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The simple success of a Chinese ship lessor

Time:2012-09-18 Author:Jing Yang Source:Lloyd’s List Pageviews: Print Font size:AAA

The simple success of a Chinese ship lessor

  • Tuesday 18 September 2012, 16:22
  • by Jing Yang

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Zhou Wei: leasing companies should stand up and help shipping companies to ride out the industry’s difficulties

THE story of Minsheng Financial Leasing is simple.

Founded in April 2008, it is a joint venture between Minsheng Bank, China’s leading private bank, and Tianjin T&B Holdings, an investment holding company owned by the Tianjin bonded port authorities.

Its birth, together with four other bank-related leasing companies, was the product of a regulatory green light to resume commercial banks dipping into finance leasing, one of the most underdeveloped sectors in China’s financial industry.

Its birth did not make many headlines compared to its state-related peers such as the leasing arms of China Construction Bank, Industrial and Commercial Bank of China and China Development Bank.

“What business should the new company do? This is the first question that arrived at my desk in 2008,” president Zhou Wei told Lloyd’s List in Beijing.

Just when Mr Zhou and his team began wandering among aircraft, real estate, heavylift machinery and ships, all common assets for leasing, the financial crisis battered the world. Seaborne trade volume plummeted, freight rates nosedived and the shipping industry slipped into woes.

But crises can be opportunities in disguise. Minsheng Leasing began its foray into shipping in 2009 when the Baltic Dry Index hovered at a three-digit level.

“That was a decision beset by doubts and questions. Many people at that time regarded shipping as a minefield, but I saw opportunities in there,” Mr Zhou said.

The reasoning is hardly complex; backed by China’s growing presence in both shipping and shipbuilding industries, there will only be rising demand for better and more flexible financing.

Unlike its rivals parented by state-owned CCB, ICBC and CDB, Minsheng Leasing does not have a father dabbling in ship finance. But in only three years, it has developed into the top ship lessor in China, owning a fleet of 120 vessels with 79 in service and 41 on order, totalling 4.6m dwt.

Still, the business model of Minsheng Leasing is simple, too.

Its fleet is comprised mainly of bulk carriers shipping coal across China’s coastal line, a trade with brisk demand due to the geographical disparity between coal producers in the north and consumers in the south. Lease agreements, two thirds finance lease and one third operating lease, are mostly made with shippers who have the backing of a long-term cargo contract. Tonnage is of the versatile panamax and supramax types that can call at most ports.

“Such a model guarantees both the safety and liquidity of our assets,” said Mr Zhou, who ranked 78th in the Lloyd’s List 100 most influential people in shipping in 2010.

According to Shanghai-listed Minsheng Bank’s interim report, as of June 30, Minsheng Leasing’s total assets stood at Yuan72bn ($11.4bn), up 18% from a year earlier. Net profit for the first half of this year grew 5.6% on year to Yuan570m. Non-performing assets were zero.

On the back of an AAA rating by China Lianhe Credit Rating, Minsheng has been granted a credit line of Yuan150bn from 45 banks, mostly Chinese. All the loans are under “united borrowing and repayment”, which means interest rates and terms are set with a particular lender and the borrower has the right to decide the use of the credit.

The credit does not all flow into ship leasing but to all of Minsheng’s portfolio including aviation and property, but it is certain that, with the lessor’s creditworthiness layered in between, more funding will be channelled to shipping from commercial banks, which largely have tightened direct ship lending in view of the industrial downturn.

“This is the time that leasing companies should stand up and help shipping companies ride out the difficulties,” Mr Zhou said.

Moreover, Minsheng Leasing also helped trail domestic regulatory blind spots. In mid-August, China’s Ministry of Transport launched a pilot policy to

classify leased ships as the lessees’ “owned capacity”, which means companies that do not legally own but operate ships can be licensed in water transport. The lobbyist was Minsheng Leasing.

“The emergence of leasing companies is a milestone in the development of the shipping industry in China,” said Mr Zhou, who has a vision of the company as a substantial global player in ship finance. However, Minsheng Leasing, already a big fish in domestic waters, has yet to seek authorities’ approval to swim beyond the China-flag pool.

According to Norton Rose, finance leasing in China’s domestic shipping has been on a growing path, where a ship flies the five-star flag, the lessor and lessee are onshore, the transactions are in Yuan and People’s Republic of China law governs. However, the regulatory framework needs to be simplified and more consistent to embrace offshore development.

“Regulatory hurdles come in when a cross-border element is involved, such as an onshore lessor leasing to a foreign charterer or an offshore lessor leasing to a Chinese charterer, which makes it very difficult to do business,” said Norton Rose Of Counsel Jonathan Silver.

Minsheng Leasing is pushing the regulatory boundary, inch by inch.

Benefiting from its relation with the Tianjin bonded port area, it set up a special purpose vehicle in Hong Kong last December for offshore leasing. The company revealed that it had struck a leaseback deal with a Hong Kong shipowner.

In late August, it received a quota of Yuan2bn from the National Development and Reform Commission to raise offshore yuan lending in Hong Kong.

It has also been touting for western shipowners,with help from Maersk Broker, to lease a batch of more than 11 76,000 dwt panamax vessels on order at Rongsheng Heavy Industry.

Mr Zhou said: “I’m fully confident that we can get the regulatory support we need and our ship leasing business will eventually have a say in the global shipping industry.”

(releasing timeWednesday September 192012 Lloyd’s List