conference review finance


Banks bet support ship sector will be a winner


The OSV sector is viewed favourably by banks and other finance providers


Conference


urrently, the offshore sector is one of the few maritime industries where financial performance is attractive for investors. But with European banks remaining cautious about lending because of their own difficulties and remaining doubts about how the euro crisis will play out, vessel owners continue to face a challenge obtaining finance to invest in new vessels. At the Annual Offshore Support a


C Geir Sjurseth: market is ripe for consolidation session was dedicated


Journal to


financing the industry, how banks are approaching the sector and other options such as bonds and equity. Senior representatives from leading banks serving the offshore sector gave considered views of current developments and prospects. Tom Kuhnle, senior vice president, shipping, offshore and oil services at Nordea Bank, based in Oslo, Norway, pointed out that the offshore support industry is highly capital intensive. This means that it requires substantial volumes of funds for investment in new vessels, such as to serve developing offshore markets in Brazil and West Africa as well as the established market in the North Sea. As the industry steps up investment in deepwater exploration and production, with more deepwater drilling vessels and associated support, these require even higher capital investment. Following a sharp dip in lending after the financial crisis in late 2008 and through 2009, lending to Europe, the Middle East and Africa picked up in 2010 although it was still far short of the peak in 2007. Syndicated lending to the sector followed a similar pattern with lending rising through to mid-2011 but then easing off again as global economic and finance pressures increased, especially in Europe. Mr Kuhnle outlined the scenario facing


banks with new regulations requiring them to increase capital requirements substantially, limiting the funds they have available to lend resulting in more cautious lending policies. However, banks will look favourably on existing clients with good relationships and where new investments are backed by contracts. He put


8 I Annual Offshore Support Journal Conference and Awards 2012


some numbers on the expected large funding needs for offshore drilling and support vessels going forward. Aggregate debt maturities are due to peak in 2016 at US$11.9 billion, while the industry capital expenditure maturity will rise from US$13.2 billion this year to just over US$19 billion in 2013. This


figure highlights concerns in the


industry about the high level of unfunded capital investment in new vessels in 2013 and 2014 due to the limited availability of bank loan finance. Mr Kuhnle said that the solid outlook for the offshore industry will help companies to secure funding but reduced banking capacity and tighter lending terms might force companies to raise some capital from other sources such as bonds, convertible bonds and export credit agencies, which are playing an increasing role in filling part of the gap left by reduced bank lending.


The Norwegian high yield bond market has been increasingly active so far in 2012 with a number of offshore companies raising funds that way, including Teekay Offshore Partners, Prosafe, Farstad Shipping and Seadrill. In the US, capital markets have also improved in recent months, but using public equity markets remains problematic, though already listed companies with a sound track record are able to raise capital at a reasonable cost. “While confidence is returning to the market it is the right deals that are gaining traction. Companies with


consolidation and that such moves could attract finance. A major attraction is that key industry growth drivers are in place which will generate demand for new drilling, production and support vessels, including demand for oil and gas, and prices that support capital investment in exploration and production and the move into deeper water. He


outlined DVB’s positive view of


the offshore supply market, with most new discoveries taking place in deep waters, creating a need for high-specification rigs and support vessels. Spending on exploration and production (E&P) is forecast to grow by 9.3 per cent this year. The present structure of the OSV sector points towards potential for consolidation. “The OSV sector is highly fragmented and ripe for consolidation. There is a strong appetite from traditional


into the sector from challenging mainstream shipping sectors and interest from private equity investors,” said Mr Sjurseth. Mr Sjurseth also pointed out


that, since


equity markets overall have recovered, the energy equipment and services


sector has


outperformed the overall marine sector on the Oslo Stock Exchange, making this sector attractive for investors. It also ticks the main boxes for traditional drivers of consolidation, including industry growth prospects, access to employment in protected cabotage markets, and reduced operating costs through mobility, though there is little prospect of any operators having


sufficient influence rates.


There have already been some corporate transactions in the offshore arena, but while there have been major mergers further upstream there has been relatively little so far in the OSV sector, where there are still more than 150 companies. He added that in 2011 alone at least 10 new players entered the sector with limited or no track record, with few barriers to entry. Consolidations through fleet acquisitions


strong balance


sheets, operational knowhow and solid contract coverage will be supported by banks,” Mr Kuhnle concluded.


Geir Sjurseth, managing director of the Offshore Support Group at Germany’s DVB Bank, suggested that the OSV market is ripe for


are an alternative approach to a corporate acquisition. With some offshore support markets restricted by cabotage rules, acquisition can be the only way of gaining access to those markets. Private equity companies mostly do not favour asset-heavy companies but are interested in companies with liquid assets backed by contracts, with the potential for public listing as a future exit strategy. OSJ


www.osjonline.com bargaining power to


shipowners diversifying


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