a recent press release Euronav highlighted “a ship with an electric heavy fuel heater can switch off its boiler when slow steaming or drifting and this can save 5-6 tons per day ($3,000 to $3,600) which is as much as the savings claimed for new ships (so called eco) over old ships in reduced sailing consumption. Yet, this retrofit costs no more than US$30,000 and can be installed by the ship’s crew, with a payback period of less than 10 days waiting time.”
Shipping is perceived by some as high risk, mainly as it is dependent on market highs and lows transnationally whilst facilitating 90% of the world’s trade. Like the economy, a ship owner’s credit profile can slump which is problematic in a tight industry where reputation is key. Efficient financing (by this we mean finding the right finance structure for the right investment) will not only make both operations and finance more efficient but have the added benefit of improving the ship owner’s credit profile which may be decisive in unlocking future capital.
www.fathommaritimeintelligence.com
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Will Financing Efficiency Improve My Credit Profile?
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