by Harry Papachristou in Tradewinds
Banking veteran Dagfinn Lunde and Greek co-founder Marina Tzoutzouraki set out to revolutionise S&P financing
SUPPOSE YOU ARE a small or medium-size Greek shipowner who needs to borrow money to refinance or buy a vessel.
The European bank you used to do business with is not an option—it left shipping years ago. Greek lenders are also out of the question: their balance sheets are stretched and whatever liquidity they can spare goes primarily to their existing clients.
What do you do? Shipping finance veteran Dagfinn Lunde has the answer: switch on your computer and go to the internet. He says his new venture, eShipfinance.com, matches shipowners with investors on a project-by-project basis, in a few steps, on standardised terms and with minimum paperwork.
Project co-founder Marina Tzoutzouraki points out that internet banking is already common: “In Britain, you can use digital platforms to take out small loans or borrow money to buy a car or a house. Nothing like that exists, so far, in shipping.”
Going digital can be viewed as a culmination of what Lunde has been doing throughout his extensive career in ship financing. The former head of shipping at DVB Bank has been constantly striving to make his businesses leaner and meaner. “I’ve been in many companies and many banks, in and out, and I’ve always been able to do things more efficiently,” he tells TradeWinds.
For example, at Maritime & Merchant Bank, an Oslo lender he helped set up after retiring from DVB and where he was a board member until recently, Lunde and his partners managed to squeeze the cost-to-income ratio to 15% — far below the banking industry average.
That traditional approach, however, is reaching its limits. Ever more onerous red tape on the one hand and technological innovation on the other have been pushing him away from what he calls the “old model” of ship lending.
“Is it really smart to use a bank, in the future, for this kind of thing?” he asks. “There is a huge financing gap — we see it every day. People continuously ask us to help them find money for smaller, medium-sized owners.” Tzoutzouraki, who has more than 30 years’ experience in banking and ship finance, says: “The way we’re setting up the platform is similar to the way owners have been dealing with their banks — just without the regulations and the paperwork.”
An owner enters the secured web portal and feeds it data about the ship that needs to be financed. Based on the information, the platform calculates the amount of cash needed upfront. “In a way, owners create their own business plan,” Lunde adds.
An investment committee led by Lunde then looks at each project to spot inconsistencies or weaknesses, using cross-references from reliable information providers, such as Maritime Strategies International, VesselsValue and Thomson Reuters. If everything checks out, pre-approval can be arranged in as little as 20 minutes.
Once the project is waved through and the borrower has accepted a final term sheet, candidate investors gain access to the full details of the investment proposal to decide whether they want to back it. They can buy between 10% and 100% of the loan.
SFG Ship Finance Global, the Cyprus entity behind eShipfinance.com, estimates investors can earn a fixed return of more than 6% paid quarterly on the deal, in US dollars. Lunde expects this to interest cash-rich individuals, companies and pension funds looking for juicy, steady returns.
Borrowers, for their part, can expect to fund individual projects with between $3m and $20m over a five-year horizon and at fixed interest rates starting from 6.5% per annum. No personal guarantees are mandatory but borrowers will not be able to go beyond 50% loan to-value ratio.
“It will be almost like buying a bond,” Lunde says. “We have standard term sheets, standard documentation, everything is standardised. There’s nothing to negotiate.”
Asked whether this flies in the face of the mantra that ship finance is above all a matter of personal trust and person-to-person relations, he shrugs. “I never believed in that! To judge risk, I always looked at assets and earning power. For me, this is pure asset finance.”
Standardisation extends to the types of ships that can be financed. Lunde and Tzoutzouraki will put only the most liquid kind of vessels into their scheme, meaning bulkers up to capesize and all types of tankers except VLCCs.
Low processing costs, resulting from uniform terms and documentation, will allow SFG to make money by charging arrangement fees of about 1.5% on its deals — a 1% upfront charge on the original gross value and a further 0.5% on the interest rate spread between borrower and investor. Deals will be governed by English law.
Lunde calls eShipfinance.com “a huge software project”. It took one-and-a-half years to develop, in cooperation with Australian web design firm The Technology Factory. It is no coincidence that Lunde and Tzoutzouraki have chosen Posidonia to present their ambitious plan.
Almost 90% of Greek owners have fewer than 15 ships, making the Piraeus scene a natural hunting ground for clients. Greek owners are conservative, but Tzoutzouraki says the project offers them enough confidentiality to attract their interest. “Unlike at a bank, owners don’t have to open their books,” she adds.
As far as investor risk is concerned, Lunde counts on his experience to weed out unsuitable borrowers. Deals will also be covered by covenants and legal instruments that allow investors to take control of a ship and pass it on to third-party management, if necessary.
“We’re not there to build a project that creates risk,” Lunde says.