Shipbuilding contracts and related ship finance · PDF fileShipbuilding contracts and related ship finance issues Chairman: Ian Gaunt – Hon. Secretary, LMAA Panellists: Alun Hatfield

Shipbuilding contracts and related ship finance issues

Chairman: Ian Gaunt – Hon. Secretary, LMAA

Panellists:

Alun Hatfield - Clarksons Financial Services Michael Stockwood – Ince & Co

Simon Curtis - Curtis Davis Garrard LLP

Wednesday 28th April 2010

International House, 1 St Katharine’s Way, London, E1W 1UN

LSLC - MARITIME BUSINESS FORUM International House, 2nd Floor,

1 St Katharine’s Way, London, E1W 1UN Tel: 020 7063 9737 ~ E-mail: shipping @shippinglbc.com ~ Fax: 020 7481 2149

Chairman’s Tel: 020 7063 9736 ~ Chairman’s E-mail: [email protected] Web-site: www.london-shipping-law.com

Issues for discussion:

• BIMCO standard shipbuilding contract

• Governing law, forum and jurisdiction issues

• Impact of West Tankers and EU Reg 44/2001

• Impact of Cross border Insolvency Regulations

• Refund Guarantee deficiencies

• CA decision –Stocznia v Gearbulk Holdings

• Impact of recent developments on the financing of newbuildings

PART A

Common Issues in Shipbuilding Contract Arbitrations

Ian Gaunt

PART B

Ship Finance – A changing environment

Alun Hatfield

PART C

Damages and determination of Shipbuilding Contracts

Gearbulk v Stocznia Gdynia Revisited

Michael Stockwood

PART D

Enforcing the refund guarantee -Practical problems

Simon Curtis

PART E

CURRICULA VITAE

PART A


Ian Gaunt

London Shipping Law Centre 28 April 2010


Ian Gaunt MA (Cantab), FCIArb, DiplCArb, Hon Secretary LMAA

Summary:

The boom in shipbuilding orders for all classes of ships in the period 2003-

2008 has been followed by an equally dramatic fall in freight rates in late

2008 and the termination of many shipbuilding contracts. This has inevitably

resulted in a large number of references to arbitration of shipbuilding

disputes, particularly in 2009. Most of the arbitrations in this field involving

international contracts are subject to English law and conducted in London,

many of them under the Terms of the London Maritime Arbitrators

Association.

In the arbitration proceedings preliminary issues often arise as to the correct

interpretation of poorly worded arbitration clauses.

Common features of disputes include:

• alleged failures to meet deadlines for stages of construction

prescribed by the contract

• allegations that delays are, or are not, excusable as “force majeure”

or “permissible delay”

• allegations that ships when tendered do not comply with the

technical specification, and disputes as to the materiality of alleged

discrepancies

• allegations that parties have made representations about their

intentions with regard to the exercise of rights of cancellation, which

have allegedly been relied on by the other party to their detriment.

In the majority of cases the disputes also involve financial instruments such

as refund guarantees, and their interpretation. Can a claim be made for a

refund of instalments paid, and therefore under a refund guarantee, and

also for damages more generally? This issue has recently been considered

by the English Court of Appeal in Stocznia Gdynia SA v Gearbulk Holdings

Ltd1.

Issues relating to cross border insolvency and jurisdiction often need to be

considered. This is particularly relevant to the possibility of a stay of

proceedings and to the issue of security for costs.

Finally, the question of enforcement of an award will be crucial. Where

does the unsuccessful party have assets and can the courts of the country

where those assets are located be relied on to enforce the award? This is

particularly the case in China where there is so far limited experience of

enforcement of arbitration awards.

Shipbuilding disputes: A typical scenario

• Owner “terminates”/”rescinds”/”cancels” contract for:

1. Delay

2. Non compliance with specification.

• Builder gives notice of arbitration and appoints arbitrator but takes no

further action: blocks claim under refund guarantee (maybe).

• Owner appoints arbitrator and serves claim submissions to accelerate

recovery under refund guarantee.

