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Leasing – Still an alternative for Middle East Owners?

Leasing – Still an alternative for Middle East Owners?. Marine Money Dubai March 2012. Setting the Scene. January 2012: 5,623 Vessels on Order. ( Source: Clarksons ShipYard Orderbook Monitor, Feb 2012 Approximately 50% of which has not been financed.

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Leasing – Still an alternative for Middle East Owners?

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  1. Leasing – Still an alternative for Middle East Owners? Marine Money Dubai March 2012

  2. Setting the Scene • January 2012: 5,623 Vessels on Order.(Source: ClarksonsShipYardOrderbook Monitor, Feb 2012 • Approximately 50% of which has not been financed. • Number of lenders have been significantly reduced. • All main shipping sectors are depressed. • No immediate hope of recovery in 2012.

  3. Agenda 1 • The lease advantage • How does it compare to bonds? • Market Players – who is out there…..? • Can it work in today’s market? • How is the SCB lease different? 2 3 4 5

  4. 1. Key Advantages of Leasing Solutions • 100% funding – preserves equity capital, room to do more projects with the same equity base • Off-balance sheet accounting treatment (operating lease) • Transfer of residual risk (operating lease) • Implicit lease cost attractive • Hedge against technical obsolescence • Funding diversification • Flexibility • Lessor takes all the financing-related costs and risks

  5. 1. Operating Lease vs Loan

  6. 2. Operating Lease vs Bond

  7. 2. Operating Lease vs Bond

  8. 3. Market Players • Many of the traditional providers of lease products have found it difficult to conclude business during the later years mainly due to limited availability of senior debt which they require to leverage up the project and achieve acceptable returns on the equity invested. • TypeFinance Availability • Limited Partnerships such as KS houses and KG houses Low • Listed trusts such as FSL and Rickmers Trust Low • Private Equity Funds Medium • Distress Funds Medium • Banks and other Financial Institutions High • Although a different structure altogether, owners chartering out their vessels today at low rates for longer term provide competition. • But…….there is a but………… -

  9. 4. Leasing Today • Leasing is becoming more prominent. • Discrepancy between asset prices and charter rates makes it more challenging to structure leases. • Still a useful tool for releasing equity. • Requires a realistic positive forward view. • Consideration for Lessors: • Asset Risk • Credit Risk • Technical Risk • Residual Risk (Operating Lease) • Upside -

  10. 4. Leasing Today - Pricing • Base/fixed costs for lessee should be attractive compared to their Weighted Average Cost of Capital (WACC) and compare favorably to other financing options. -

  11. 5. How is the SCB Lease Different? • Pure operating lease. • One counterparty - no 3rd party financier with own interests. • No LTV clauses to be passed on to charterer. • Flexible entry. • Pre-delivery finance available. • Sizeable deals possible. • Counterparty is an AA- financial institution with a lot more to offer. • Private nature. • Islamic structures possible.

  12. CONCLUSION Leasing – there to bridge the gap……..

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