HVB Finds Opportunity in the Challenge of Developing Yards

Even whilst onlookers hold their breath in anxious expectation of a coming supply gut, 2006 was another record year for newbuilding orders with an estimated $110 billion in value added to the global orderbook. Clarkson estimates that the total value of the global orderbook is now upwards of $300 billion. Considering the financing commitments required for vessels on order and the uncertainties involved in many of those vessels being built as promised and delivered on schedule, this is a number that holds sizeable implications for the ship finance community.

Yet even as the scale of financing required grows, so do the complications involved. Established yards in countries like Japan and Korea have been seeing increasing competition from innumerable new yards in China, and now yards in other developing areas such as India and Vietnam are entering the picture. European yards for the most part have been forced to specialize in higher end products to remain solvent, yet at the same time those in Eastern Europe are facing the prospect of privatization, meaning growing demands in terms of profitability and a rapidly disintegrating safety net.

Meanwhile ship finance has come more and more into the mainstream, so added to the uncertainties presented by developing yard markets are concerns about risk control in increasingly competitive lending markets, where 90% debt financing happens and even 100% is possible. Equity markets largely shy away from a market that make them wait a year and more before seeing any returns, requiring that owners provide much of their own equity to finance ship construction, but also that lenders undertake a significant amount of risk.

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