Investors snap up shipping loans as global economy lifts trade prospects

Oceanografia’s Caballo de Troya vessel is anchored offshore while a young girl plays on a swing set in Ciudad del Carmen, Mexico. There have been a flurry of deals in recent months for ship finance loans, many of which are being put up for sale by banks under pressure to boost their capital in order to adhere to new, stricter industry legislation born of the financial crisis.

Reuters

London

 Global private equity firm KKR has bought $150mn worth of shipping loans from two European banks amid a surge of interest in the industry as world trade in goods picks up along with the global economy.

There have been a flurry of deals in recent months for ship finance loans, many of which are being put up for sale by banks under pressure to boost their capital in order to adhere to new, stricter industry legislation born of the financial crisis.

The banks have suffered alongside the shipping firms they lent to, as the latter endured one of their worst downturns in decades. Many firms defaulted on loans and several collapsed. As a result, the banks are offloading what they see as risky assets at cheap prices, even as trading conditions improve.

KKR picked up loans taken out by Indonesian oil and gas shipping group PT Berlian Laju Tanker that were sold by Sweden’s Nordea Bank and France’s BNP Paribas, trade finance sources with knowledge of the matter said.

KKR, Nordea Bank and BNP Paribas all declined to comment, while Berlian Laju did not respond to requests for comment.

Pricing on the deal was in the region of 70% of the value of the loans, the sources said.

A survey by accountancy and advisory firm Moore Stephens last week showed shipping confidence in February reached its highest level since 2008, while respondents indicated growing interest from private equity investors.

“Through buying shipping loans at a discount, investors are entering at a lower threshold. The freight market right now is okay, so companies will likely be able to service loans, thus funds make their 5%, which is a nice carrying yield,” one trade finance source said.

“If market goes up, their loans will appreciate, thus there will be additional benefit and return. If the market goes to hell or they think they can find a better management team, then they just take over the vessels and become shareholders and own the business.”

KKR said in August it had formed a speciality finance company to lend to the maritime industry that would “originate, structure, underwrite, invest in and distribute debt financings secured by high-quality maritime assets”. Maritime Finance would be capitalised with $580mn of equity, KKR said then.

Berlian Laju, which narrowly escaped bankruptcy last year, said in January it had cut its fleet size by 44% and would transfer a stake in subsidiary PT Buana Listya Tama to one of its creditors Deutsche Bank. The shipping firm, which had struggled with weak freight rates and escalating fuel costs, reached a deal with creditors in March last year to restructure its $1.9bn debt.

Thomson Reuters LPC data showed Berlian Laju unit Gold Bridge Shipping Corp took out a $685mn syndicated loan in 2011 in which Berlian Laju was an additional borrower on the facility. Lenders included Nordea Bank and BNP Paribas.

Trade finance and banking sources said separately that Lloyds Banking Group had received multiple expressions of interest for a $500mn tranche of shipping loans and was reviewing the offers.

Lloyds declined to comment.

One trade source with knowledge of the matter said KKR was among those interested in the sale. KKR declined to comment.

“Every man and his dog is looking at this portfolio, it’s very competitive,” one banking source said.

Other contenders included Citigroup and Bank of America as well as private equity group Apollo Global Management and asset manager Oaktree Capital Management, trade finance sources said.  Citi, Bank of America, Oaktree and Apollo all declined to comment.

The sale is likely to be the final large divestment of loans from Lloyds’ ship finance portfolio which was worth around £7bn ($11.64bn) at its peak.

Lloyds’ British rival Royal Bank of Scotland and Germany’s Commerzbank CBKG.DE and HSH are also selling shipping loans to investors including private equity funds in order to strengthen their balance sheets and divest assets that have hurt them during the market downturn.

RBS said in February impairments on its shipping loans soared to £341mn last year, of which £310mn was in the fourth quarter. Its shipping assets were worth £6.5bn at the end of 2013, down from £7.6bn a year earlier, RBS said.