ABSTRACT
Ships tie up a lot of capital. Container-ships and tankers can cost up to $150 million each, about the same as a jumbo jet, while LNG tankers, the most expensive ships, cost $225 million each. In 2007 investment in new ships reached a new record of $187.5 billion,1 and second-hand sales reached $53.5 billion (see Figure 7.1). As a result, capital can account for up to 80% of the costs of running a bulk shipping company with a fleet of modern ships, and decisions about financial strategy are among the most important that shipping companies make. But shipping has distinctive characteristics which make financing different from other asset-based industries such as real estate and aircraft. Broadly speaking, bankers like predictable earnings, well-defined corporate structures, high levels of disclosure and well-defined ownership, whilst investors look for consistent growth and high yields. However, many shipping companies do not meet these criteria. Because the ships are internationally mobile and their owners can choose their legal jurisdiction, shipping companies are able to adopt less formal corporate structures than are found in most other businesses employing such large amounts of capital. In addition the revenue flows are highly volatile, as are asset values. This history of volatility was described in Chapter 3. Thus, a ship is not just a transportation vehicle, it is a speculation. This makes life interesting for shipowners but difficult for potential lenders and investors who are used to dealing with more stable businesses. As a result, ship finance is generally regarded as a specialist business and, for example, the rating agency Moody’s classifies it as ‘exotic’ finance.