• Shipyard tries to sell ship to limit damage and generate cash

Forms of shipbuilding contract and dispute resolution

For orders placed in shipyards in Japan, Korea and China various more or

less standard forms of shipbuilding contracts have developed and it has

been usual for owners to contract on these terms, but with modifications

introduced as a result of individual negotiations. In Japan, the starting point

for most contracts is likely to be the SAJ form which provides for the validity

and interpretation of the contract to be governed by the laws of the

country where the vessel is built and disputes to be subject to the rules of

The Japan Shipping Exchange2. In Korea and China various basic forms

have been used, often subject to a good deal of modification through

negotiation. Many foreign purchasers from Korean, Chinese or Japanese

shipyards will wish to require the contract to be governed by the law of a

“neutral” jurisdiction and for disputes to be resolved in a “neutral” forum.

Many, indeed probably a substantial majority of, international shipbuilding

contracts contain clauses including English law as the express law of the

contract references to English arbitration, whether or not explicitly to the

LMAA Terms. The advantages of arbitration are of course well known, in

particular confidentiality, certainty (particularly where appeals to the courts

are restricted or excluded) and the ability to enforce an award in any of

the 150+ countries which are parties to the 1958 United Nations Convention

on the Recognition and Enforcement of Foreign Arbitral Awards (the New

York Convention).

Defects in arbitration clauses

In dealing with shipbuilding disputes referred to arbitration, it is remarkable

to discover how many arbitration clauses are in some way defective. Whilst

the law and jurisdiction clauses may be the last item of a shipbuilding

contract to be focussed on by the parties and their lawyers, the proper

drafting of these clauses can often avoid unnecessary preliminary disputes

as to the proper seat of the arbitration and the way in which the arbitration

tribunal is to be constituted and/or to conduct its proceedings. It is quite

rare to find an explicit reference to the “seat” of the arbitration

notwithstanding the fact that this will determine which courts will have the

power to supervise the proceedings. It is quite common to find references

to arbitral bodies which don’t exist or at least to find their names misstated.

The procedures for the appointment of arbitrators may be unworkable and

frequently there are references to umpires rather than arbitrators where it is

clear that those drafting the provision do not really understand the

difference.

The point is that it is worth the parties and their lawyers making sure that

their arbitration agreement is really workable, that the seat has been

identified and that a suitable set of arbitral rules has been properly referred

to - whether it be the Terms of the LMAA or other body which is correctly

identified. The parties should also give consideration whether they want to

retain or exclude rights of appeal to the courts and what express language

they need to include to achieve the desired result.

Cancellation for Delay

All shipbuilding contracts will include an express right of cancellation (often

expressed as “termination” or “rescission” – usually meaning the same thing)

which the buyer can exercise if the ship is not tendered for delivery within a

designated period after the scheduled contractual delivery date, as

extended by “permissible delays”. For this purpose, in an English law

contract, “permissible delays” and the circumstances in which the shipyard

can rely on them, need to be spelled out in detail as there is no general

concept of “force majeure” under English law (unlike the laws of most

continental European countries and others whose civil law is based on such

systems). The SAJ form of contract is quite explicit in describing permissible

delays and sets a period of 210 days, excluding permissible delays, as the

limit after which the buyer can “rescind” the contract if the ship has not

been tendered for delivery. The most significant delays are likely to be the

result of strikes, fires, crane damage, design defects or catastrophes such as

earthquakes. They may however also be the result of poor planning or a

shipyard taking on more orders than it is really able to fulfil or be the result of

defects in components supplied by subcontractors or delays in delivery of

subcontracted components which lie on the critical path for construction.

Where the cancellation clause does allow the shipyard to take permissible

delay into account, a dispute over the buyer’s right to cancel is likely to

involve one or both of the following questions:

• Is the delay is really within the strict terms of the permissible delay

definition and has any relevant prescribed notification has been

given by the shipyard?

• Has the delay alleged actually been caused by the permissible delay

or by something else.

Many, indeed in my recent experience most, international shipbuilding

contracts now include a further provision for an ultimate “drop dead”

date3. This means that if the ship is delayed beyond a certain point (say, 365

days) after the scheduled contractual delivery date, the buyer may cancel

the contract even if the delay is wholly or partly caused by “permissible

delay”.

