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Leasing deals strengthen Chinese influence in shipping

Chinese leasing companies have taken ownership of hundreds of vessels in deals worth tens of billions of dollars in the latest sign of the industry’s rapid transformation amid a long-running financial crisis.

The deals made by Chinese companies, including the leasing businesses of ICBC, China Minsheng Bank and Bank of Communications, have provided badly-needed financing for shipowners as miserable trading conditions dominate most shipping sectors.

Although there are no comprehensive figures, a conference in London in January heard that Chinese leasing groups had invested $11.5bn in shipping in 2016 alone, a figure seen representing several hundred vessels. Maersk Line, Mediterranean Shipping Company and CMA CGM — the biggest three operators of container ships — have all done Chinese leasing deals.

The growing business cements the influence that China already enjoys in international shipping thanks to its huge demand for imported commodities, exports of containerised goods and a big shipbuilding sector.

Ling Zhou, head of shipping finance for China Merchants Bank’s leasing business, told the Marine Money London Ship Finance Forum in January that Chinese leasing companies had moved into international finance because there were few deals to be done in China. Her operation had a portfolio worth around $3.2bn that was 60 per cent international and 40 per cent domestic, she said. The business was “increasingly” focusing on international business.

“This is a fast-growing, developing portfolio,” she said. “If we were to look back two years ago, we more than doubled our size.”

However, the trend has raised questions about whether the deals could hand China extra power over world shipping if a future downturn forces operators to default on payments. Under the “sale-and-leaseback” deals that Chinese companies offer, operators sell their vessels to leasing companies then lease them back for the equivalent of normal loan rates. The arrangement means it would be easy for the leasing companies to take control of the vessels if the operators defaulted.

Harry Theochari, head of transport for Norton Rose Fullbright, a leading shipping law firm, said that, because the business had taken off only over the past 12 to 18 months, it was unclear how the Chinese institutions would behave in a future crisis.

“The problem is we don’t really know,” he said.

The Chinese leasing companies have stepped into the gap left by the near total withdrawal from shipping lending of European banks and US private equity firms. Both groups are nursing significant losses because all three main forms of shipping — dry bulk, tankers and container shipping — have suffered separate downturns since the 2008 financial crisis.

Gerry Wang, chief executive of Seaspan, a Canadian owner of container ships, said the Chinese banks provided “very attractive financing” at a time when the previous lenders had “pretty much shut their doors”. His company was discussing three or four potential deals, Mr Wang said.

“The Chinese have really marched with wide open arms towards this sector,” he said.

People involved said that Chinese banks had started out by supporting deals involving China’s huge shipbuilding industry but that in the last two years they had started to support deals with no obvious China ties.

Neither Maersk nor CMA CGM provided details of the deals they had undertaken.

Neither ICBC Leasing nor Minsheng Leasing responded to requests to comment.

Via FT