LNG Shipping Market, Financing and Flagging · LNG Shipping Market, Financing and Flagging Marine Money Cyprus Forum April 2017 . MONTH 2009 ... Fleet Lay-Up/ Semi Lay-Up/ Under

© POTEN & PARTNERS 2008 CONFIDENTIAL

Prepared for

LNG Shipping Market, Financing and Flagging

Marine Money Cyprus Forum

April 2017

MONTH 2009


© POTEN & PARTNERS APRIL 2017 Page 1

Poten & Partners (UK) Ltd. 101 Wigmore Street

London W1U 1QU

UK

Prepared for Marine Money Cyprus Forum

LNG Shipping Market, Financing and Flagging

MONTH 2009



Agenda

• LNG Shipping Market

• LNG Shipowners

• LNG Ship Financing

• Ship Flag

• Conclusion

MONTH 2009



LNG Shipping Market

MONTH 2009



0

100

200

300

400

500

600

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Num

ber

of S

hips

On Order

Operat ionalFleet

Lay-Up/ SemiLay-Up/ UnderConversion

Scrapped

The LNG fleet is set to reach 500 ships by 2018

*excludes floating liquefaction and small-scale ships

LNG Fleet Growth*

MONTH 2009



LNG Shipowners

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There is a large pool of LNG shipowners

Shipowners by LNG Fleet Size (10+ ships, incl. orderbook)

0

10

20

30

40

50

60

70

80

90

100

MO

L

NYK

Nak

ilat

K-Li

ne

Teek

ay L

NG

Par

tner

s

Mar

an G

as M

ariti

me

MIS

C

Gas

Log

Iino

Line

s

Gol

ar L

NG

BW G

roup

Chi

na L

NG

Shi

ppin

g

Dyn

agas

Kore

a Li

ne

BGT/

NLN

G

BP S

hipp

ing

Hyu

ndai

LN

G S

hipp

ing

SK S

hipp

ing

Knut

sen

OA

S Sh

ippi

ng

Hoe

gh L

NG

Num

ber

of S

hips

Part Ownership

Full Ownership

MONTH 2009



52%38%

10%

Independent

Project/Govt

Other

70%

22%

8%

Independent

Project/Govt

Other

Ownership shift from projects to independent owners

1990 2020*

*based on current fleet & orderbook

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LNG Ship Financing

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Independents are at the center of fundraising activity

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LNG shipowners need to be able to raise large amounts of debt and equity • LNG carrier typically costs ~ $200 million

• ARC7 LNG icebreaker costs $320 million

• ARC7 ships for Russia’s Yamal LNG

project will cost $4.8bn in total • Fundraising climbed in 2015, then edged

lower in 2016

4.9

6.8

5.4

0

1

2

3

4

5

6

7

8

2014 2015 2016

$bill

ion

LNG Ship Fundraising

MONTH 2009



Shipping companies tap a variety of funding sources

• Corporate finance – raised by the

company for one or more vessels

• Project finance – limited recourse to the shipowner. Loan paid back from the ship’s earnings

• Leasing, sale and leaseback – prevails in Chinese transactions

• Capital markets – bonds and equities

Corporate finance Project finance

Leasing, sale and leaseback Capital markets

Funding Sources

MONTH 2009



Loans are the dominant method used by shipping companies to raise funds

• Loans are either corporate or provided via project finance structures

Loans Bonds Shares, IPOs MLP drop down Sale, leaseback

2014

2015 2016

Equity purchase

$4.88 bn $6.80 bn $5.36 bn

3.46 0.51

0.45

0.29 0.36

0.29

4.38 0.65

0.46

0.37

0.96

3.14 0.43

1.31

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Most funding raised by LNG shipping companies is for LNGCs (trading vessels)

• However, the floating LNG sector is growing…

LNGC FSRU FLNG

2014

2015 2016

Not Specified

$4.88 bn $6.80 bn $5.36 bn

4.75

0.61

3.74

1.08

1.16

0.83

3.80

0.40

0.68

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Financing developments in the year ahead

• More shipping companies are likely to seek financing for FSRUs this year

• FSRU financing will continue to follow a similar pattern to that used for LNGCs

• Sufficiently long charters that allow for steady earnings give banks security that loans will

be paid back

• Only the top names in shipping can finance vessels without employment • Golar is expecting to continue with its FLNG conversion projects

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LNG Ship Flag

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Having the ship flagged to a trustworthy country is “absolutely make or break” for the financing

Financing an LNG Vessel – Lenders’ Areas of Focus

• Risk transfer within the charter documentation

• Experience/Strength of the shipowners/ shipmanager

• Project-on-Project risk

• Acceptability of flag/ mortgage

• Experience of yard

• Vessel technology (including size)

• Level of security, given loan and swaps tend to rank pari passu

• Quality of Charterer and its jurisdiction

• Refund guarantee

Criteria directly influenced by the choice of the Flag

Source: Societe Generale

MONTH 2009



The decision to insure a ship is a case by case evaluation of numerous, mostly technical, criteria

• A ship’s flag is one aspect of numerous data considered for the decision to insure a ship • LNG ships are almost exclusively registered under large, reputable flags

• With a poor quality flag, a shipowner – particularly an LNG shipowner - is unlikely to get

financing, insurance, and a charter • Unless the country is notoriously inexperienced or troubled, the detailed flag state

performance is not the most critical evaluation criteria

• Insurers place a stronger emphasis on the quality of the Classification Societies and the shipowners’ reputation

• Flag’s rules on personal or pollution liabilities can escalate P&I premium

• In LNG Shipping, there is no clear link between the Flag State and the claims rate

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Conclusion

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Conclusion

• LNG carriers and FSRUs will continue to be funded via diverse means

• This will depend on which pools of funding offer the best pricing and liquidity at the time

• FLNG funding is in its infancy

• Acceptance by international commercial banks will depend on the successful

implementation of these projects • Small scale sector is expected to continue to attract development bank support

• Assessment of LNG vessels by potential lenders will continue to be made on a case-by-

case basis

• Creditworthy owners with long charters will see better appetite from financiers than weaker competitors

Documents

LNG Shipping Market, Financing and Flagging · LNG Shipping Market, Financing and Flagging Marine Money Cyprus Forum April 2017 . MONTH 2009 ... Fleet Lay-Up/ Semi Lay-Up/ Under