A third type of clause dealing with delay is found in many contracts This

seeks to give the buyer greater control over the construction process in the

form of a right of cancellation if the keel has not been laid or another major

milestone reached by a given date or, more generally, if progress on the

construction of the ship is halted for a given period. Failure to meet such

interim dates may give the buyer a warning that the ship will not finally be

tendered by the scheduled delivery date and an opportunity to take

action without having to wait until the scheduled delivery date before

giving notice of cancellation.

The last provision I would draw attention to in connection with delays is the

right contained in some contracts for the shipyard to put the buyer to an

election as to the exercise of its right of cancellation. That is, if the buyer is

entitled to exercise a right of cancellation but simply does not do so,

leaving the shipyard in the dark as to the buyer’s intention, the shipyard can

give notice to the buyer nominating an alternative delivery date and

forcing the buyer either to accept the later date as a substitute contractual

date, or to exercise its right of cancellation.4 In principle, this provision could

provide the shipyard in delay with an opportunity to avoid an uncertain

situation, but it effectively requires the shipyard to admit that the buyer has

an accrued right of cancellation, something which shipyards in this situation

have been understandably reluctant to do.

Where a buyer has been equivocal in its dealings with a shipyard in a case

where a right of cancellation may have arisen, the shipyard may allege

that the buyer’s conduct amounts to a promissory estoppel, namely that

the buyer has made an express or implied representation to the effect that

it will not exercise the right and that the shipyard has acted on such

representation to its detriment. The decision on such arguments will of

course depend on the arbitrators’ evaluation of the facts in each case.

Failure to meet the contractual specification

In English law, shipbuilding contracts are “contracts for the sale of goods by

description” within section 13 of the Sale of Goods Act 1979. This imports a

condition that the goods tendered will correspond with the description. The

description is partly contained in the shipbuilding contract (particularly

details as to main dimensions, speed, deadweight, draught, fuel

consumption etc) but most of the description will be in the specification

and plans. The buyer will monitor the progress of construction through its site

supervisors but does not normally take contractual responsibility for the

compliance of the finished product with the contractual description. The

contract will invariably contain provisions for liquidated damages to be

paid (often by way of a reduction of the price on delivery) for deficiencies

in designated aspects of the description - notably speed, deadweight and

fuel consumption – and provision for the buyer to have the right to cancel if

the specified parameters are not met by more than a particular margin. So

much is relatively clear. The question however often arises whether the

buyer may cancel the contract for a failure to comply with section 13 of the

Sale of Goods Act or otherwise if the ship on delivery does not meet other

aspects of the contract description, for example if the ship is subject to

vibration above the specified level.

Historically the English courts adopted a very strict approach to the

condition as to compliance with description, such that even minor non-

compliances could be invoked as a justification for termination of the

contract. In the last 30 years however, the courts have inclined to take a

less strict approach, holding that the contractual description for these

purposes should be confined to terms which, viewed objectively, are of

“commercial significance” to the purchaser5. As compliance with

description is frequently in dispute in shipbuilding cases, arbitrators may

quite often have to decide the question whether a particular discrepancy is

of “commercial significance” to the purchaser and, in cases where the

arbitrators are “commercial men (or women)”, arbitrators assessment.

It should be mentioned that it is not unusual for the statutory implied

conditions to be expressly excluded in shipbuilding contracts governed by

English law. In cases where the buyer has purported to cancel the contract,

the decision for the arbitrators would be not whether the condition as to

compliance with description had been breached but whether the failure to

comply with the obligation to build and deliver the ship in accordance with

the specification amounted to a repudiatory breach of contract by the

shipyard. Again this will depend on the arbitrators’ evaluation of the

significance of the breach. The comments made above in relation to the

qualification of arbitrators to make such a judgement also apply.

Can a buyer claim both a refund of instalments paid and damages at

large?

