Ship Financing: Investment Opportunities and Strategies for New Market Segments - E-Interview with Tobias König

E-Interview with Tobias König about Ship Financing


                      Titel of Interviews:       Ship Financing
                      Name:                      Tobias König
                      Functional Area:           CEO
                      Organisation:              König & Cie. GmbH & Co. KG




       Investment Opportunities and Strategies for New Market Segments
        In the context of the Conference on Ship Financing at SMM 2008, Hamburg

While international financial crisis still increases in size and reach some major national
economies face severe recession risks. The international ship financing community – being
the pacemaker of international trade and growth – now has to deal with those issues as well.

Hence, the ship finance industry has to give some answers to how maritime markets and
players are affected by the credit crisis. Which challenges do shipowners face in the near or
even distant future, is bank money for new ships getting to expensive to obtain? Do we have
to invent new and innovative financing schemes? Will there even be new opportunities for
ship financing arising from the crisis?

The DMKN-roundtable wants to shed some light on these issues related to ship financing.
We invite experts from companies, banks and institutions to present their views on current
and future market perspectives.




                                         Page 1 of 4
Dear Mr. König,


Question 1:
Which of the players in the ship financing sector are affected most by the credit crisis? Why
is this so, are there substantial differences by country / on the global level?

Answer:
            The Crisis started in the west and has become a global crisis. Initially, most of the
            Scandinavian and Asian Banks have not been participating in the typical sub
            prime products. Until a certain point, those banks seemed to be less affected. But
            this is history and now all major banks are affected – world wide. The ship
financing has been traditionally dominated by western banks, which are now suffering from
an increased cost of liquidity and severe erosion of trust. Obviously, the larger lenders tend
to have bigger problems. But on the other hand, the smaller ones are facing similar
restrictions and often cannot cope with the deal size of a typical transaction.
Apart from the banks, there are leasing firms, Private Equity firms, German KG Houses and
US publicly listed companies, which are all suffering because of the reduced availability and
increased cost of debt financing. Over all, the lending policies are more restrictive, covenants
are stronger. In some cases, banks are trying to get out of deals, which have been arranged
before or simply refuse to provide additional debt facilities.
This crisis will show, which of the shipping banks are really committed to shipping and will
hold on to their customers in difficult times. So far, the booming shipping markets helped a lot
to soften the effects. But now with the downturn of the container trades, it will be time for
many banks to revisit their engagements. The old rule is: “Cash is King”.




                                           Page 2 of 4
Question 2:
Is bank money for new ships getting expensive to obtain? Will the business model stay as
attractive as in the last years, especially with the German investors playing a leading role in
the sector?

Answer:
            Yes, the credit crisis has pushed up the cost of borrowing money across all
            industries and shipping is not immune. It is simply a function of supply and
            demand. The lack of trust between banks is a major issue. There is almost no
            syndication of deals, even Club-deals are difficult to arrange. Of course, this
presents a challenge to KG financing, but the same goes for all other financing models. It will
be more difficult to arrange new deals. The return requirements will increase to reflect the
additional costs. But once a KG Deal is structured and the equity has been syndicated, there
should not be a problem, as the leverage is comparatively low. The standard KG Deal has
approx. 40% equity and 60% debt. The KG Model has been reported “dead” a few times. But
the truth of the fact is that it has re-invented itself a few times. The typical KG investor is an
entrepreneur and has a long term strategy. For shipping, long term money is the perfect
match as shipping is a long term investment, too. That said, there is no such thing as a
permanent crisis and the credit markets will recover eventually.



Question 3:
Is there a need to invent completely new and innovative financing schemes? Will there even
be new opportunities for ship financing arising from the crisis?

Answer:
           There are certainly many sources of capital around the world that the shipping
           industry and ship financers have yet to tap into. It is inevitable and desireable that
           new financing schemes emerge. Shipping is an industry that will continue to grow
           and locating additional sources of finance will help to facilitate that. There will
undoubtedly be new opportunities for ship financing as a result of the credit crisis. Such as all
equity funds or even vulture funds picking up stranded deals. John F. Kennedy once said
"The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for
danger; the other for opportunity. In a crisis, be aware of the danger, but recognize the
opportunity."




                                           Page 3 of 4
Question 4:
Please name – from your personal expertise – the most significant challenges ship owners
will have to face in the near future?

Answer:
            There will be four major challenges: The scarce availability of qualified Officers
            and Crew, the lack of financing and the increasing costs of financing, the shortage
            of dry-dock and repair facilities and last not least the protection of the environment
            and the reduction of pollution of air and water. Apart from the financing problems,
all other problems are “home-made” and have been neglected over the past decades. Now,
owners have to tackle all problems at the same time, just when the markets seem to be in a
downturn.



Mr. König, thank you very much for this interview!




                                           Page 4 of 4