by Nigel Lowry - LLoyds List
A four-decades career in banking and shipping has given Dagfinn Lunde a vast understanding of the industry’s financial needs. Here he talks about the difficulty shipowners currently face in raising finance, which has given rise to his new project, eShipfinance.com
AS a career banker and a devout shipping man, Dagfinn Lunde is clearly pained by the retreat that many banks have made from the industry in the last few years. At the same time, he tells Lloyd’s List, that has created a “huge opportunity” for others to step in to the ship finance arena if they can offer an alternative to banks, which are weighed down by costs and bound by increasingly strict regulations. While balance-sheet based statistics and market estimates have circulated purporting to show changes in banks’ shipping portfolios from year to year, there have been few authoritative numbers showing how much real lending capacity has vanished from the market. “In terms of new lending capacity it must be at least 50% and I think it’s even more,” says Mr Lunde. “No bank is underwriting big amounts any more. They used to sign loans for $30m to $50m but not anymore. Now it’s maybe $10m to $15m for the lucky ones. “There has been a huge reduction in lending. Fewer and fewer banks will use their balance sheets for ship lending — that much is clear.” Mr Lunde’s more than 40-year career in the banking and maritime industry has famously included stints as head of shipping and offshore, as well as a board member, at DVB Bank in Rotterdam and Frankfurt, manager of Den Norske Bank in New York and managing director of international tanker owners’ association Intertanko in London.
Partners in ship finance
Together with business- and life-partner Marina Tzoutzouraki, Mr Lunde now splits his time mainly between the Netherlands and Greece and wherever in the world of shipping business takes them. Ms Tzoutzouraki is a ship finance veteran in her own right, having spent most of her career with Credit Lyonnais and EFG Eurobank prior to going into business with Mr Lunde. The pair set up the eponymously-named Dagmar Navigation, a shipping financial consultancy that sought, among other things, to act as a matchmaker between shipowners, primarily iin Greece, and lenders. That role has been constricted somewhat as the circle of active banks in the industry has steadily shrunk. In parallel with Dagmar, and together with another senior DVB Bank executive, Tarun Gulati, they have co-founded SFG Ship Finance Global, encompassing a new online lending investment platform, eShipfinance.com. About two years ago, while Mr Lunde was one of the key figures behind the effort to establish Maritime & Merchant Bank, another response to the shrinkage of traditional banking players in the market, discussions with Ms Tzoutzouraki centred on the need to find a completely new way to “do it better” than banks were able. “The need for lending capital in shipping was much higher than the supply, and the regulatory environment was getting even more difficult. Even worse, we saw the vast majority of shipowners with up to 12 ships were no longer really welcome at any bank. Most of the time they could not get in the door, even if we introduced them,” Mr Lunde said. “But shipping is an asset class that should be ideal for leveraging. There had to be a way of avoiding using the bank balance sheet, that makes it expensive. So we thought, why not try to go directly to investors?”
New financing initiative
The result is eShipfinance.com, which is now “very close” to launching, he says. The project was first publicly touted at last year’s Posidonia but has taken a while to put together due to a commitment to be completely sure that the online platform would operate as intended and also because the degree of investor reluctance towards involvement in shipping came as a surprise. However, sufficient investor interest has now been garnered and the project is likely to shortly cut its teeth on one or more refinancing deals, that will allow a test of the platform without as much time pressure as for a secondhand purchase. The intention is to accept single-ship projects in the dry bulk and tanker sectors and provide financing of up to 50% with a fixed interest-rate that will remove Libor risk from the equation. The target deal size will range from $3m to $20m. It is not a crowdfunding project because the company will deal only with qualified professional investors, although Mr Lunde acknowledges that there is a nascent trend to explore crowdfunding for shipping. A lot of research shows that 50% leverage or less, combined with a cash buffer, virtually proofs shipping projects against failure in all except the most extreme market conditions, such as befell the industry in 2008-2009, says Mr Lunde. “I am generally a risk-averse person,” he says. eShipfinance.com will conduct all credit risk and compliance checks in the background before offering the project to potential investors online.
An estimated 80%-85% of the processes that may take a bank six weeks to perform can be automated, allowing the platform to reduce costs to a fraction of that borne by banks. The system’s final loan documentation has been reduced to fewer than 40 pages, less than one third of the documentation typically issued by banks. “In shipping you can easily do asset-based financing but most of the bank capacity that is left is mainly for corporate lending. Few of the big banks are doing project lending any more. So they are doing something very different to us. “We are looking at mainly smaller shipowners with two to 10 ships that is the majority of the market globally,” he says. Despite the fact that the new platform has set out to do things very differently from traditional banks, a surprise has been that banks themselves have shown interest in the project. “It seems that some banks might be interested in our system under licence. It just shows that the world is full of opportunities,” he says. With an estimated 1,000 bulkers and tankers bought and sold every year in the market and between 1,000 to 2,000 ships refinanced every year, there is a lot of opportunity out there for a competitive finance platform. How much business can an online platform do? Mr Lunde mentions a figure that the team believes is a possibility a few years from now and would not be out of place as the lending portfolio of a medium-sized shipping bank. “There is no real limit,” he says.