Oslo takes the lead in ship finance

Oslo ranks as the second largest maritime capital in the world after Singapore, according to a 2012 report by Menon Business Economics. Even more impressive is the fact that the tiny Norwegian capital has beat out finance heavyweights New York and London for top slot as the shipping finance capital of the world.

Menon unveiled the findings from its report Maritime Capitals of the World, commissioned by Nor-Shipping and Oslo Maritime Network, at Oslo Maritime Week in May 2012. The study is a benchmark of 12 maritime cities in four categories. Menon based its rankings on ship finance on four indicators: leading bookmakers/mandated lead arrangers, total lending portfolio, number of maritime firms on the stock exchange, and the market capitalization of maritime firms on the stock exchange.

 

Top Banks

DNB, Norway’s leading bank, has contributed heavily to Oslo claiming the top spot. During the first nine months of 2012, the bank ranked number one as mandated lead arranger (MLA) in syndicated marine finance loans with an 11.2% market share spread among 37 issues worth USD 3.5 billion, and first place as bookrunner with 9.7%. Among its largest deals as MLA so far this year was a USD 1.5 trillion loan to Norway’s Fred Olsen Energy and USD 1.25 trillion to Maran Gas Maritime of Greece.

 

Nordea, the leading Nordic bank with its shipping division based in Oslo, ranks second after DNB on marine finance loans. Together, the banks accounted for NOK 30 billion in shipping and offshore financing and a substantial market share of the roughly NOK 30 billion in shipping and offshore Norwegian bond debt issues for the first nine months of this year. In addition, Danske Bank has placed its shipping division at the Oslo office of its Norwegian subsidiary Fokus Bank.

 

“Today when banks around the world are prioritizing clients in their own backyard, it is an advantage for the Norwegian shipping community to have two strong banks in the neighbourhood,” says Harald Serck- Hanssen, DNB’s global head of shipping, offshore and logistics, who oversees a portfolio of assets worth USD 33 billion.

 

Drivers for Success

Serck-Hanssen believes there are three main reasons behind Oslo’s success in Menon’s rankings. The first is a favourable regulatory climate that makes it simpler to both issue bonds and raise equity with less documentation. Pacific Drilling, for example, last year raised NOK 3.3 billion via its OTC listing with the Norwegian Securities Dealers Association prior to listing on the New York Stock Exchange. Moreover, the Oslo Stock Exchange is the largest securities marketplace for shipping in Europe and the second largest globally in numbers of listings.

 

The second reason is the Norwegian investor community, which historically has shown both the experience and willingness to invest in shipping and offshore. Norwegians are gamblers in a way, he says. If DNB has a project with a lot of upside, it will sell well in the Norwegian market. If it’s a “yield play” for a stable shipping company with a predictable return, then there is more interest traditionally from US investors.

 

The third driver, and perhaps the most important, is the high concentration of local shipping expertise. Oslo offers a complete maritime cluster in all of the areas. This includes export credit agencies, such as GIEK and Export Credit Norway, banks with the ability to syndicate loans, raise equity and issue bonds, shipping law experts, and ship brokers such as R.S. Platou and Fearnleys. Oslo is also home to the International Maritime Exchange (IMAREX), the first professional freight derivatives exchange for the global maritime industry, and marine insurers Skuld, Gard and the Norwegian Hull Club, among others.

 

“We have among the most complete range of products and services to the maritime industry,” says Serck-Hanssen.

 

Changing Industry

Like many of the companies in Oslo’s maritime finance cluster, DNB has a century of experience servicing this sector. But the bank’s climb into the high rankings of Dealogic’s League Tables dates back to the 1990 merger of Bergen Bank, with its large shipping portfolio, into Den norske Creditbank to form DnB. The bank currently has 125 corporate bankers focusing on the maritime industry worldwide spread among its offices in Oslo, Bergen, London, New York, Houston, Athens, Shanghai, and Singapore, as well as 20 investment bankers.

 

However, the bank is in the process of reducing its level of exposure at default (EAD) for shipping loans from 7% to 6% by 2015, while increasing its share of offshore and energy loans. Still, the bank expects to retain a top position on Dealogic’s League Tables due to the bank’s predicted overall growth of 3% during that time and expected increased activity in export credit arrangements and bond offerings.

 

“French and German banks used to be important in ship finance, as well as UK banks like Lloyds and Royal Bank of Scotland,” says Serck-Hanssen. “But with them pulling back as well, the vacuum is being filled by bonds and export credit agencies.”

 

Another change within shipping finance is the implication of new environmental regulations. DNB recently completed a six-month joint review together with shipping classification company DNV and R.S. Platou on assessing the cost of stricter emissions regulations on the shipping industry. The report looked at some of the biggest questions facing the shipping industry, such as how much more fuel efficient will new builds be and whether savings could be better achieved through retro-fittings.

 

“The key question is whether there will be a market differentiation between energy efficient ships and less energy efficient ships in the future,” says Tore Longa, DNV business development manager for international regulatory affairs. “Will it give added value to the ships?”

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