This question came for decision recently in the widely reported case of

Stocznia Gdynia SA v Gearbulk Holdings Ltd (an appeal which, incidentally,

fully upheld the decision of the sole arbitrator). The case involved identical

shipbuilding contracts for three ships. The contracts included provisions

entitling the buyer to terminate the contracts if the delay in delivery of a

particular ship extended beyond a given cancelling date. In the event of

termination, the buyer had the right to receive repayment of the

instalments of the contract price already paid plus interest, which was

guaranteed by a third party refund guarantee. The contracts also included

a provision that the shipyard should “not be liable for any other

compensation for damages sustained by reason of delay”. The buyer

terminated each of the contracts for delay and claimed payment under

the refund guarantees. The buyer however also claimed damages against

the shipyard for repudiatory breach of contract by reason of the delay.

The arbitrator held that the yard had repudiated the contracts, that the

terms of the contracts did not preclude the buyer from treating the

contracts as discharged for repudiatory breach nor from recovering

damages for loss of bargain and that the termination letters did not have

the effect of affirming the contracts and therefore abandoning common

law rights. The shipyard appealed. The judge at first instance found that

there was a repudiatory breach of contract but that the buyer was

precluded from claiming damages at common law by virtue of it having

effectively affirmed the contract and recovered monies together with

interest from the refund guarantor in accordance with the provisions of the

contracts. The Court of Appeal restored the decision of the arbitrator.

Moore-Bick LJ said as follows:

“Whenever one party to a contact is given the right to terminate it in the event of a

breach by the other, it is necessary to examine carefully what the parties were intending to

achieve and in particular what importance they intended to attach to the underlying

obligation and the nature of the breach. The answer will turn on the language of the

clause in question understood in the context of the contract as a whole and its

commercial background……

The primary purpose of [Article 10] in the present case is to provide an agreed measure of

compensation for breaches of contract by way of delay in delivery and deficiencies in

capacity and performance which, although important, do not go to the root of the

contract. For these the parties have agreed the payment of liquidated damages which

are to be deducted from the final instalment of the price and to that extent their

agreement displaces the general law, at least as regards the measure of damages

recoverable for a breach of that kind. However they have also agreed that there comes a

point at which the delay or deficiency is so serious that it should entitle [the buyer] to

terminate the contract. In my view they must be taken to have agreed that at that point

the breach is to be treated as going to the root of the contract. In those circumstances the

right to terminate the contract cannot sensibly be understood as anything other than

embodying the parties’ agreement that [the buyer] has the right to treat the contract as

repudiated with…the usual consequences….In my view it is wrong to treat the right to

terminate in accordance with the terms of the contract as different in substance from the

right to treat the contract as discharged by reason of repudiation at common law. In those

cases where the contract gives a right of termination they are in effect one and the same.”

The court effectively went to on to decide that as a matter of construction

the “exclusion clause” did not mean that the buyer had given up its right to

claim damages at large as well as claiming a refund of instalments and

interest.

I suspect that many shipyards and their lawyers will be surprised by this

decision. However, it should be borne in mind that the court did not rule out

the possibility of excluding the right to claim damages at large in the case

of a repudiatory breach of contract as a matter of principle. What it did

decide was that very clear language would be needed to reach the

conclusion that a buyer had given up this right. The result is that the wording

of the relevant contract will need to be considered and construed by

arbitrators or a court in reaching the appropriate decision as to whether an

award of damages at large would be appropriate (as well as evaluating

the circumstances in deciding whether there has been a repudiatory

breach).

A final point to note on this case is that the court found that the termination

of the contract under the specific termination provision was capable of

operating as an acceptance of the repudiatory breach, even though it

was not expressed in those terms:

“..where the contract provides a right to terminate which corresponds to a right

under the general law …no election is necessary. In such cases it is sufficient for the injured

party simply to make it clear that he is treating the contract as discharged…If he gives a

bad reason for doing so, his action is nevertheless effective if the circumstances support

it..”6

Insolvency and the Cross Border Insolvency Regulations

It is accepted in most jurisdictions, as a consequence of Article II.1 and 3 of

the New York Convention, that arbitration agreements will be given effect

to, and that court proceedings in the same matter will be stayed in favour

of the resolution of the dispute by arbitration. However, where one of the

parties to an arbitration agreement is insolvent and obtains protection

under local insolvency laws, it will be open to the foreign representative of

the insolvent party to seek the stay of arbitration proceedings pending in

England under the English Cross Border Insolvency Regulations 2006

(“CBIR”)7. Whilst these issues are not confined to shipbuilding disputes, CBIR

may have significant consequences in such cases, particularly where the

insolvent party is the respondent in the proceedings.

