Are Chinese Banks the Answer?

The latest talk around the shipping industry has been that the Chinese banks may make up for the decline in lending from the European ship lenders. After TORM, OSG and others agreed to enter into credit facilities with Chinese banks, every shipowner is now aggressively trying to build up relationships with their friendly neighborhood Chinese bankers. We hear that Chinese banks are willing to finance up to 80% of the asset value of a new vessel, if it is from a Chinese shipyard with a Chinese charterer.

Is it worth it? While we commend the Chinese for trying to help buoy their shipping industry, as prudent businessmen, we should be very skeptical of deals that sound too good to be true. The true availability of this lending is questionable and owners should be wary of how much it will really cost. In China, payoffs to open doors and regular renegotiations are common practice as contracts have little value. Their property laws are much different than those of the European Union, and while I am no attorney, I would be worried about having too much exposure to a Chinese organization that would be willing to change the rules whenever they desire. It is also important to note that this financing is expensive, sometimes with spreads ranging in the 4% range, and after including all the added "costs and fees" of doing business in China, it is much more expensive than the typical ship financing.

We applaud shipowners who have the ability to do business in China, and any owner should look to diversify their lending banks as much as possible, however, owners should understand what they are getting into and shouldn't be quick to chase the dragon!