HANSA 11-2019

FINANZIERUNG | FINANCING
Leasing not just a Chinese business
While Chinese lessors are still hungry for deals, Japanese and South Korean financiers
are gradually open to foreign clients, reports Patrick Lee
As traditional European banks pull
back from ship finance, Asian lenders
are plugging the gap, and it is not just
the Chinese finance lessors that are open
for business.
In the past year, Japanese banks, tonnage
providers and finance lessors have
been welcoming foreign clients into their
JOLCO (Japanese operating leases with
call options) portfolio. Previously, the
JOLCO market was largely localised and
insular. Speaking recently at a marine finance
conference in Singapore, MUFG
Bank’s head of aviation, shipping and
transportation (Asia Pacific), Jiro Nomura,
said: »Traditionally, JOLCO was available
only to Japanese ship operators and
trading houses. Nowadays, this market is
becoming bigger. 2018 wasn’t very active
because of the shipping market was weak
but my Tokyo colleagues and I feel that the
market is more active this year.«
Japanese financial services company
FPG AIM, part of Financial Products
Group, has been expanding more of its
JOLCO services to the maritime sector,
said its senior executive director, Shi Lei.
In a JOLCO structure, the vessel is
sold to a special purpose vehicle (SPV)
which becomes the registered owner that
holds the legal title of the vessel. The registered
owner then sells partial ownership
of the vessel to Japanese-registered
owners/lessors, of which the sale is fully
underwritten by the asset management
company; both Japanese SPVs each hold
close to 50% of the economic control of
the vessel.
The owners/lessors will then charter
the vessel back to the seller/charterer. The
SPVs finance the asset purchase by placing
equity in partnerships with investors
and from bank loans, typically in the ratio
30:70, hence offering 100% financing.
Companies like FPG AIM play the role
of an arranger by holding full interest in
the vessels’ SPVs without owning the leased
assets. Shi said: »In the last five years,
we’ve been trying to expand into shipping,
from being traditionally focused on
aviation.« He said that in 2018, FPG AIM
closed 4 bn $ of JOLCO deals, which were
evenly split between aviation and shipping.
FPG AIM’s non-Japanese shipping
clients include Ship Finance International,
Orient Overseas International, Pacific
International Lines.
Unlike traditional bank debt, which
covers up to a certain portion of the vessel
price, JOLCO offers nearly 100% financing.
It comes with asset depreciation benefits
that allow the investors to pay less tax on
their funds. Shi explained: »The drawback is
that, as JOLCO is tax-driven, the ownership
structure of JOLCO assets is rigid. When
ship operators consider JOLCO, they have
to hold on to the asset for the long term.«
Citi’s director of global shipping, logistics
and offshore (Asia Pacific), Vineet
Puri, said that the US bank has worked
with both major and regional Japanese
banks to offer financial solutions to international
ship operators.
Besides JOLCO, Japan’s export credit
agency, the Japan Bank for International
Cooperation, is also looking to support
international ship operators, said Vineet.
Between 2012 and 2018, Citi arranged
42 mill. $ of Japanese ECA financing for
around 30 ships. Vineet said, »We have international
borrowers going for ECA financing
to diversify their funding sources.
The loan term for ECA finance can go
to as long as twelve years, which is longer
than traditional bank debt.«
While Japanese financiers are working
with more foreign ship operators these
days, the South Korean market has been
slower in this aspect. However, this is not to
say that South Korean banks and tonnage
providers are shutting out foreign clients.
Similar to KG funds
Korea Development Bank’s (KDB) head of
shipping finance, Robin Chan, said that
the state-backed lender has been extending
its client base beyond local shores.
Chan said: »KDB is the only project finance
institution that’s actively engaging
international ship owners. We have the
mandate of going out to engage top-tier clients
in the international space, as part of
the bank’s internationalization drive. We
provide a commercial alternative to ECAs,
sometimes we complement them when we
participate in ECA transactions.«
Chan said that KDB has been active in
the past year, closing eight deals involving
1.4 bn $. The bank has around 14 foreign
clients with a 105 bn $. Chan said: »Can
we do more? Of course, but we’re being
extremely selective. We’re not there just
focusing on top-tier ship owners, good
Jiro Nomura – MUFG
Shi Lei – FPG AIM
Vineet Puri – Citi
© Lee
28 HANSA International Maritime Journal 11 | 2019