In a recent English case8, Korean shipowner and operator Samsun Logix

Corporation (“Samsun”), having run into serious financial difficulties,

petitioned the Seoul Central District Court for protection against its creditors

under the Korean rehabilitation legislation. The Korean Court granted a stay

in respect of proceedings against Samsun. The Korean Court appointed a

Receiver of Samsun and applied to the English High Court for an order to

stay proceedings against Samsun under the CBIR. The English High Court

granted the stay which took immediate effect and prevented any creditor

from, for example, obtaining an arbitration award against Samsun, let alone

enforcing such award.

The English Courts have long recognised and assisted foreign receivers or

other duly appointed insolvency officials from other jurisdictions at Common

Law as mentioned in Galbraith v. Grimshaw9; indeed S. 426 of the

Insolvency Act 1986 gave specific recognition in that respect to a number

of former Commonwealth countries. The CBIR however goes much further

and enables the English High Court to assist foreign receivers and other

insolvency officials from any jurisdiction.

Security for costs

In English arbitration proceedings it will be open to the respondent to apply

for security for its costs in defending the proceedings. This however may

lead also to an application by the claimant for an order for security for the

costs of any counterclaim which the respondent may have brought. Not

infrequently, the possibility of an order for security for costs will result in a

good deal of shadow boxing between the parties to establish which is the

true claimant in the proceedings. This may not necessarily be the party

which has given notice of arbitration. It may also involve an examination of

whether the respondent’s counterclaim raises different issues or whether it is

really just the “flip side” of the claimant’s claim.

Claims under refund guarantees

A typical scenario in the current environment is for a shipyard which is in

dispute with a buyer over the delivery of a ship to first give notice of

arbitration. In many cases this will deny the buyer the opportunity to obtain

immediate payment under a refund guarantee until an arbitration award

has been issued. Having thus deflected the claim under the refund

guarantee (and its obligation to reimburse the issuer), the shipyard may

have little incentive to pursue the claim with any vigour. The buyer on the

other hand, will be keen to recover its investment if it is confident that it can

obtain an award in its favour confirming its entitlement to terminate the

shipbuilding contract for delay, non-conformity with contract description or

otherwise.

There is frequently some disconnect between proceedings for recovery

under refund guarantees and arbitration proceedings under the related

shipbuilding contract. Even if governed by the same law as the related

shipbuilding contract, refund guarantees are invariably subject to the

jurisdiction of the courts, resulting in some cases in the expense of parallel

proceedings in court and in arbitration, each of which turn on the same

issues.

Enforcement

Like a number of the other issues discussed above, enforcement problems

are not confined to shipbuilding contract disputes but the fact that a high

percentage of the world’s ships are built in one of Japan, Korea or China

makes it important, from the buyer’s perspective, to focus on enforcement

in those countries. Many buyers may take the view that as long as their

downpayments are protected by a refund guarantee, they do not need to

worry further about possible enforcement issues in the jurisdiction where

their partner shipyard is located. This may not be the case for four possible

reasons:

• If an arbitration award is needed to trigger payment under the refund

guarantee, the course of the arbitration proceedings may be

affected by local insolvency protection proceedings in the jurisdiction

of the shipyard which may lead to a stay of the arbitration

proceedings in the jurisdiction of the seat (see above).

• The decision in Stocznia Gdynia SA v Gearbulk Holdings Ltd (above)

highlights the possibility of the buyer bringing proceedings to recover

damages at large for repudiatory breach of contract. Such a claim

would not be guaranteed by a customary form of refund guarantee.

An award of such damages would need to be enforced against the

shipyard’s assets, most probably in the jurisdiction where the shipyard

is located.

• The shipbuilding contract may include a right to take possession of

the uncompleted ship and have it completed in another shipyard.

Again an award in this respect would need to be enforced in the

jurisdiction where the shipyard is located. In such cases local

insolvency or creditor/debtor protection laws would almost inevitably

also need to be taken into account.

