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Financing the fleets

With the growing demand for new builds hitting the region's sea freight industry, flexible financing is critical for companies wishing to expand their fleets.

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With the growing demand for new builds hitting the region's sea freight industry, flexible financing is critical for companies wishing to expand their fleets.

Qatar's gas transport company, Nakilat, is a prime example. Keen to continue capitalising on its country's booming LNG trade, Nakilat is ordering the biggest and best new vessels to transport LNG across the globe.

Its latest US$4.3 billion financing scheme, to fund the construction of 16 LNG vessels, was raised by bringing together a mixture of senior bonds, subordinated bonds, a $2.21 billion senior bank facility and $174 million of Korean Export Credit Agency financing.

The company is confident that by using a similar structure, it will be able to raise further finances to fund more mega-vessels in the near future.

Nakilat's scheme is alleged to be the first of its kind in the industry, whereby such a large number of LNG vessels have been financed at one time. It also marks the first time LNG vessel debt financing was used to achieve 90% gearing and tenors of up to 27 years from financial close.

Islamic finance is also a growing area of interest for ship purchases, with Shariah-compliant financing solutions gaining favour, particularly for those companies with roots in the Muslim world.

Although many believe such products are slightly lagging behind other conventional financing methods, particularly when it comes to flexibility, the future promises more diversity and expertise in its products. Much has been learnt from one of the earliest of these deals, the $26 million ‘Al-Safeena' Ijara Sukuk.

This was structured, arranged and co-underwritten by the London-based ABCIB Islamic Asset Management and combined Islamic equity with conventional debt for the same asset - a VLCC ‘Venus Glory' belonging to a corporation owned by Saudi Arabian oil and petrochemical titan Aramco, and chartered to another subsidiary of Aramco.

For banks themselves, the temptation to cash in on the lucrative growth of the region's shipping industry continues, particularly at the point where the Middle East's thriving shipping industry meets with its booming oil and gas sectors. Major banking names are developing new products, including some which are Shariah-compliant, have lower interest rates and offer longer tenures to entice and welcome the industry with open arms.

With the region continuing to expect a large number of orders for new builds in the future, the banks certainly appear to be hedging their bets on the continued success of the industry.

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