“Free money” is over, but shipping finance is positive

Ship finance markets are expected to remain positive for the rest of 2023, with lenders and alternative debt funds looking to expand their portfolios and offer the best terms to win projects. Competition among lenders in the improving tanker markets is particularly fierce, according to a recent survey by Oceanis. While the volume of financing available for individual ships has stagnated in the past quarter due to the rise in assets, margins have come under severe downward pressure as banks have started to look at financing cases outside their previous comfort zones.

While the era of “free money” is over, the currently high key interest rates are expected to decrease from the second half of 2023, according to Erlend Sommerfelt Hauge, managing partner at Oceanis. In the short to medium term, there will be a fall as central banks react to falling inflation. The tanker sector has experienced “huge volatility” in the first quarter, with asset values ​​soaring and financiers reducing their maximum loan-to-value offerings. From a funding perspective, the market is beginning to resemble the container market of 2021, with loans being repaid to $0 or low scrap value for older vessels as part of permanent employment.

Dry bulk markets have bottomed out as earnings have recovered across the sector. While shipowners believe that the long-term interest rates currently available are well below the spot rates achievable in the years to come, financiers are constrained by current yields. Alternative debt funds are particularly affected, as they need to maintain positive cash flows, limiting their ability to provide additional capital compared to traditional banks. Some loan funds may structure repayments around this theme, offering an increased volume of financing against the security of an additional pool of pledged cash.

With non-charter market values returning to pre-pandemic levels, the financial community is resuming lending to vessels with less tenured employment and those chartered to lower-tier counterparties. German borrowers can benefit from extremely attractive conditions for purchased ships with outstanding charter contracts. Serious questions remain about the long-term yields of older vessels in the spot market, reducing lenders’ willingness to allocate funds for tenure acquisitions, resulting in lower loan-to-value ratios occurring more frequently.


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