• If the bank or other institution issuing the refund guarantee has assets

primarily or exclusively in the same jurisdiction as the shipyard,

enforcement proceedings may need to be taken against the issuer in

that jurisdiction and issues such as exchange controls may need to

be taken into account. Whilst this is not a question of the

enforcement of an award as such, the award against the shipyard

and its recognition will undoubtedly be an issue in obtaining payment

under the refund guarantee.

The position of the shipyard seeking to enforce an award against a buyer

will be different, depending of course on the location of assets of the buyer

or a guarantor against which enforcement may be sought. The easiest

course may be to arrest a ship owned or controlled by the buyer but, unless

the buyer is itself the owner of the relevant ship, it will be necessary to

consider the local laws regarding “sistership” arrests in the jurisdiction where

enforcement is sought. Again too, creditor/debtor protection laws in the

state where the central management of the shipowning group is located

may have an impact on the ability of the shipyard to enforce the award in

its favour.

1 [2009] Lloyd’s Rep 461 2 The Rules of Maritime Arbitration of the Japan Shipping Exchange Inc. These are set out in Curtis The Law of Shipbuilding Contracts 2nd ed. at Appendix E, p327 ff 3 This right is not included in the SAJ form: see Article VIII. 4 SAJ form Article VIII.4. 5 Reardon Smith Line Ltd v. Yngvar Hansen-Tangen, The “Diana Prosperity” [1976] 2 Lloyds’s Rep. 621 6 Moore-Bick LJ at para 44 7 SI 2006/1030 8 Samsun Logix Corporation v DEF [2009] EWCH 576 Ch 9 [1910] 1 KB 339,

PART B Ship Finance – A changing environment

Alun Hatfield

1

Ship Finance -A Changing Environment

28th April 2010www.clarksons.com

London Shipping Law Centre - Maritime Business Forum

28th April 2010

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2


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A Changed Picture

- Its not what it used to be


28th April 2010

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Syndicated Shipping Loans 2007

Source : Dealogic

3


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Source : Dealogic


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Source : Dealogic

4


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Syndicated Shipping Loans Q1 2010

Source : Dealogic


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Global Shipping Loan Volumes

5

10

15

20

25

30

35

Q1

20

05

Q2

20

05

Q3

20

05

Q4

20

05

Q1

20

06

Q2

20

06

Q3

20

06

Q4

20

06

Q1

20

07

Q2

20

07

Q3

20

07

Q4

20

07

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

08

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

09

Q1

20

10

$ b

illio

n

-100%

-70%

-40%

-10%

20%

50%

80%

% c

ha

ng

e (

y-o

-y)

Global Shipping Volumes % change

Source : Dealogic

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Global Shipping Volumes vs. New Money Raised

