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 toride 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 investmentholding company owned by the Tianjin bonded port authorities.

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

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

“What business should the new company do? This is the first question thatarrived 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, realestate, heavylift machinery and ships, all common assets for leasing, thefinancial crisis battered the world. Seaborne trade volume plummeted, freightrates nosedived and the shipping industry slipped into woes.

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

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

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

Unlike its rivals parented by state-owned CCB, ICBC and CDB, MinshengLeasing does not have a father dabbling in ship finance. But in only threeyears, it has developed into the top ship lessor in China, owning a fleet of120 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 acrossChina’s coastal line, a trade with brisk demand due to the geographicaldisparity between coal producers in the north and consumers in the south. Leaseagreements, two thirds finance lease and one third operating lease, are mostlymade with shippers who have the backing of a long-term cargo contract. Tonnageis 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 peoplein shipping in 2010.

According to Shanghai-listed Minsheng Bank’s interim report, as of June30, Minsheng Leasing’s total assets stood at Yuan72bn ($11.4bn), up 18% from ayear earlier. Net profit for the first half of this year grew 5.6% on year toYuan570m. Non-performing assets were zero.

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

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

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

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

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

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

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

“Regulatory hurdles come in when a cross-border element is involved, suchas an onshore lessor leasing to a foreign charterer or an offshore lessorleasing 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 upa special purpose vehicle in Hong Kong last December for offshore leasing. Thecompany revealed that it had struck a leaseback deal with a Hong Kongshipowner.

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

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

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

(releasing time：Wednesday September19，2012 Lloyd’s List