The funding mechanism to acquire/build ships could undergo a sea change as the Export-Import Bank of India is planning to get shipping companies and shipyards to float special purpose vehicles for each ship, with investors, including banks, investing in the financial instruments issued by these vehicles.

To get all players in the maritime industry on board vis-à-vis the funding mechanism, Exim Bank will seek to establish a Maritime Financing Facility (MFF) at the International Financial Services Centre (IFSC), Ahmedabad, in association with commercial banks. Companies use special purpose vehicles (SPVs) to finance large projects, usually in the infrastructure sector, without putting the entire firm at risk.

Alluding to the stress facing the Indian banking industry on their exposure to the maritime sector, Yaduvendra Mathur, Chairman and Managing Director, Exim Bank, observed that a facility could be created whereby the manner in which maritime facilities are financed can be changed. India could emulate the Korean shipbuilding industry’s success. 

 “Instead of borrowing on the books of companies to build ships, ship-specific bonds can be floated. Actually, people will invest in ship-specific bonds.

“So, there will be an exposure of people only to a particular ship. These are innovative financing structures. We have been talking to a few merchant bankers on how the maritime activity can kick-start the whole economy,” explained Mathur.

The Exim Bank chief underscored that only 5 per cent of India’s trade is carried on India-made ships.

Need to build ships

“We are so vulnerable. Some short-sightedness in Indian policies has decimated our shipbuilding, shipping and ports. So, we are too much focussed only on building ports. That is not the real thing.

“We should actually build ships. Seventy per cent of ships which are built in India are using imported components. We don’t make even the steel used in shipbuilding. So, Exim Bank is committed to supporting the whole maritime sector,” he said. The MFF, as envisaged by Exim Bank, could see the banking skill-sets related to the maritime sector getting housed at one place in the IFSC.

So, if some innovative overseas instruments have to be structured then the banks, which are part of the MFF, can start operating in the global bond markets.

“The challenge in ship financing is that valuations have dropped. Today, if a ship has got a charter, it has got value. If the ship doesn’t get business, its value immediately collapses and then the banks take the hit.

“…So, if the ship is owned by a shell (SPV), which is a financial owner, it can be very easily leased out all over the world. Globally, this is how ships are financed. In India, we have not tried out this kind of financing,” said Mathur.

Related Topics