0

5

10

15

20

25

30

35

Q1

20

05

Q2

20

05

Q3

20

05

Q4

20

05

Q1

20

06

Q2

20

06

Q3

20

06

Q4

20

06

Q1

20

07

Q2

20

07

Q3

20

07

Q4

20

07

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

08

Q1

20

09

Q2

20

09

Q3

20

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Q4

20

09

Q1

20

10

$ b

illio

n

Global Shipping Volumes New money Raised

Source : Dealogic


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Potential Problems

Ahead

Value & Finance Gap

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Clarksea Index

0

10

20

30

40

50

60

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

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2

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3

Ja

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4

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5

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6

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7

Ja

n-0

8

Ja

n-0

9

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n-1

0

$0

00

/da

y


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Value Gap Volumes

$21,414

$32,788$29,695

0

500

1,000

1,500

2,000

2,500

3,000

bulk carrier container ship tanker

no

of

un

its

10,000

15,000

20,000

25,000

30,000

35,000

40,000

$m

illion

no. of orders with VG Value Gap

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Finance Gap Volumes

$29,983

$33,555

$53,968

0

500

1,000

1,500

2,000

2,500

3,000

3,500

bulk carrier container ship tanker

no

of

sh

ips

10,000

20,000

30,000

40,000

50,000

60,000

70,000

$m

illion

no. of orders with FG Finance Gap


28th April 2010

www.clarksons.com

Total Orderbook Finance Gap & Values

5,088

1

17

110

625

1,636

2,699

Contracts with FG

7371,1201,730172014

Total

2015

2013

2012

2011

2010

Delivery year

5,093

1

110

625

1,636

2,704

Total no of contracts

308,289

132

7,309

41,794

107,334

149,991

Total contracted

value

227,443

72

5,854

30,092

77,761

112,544

Current Market Value

117,506

63

2,555

16,299

41,620

56,232

Finance Gap

Note: value in $million

8


28th April 2010

www.clarksons.com

Bulk Carrier Orderbook Value Gap & Values

135,246

754

4,492

20,456

44,523

65,021


100.0%344111,098112014

Total

2013

2012

2011

2010

Delivery year

3,127

87

451

1,047

1,531

Total no of

contracts

162,106

5,578

25,308

53,912

76,211

Total contracted

value

2,540

68

369

877

1,215

No of contracts with Value

Gap

29,695

1,266

5,348

10,113

12,624

Value Gap

81.2%

78.2%

81.8%

83.8%

79.4%

% of contracts with VG



28th April 2010

www.clarksons.com

Containership Orderbook Value Gap & Values

35,856

72

143

57

5,801

11,869

17,916


100%124226722014

Total

2015

2013

2012

2011

2010

Delivery year

803

1

2

113

217

468

Total no of

contracts

68,644

132

103

11,444

23,142

33,557

Total contracted

value

801

1

2

113

216

467

No of contracts with Value

Gap

32,788

61

46

5,643

11,273

15,641

Value Gap

99.8%

100%

100%

100%

99.5%

99.8%



9


28th April 2010

www.clarksons.com

Tanker Orderbook Value Gap & Values

56,341

223

1,306

3,836

21,370

29,607


100%142436442014

Total

2013

2012

2011

2010

Delivery year

1,163

21

61

372

705

Total no of

contracts

77,538

1,629

5,042

30,280

40,223

Total contracted

value

1,118

15

56

354

689

No of contracts

with Value Gap

21,414

362

1,237

9,023

10,650

Value Gap

96.1%

71.4%

91.8%

95.2%

97.7%




28th April 2010

www.clarksons.com

Export Credit Agencies

10


28th April 2010

www.clarksons.com

Banks/Governments in Asia support shipping

Through this crisis there has been a shift eastwards in the centre of ship finance as the traditional European

banks continue to struggle. The countries that dominate shipbuilding and/or equipment supply have ensured

that strategic steps have been taken to support both shipbuilding and shipping.

Recent Announcements

• Korea Exim and KEIC to provide US$ 7.6bln to shipbuilders

• Korean government provides an extra US$ 9.2bln for loans to domestic and foreign ship owners

• Korea Asset Management and KDB are planning distress funds up to US$ 4.8 bln for ship acquisitions

• China Exim Bank has provided US$ 5bln in newbuilding loans to support the Chinese shipbuilding industry

• Malaysian government has a US$ 750m budget for a shipping fund to assist shipping companies to acquire

modern tonnage and upgrade shipyards

The Export Credit Agencies involved China Exim/Sinosure, Korea Exim/KEIC, GIEK/Eksportfinans, ECGD, SACE,

COFACE and Euler Hermes. Singapore currently establishing a Singapore Exim.


28th April 2010

www.clarksons.comTuesday, May 18, 2010

Billions of Chinese Lending

CHINESE banks have quietly lent billions of dollars to blue chip western shipowners since the banking crisis broke in September 2008 and traditional

home turf sources of funds dried up overnight, ship finance specialists in Hong Kong have confirmed Stringent banking secrecy makes the overall total

impossible to quantify, although anecdotal evidence suggests that the number of deals is up by a factor of over 10, albeit from a low base. Bank of China,

Industrial and Commercial Bank of China, China Construction Bank, the Export-Import Bank of China, Bank of Communications and China Development

Bank are all active in the market. Meanwhile, two separate sources have told Lloyd's List that ICBC has poached a star local ship finance specialist of

overseas Chinese extraction from a European bank, a direction of travel that would have been unthinkable only a few years ago. Neither was willing to

name the individual ahead of a public announcement. Prominent industry figures in Hong Kong now predict that Chinese ship finance will emerge on the

world stage in force within a matter of years, especially if London, New York and Hamburg in effect hand them the business on a plate. With Germany's

KG system clearly in decline and the UK Financial Services Authority set to spring a regulatory onslaught across the City, a full-scale rout may even be on

the cards. By contrast, Chinese banks have every incentive to keep domestic shipyards working. The only health warning is that the tap could suddenly

be turned off should Chinese regulators decide to cool down an economy that some analysts believe is overheating on the back of a huge asset bubble.

