Joint venture, stock, bonds seen as viable financing options for ship acquisition

As commercial banks continue to restrict lending to shipping companies owing to regulatory and risk management considerations, Nigerian shipowners have been advised to consider structures such as high-yield bonds, joint venture partnership and capital market listing as viable options to funding ship acquisition.

Experts, who took turns to assess the state of Nigeria’s shipping business at a recent industry event tagged NISFCOE 2018, said that Nigeria’s maritime industry is still at its infantile stages in terms of funding and indigenous participation, since local shipping companies cannot access the requisite funding to acquire ship infrastructure and do business.

According to them, the volume of ship financing transactions undertaken in Nigeria is still very low despite the increasing volume of trade and the number of foreign ships that calls Nigeria’s territorial waters.

Speaking while presenting a paper tagged, ‘Innovative Concepts and Sustainable Approaches to Effective Ship and Maritime Infrastructure Financing in Nigeria: A Critical Review,’ Fabian Ajogwu, Senior Advocate of Nigeria (SAN), said that traditional lenders like banks have reduced their commitment to ship infrastructure projects following the financial crisis and their high aversion to risk to take on such transactions.

According to him, access to credit remains a challenge for ship-owners and other operators as very few Nigerian banks have the financial and technical capacities to undertake such transactions; while high interest rates and liquidity issues keeps funding out of the reach of the intending ship-owners.

Ajogwu disclosed that private equity funds now targets small and medium sized shipping companies to enter joint ventures with ship-owners and, sometimes lend directly to these companies through primary or mezzanine financing.

“Another financing option for major players in the industry has been the capital market. The US and Norwegian capital markets as well as the Norwegian bond market have been favourable for shipping assets. The London markets are also looking to attract their first shipping listings since 2006/2007,” he said.

Ajoagwu however advised Nigerian ship owners to embrace International Financial Reporting and Accounting Standards in order to be able to attract other forms of finance in the form of private equity, and be better positioned to be listed on the Stock Exchange.

BusinessDay understands that in 2017, the Federal Government, which through the Nigerian Maritime Administration and Safety Agency (NIMASA) concluded plans to disburse $100 million Cabotage Vessel Financing Fund (CVFF) to indigenous ship owners at a single digit interest, has failed to disburse the funds till date.

The CVFF was aimed at promoting Nigerian ship acquisition and ownership, ship charters, development of shipyards and other infrastructure, ship construction, repairs and maintenance and other schemes for the development of indigenous tonnage capacity.

In his view, Bashir Yusuf Jamoh, executive director, Finance and Administration of NIMASA listed lending from commercial banks, sole lending & syndicated loans, proposed maritime bank, CVFF, NCDMB loans and leasing as funding options for ship acquisition.

“Despite the huge potential in the Nigerian maritime sector, harnessing these assets has been constrained due to the absence of an effective financing option. Filling the funding gap therefore remains critical. Unless Nigeria takes the issue of ship financing seriously, few foreign firms will continue to dominate activities in the shipping sector,” Jamoh warned.

AMAKA ANAGOR-EWUZIE