An expatriate Hong Kong ship finance lawyer said that the picture had transformed beyond recognition over the last 12 months: "Chinese banks have

suddenly gone from being niche players, to put it kindly, to being a major force in providing funds for global shipping." It makes sense. It supports

Chinese shipyards, which employ a lot of people and use steel from Chinese steel mills, which also employ a lot of people. They build ships which can be

used to build more iron ore from Australia and coal from South Africa, and keep the Chinese economic machine moving." So far only a couple of east-

west deals - most notably last year's loan of $389m from China Eximbank to New York-listed OSG - have been reported in the trade media, and the

assumption had been that Chinese banks were almost exclusively backing Chinese and overseas Chinese firms. But the lawyer revealed that his

company's workload had exploded over the last year or so, moving from six or seven deals a year for Chinese banks to six or seven a month. A

"significant number" involve European and North American interests. While unable to name western companies due to client confidentiality, he said:

"They are big names. They are not small names." They include leading players in the container and dry bulk sectors. Tanker activity so far has been

limited to Hong Kong owners. A local lawyer at a rival company confirmed the dramatic surge of lending over the last period, but insisted that Chinese

banks remain selective: "I have heard of people with lower credit ratings approaching them, but they have been turned away.”

Source: Lloyds List

11


28th April 2010

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Kexim boosts Ship Financing

The Export-Import Bank of Korea is expanding ship financing for cash-strapped shipbuilders and shipowners.

The Korea Eximbank on November 18th held ‘Shipbuilder & Shipowner CEO Invitation Talk’ attended by chief executives from 10

yards and owners including Hyundai Heavy Industries.

Kim Dong-su, the president of the bank, and the chief executives discussed the difficulties industry players now have and measures

to help them secure liquidity.

Mr Kim said, “For shipyards and shipping firms to overcome current crisis, appropriate financial support is necessary as well as

restructuring. We plan to provide as much ship financing as needed in the industry.”

The industry representatives asked the bank to mitigate interest cost in the long term and expand ship financing scale, envisaging a

prolonged slump.

An official from a shipbuilding company said, “As shipbuilding industry faces severe downturn, commercial banks almost totally

stopped providing new ship loans. Against this backdrop, we wish Korea Eximbank, as a government-run bank, will more

aggresively provide ship financing.”

A shipping player said, “As ship prices go down, banks are requesting for more security for newbuilding loans under loan to value

(LTV) ratio condition, and our agony is deepening.”

By October end this year, the Korea Eximbank has provided manufacturing financing of KRW 2.21trn ($1.91bn) for yards and their

collaborative companies and network loans of KRW 2.18trn.

Source: Lloyds List


28th April 2010

www.clarksons.com

Conclusions

• Bank finance scarcely available while demand remains substantial

• Banks and owners lack liquidity/capital, funding, reduced or negative cash flows, internally focused on risk

• Banks focus on Core Client, Core Region and Core Sectors

• Banks finance terms and conditions less favorable for ship owners definitely a bankers market

• Traditional shipping lenders are closing, merging and/or reducing balance sheets

• Debt restructuring a high priority

• New funds need to be sourced

• Shift from vessel financing East

• Export Credit Agencies involved and a big lender to the shipping sector

• Public equity and high yield bond markets open up again

• Bank lending is returning albeit very slowly

• Larger public and privately owned companies have become stronger and easier access to varying sources of

credit and cash reserves

The banking market remains fragile and personally believe that capital will remain tight for a number of years.

Documents

Shipbuilding contracts and related ship finance · PDF fileShipbuilding contracts and related ship finance issues Chairman: Ian Gaunt – Hon. Secretary, LMAA Panellists: Alun Hatfield