The importance of financing when becoming a leading MPP shipping company
Av Pareto Bank, 12. august 2021
Oslo Bulk is a privately owned Norwegian shipping company that operates a fleet of modern MPP vessels, shipping cargo all over the world. The company took delivery of its first vessel in 2010 and has since grown to operate a fleet of more than thirty vessels. However, the growth has not been carried out without challenges along the way.
– Financing has been a challenge because we operate vessels within a niche segment, which does not fit very well into the business models of the larger shipping banks, says Alf Andersen, one of the founding investors in Oslo Bulk.
The need for niche banks in shipping
Andersen has been a part of the shipping industry for 23 years and started Oslo Bulk together with a set of partners in 2010.
– When starting Oslo Bulk, we financed our vessels in one of the large shipping banks in Scandinavia and stayed with them for 10 years. But as the company started to grow, it turned out to be more and more challenging to obtain financing for new vessels.
The financial crisis marked a shift in the banking world. Many traditional shipping banks suffered big losses and exited the sector. Increased capital requirements for ship financing also started a shift where the larger shipping banks increased their focus on the large-cap clients. A large bank spends the same amount of time lending out $ 5 million as $ 50 million. As such the larger clients were prioritized. These clients also contribute with more additional business by making use of a bigger portion of the banks’ product portfolio (i.e. ECM and DCM products), services that are less capital intensive. This shift in focus from the banks resulted in a lot of the smaller shipping companies being left out and facing challenges in obtaining financing. Oslo Bulk, also affected by this, had to look elsewhere to finance its growth.
– There was a large part of the industry that did not have adequate access to much-needed capital. Fortunately, banks such as Pareto Bank were ready to provide financing for investments considered too small by others.
– Large banks prioritize large customers who make use of a wide range of financial products. However, some shipping companies only need financing. Pareto Bank can offer that, says Petter Flo-Bakke, relationship manager and Vice President in Pareto Bank’s shipping department.
Oslo Bulk has been a customer in Pareto Bank since the bank started with ship financing in 2012. Today, Pareto Bank is one of the shipping company´s main banks and Oslo Bulk is also the largest customer of the shipping department of Pareto Bank, in terms of outstanding loan exposure.
Andersen points out that Pareto Bank’s understanding of the MPP shipping segment has been of great value to Oslo Bulk. In a specialized segment, in-depth analysis is required to assess credit risks accurately.
– For companies operating in niche segments it can be challenging to receive correct risk assessments and financing structures from larger banks. The larger banks often have more stringent policies for making credit decisions and less room for deviation. For example, they stop financing ships when they reach a certain age, regardless of the vessel type, technical condition, and expected lifetime of the vessel. There are large deviations in expected lifetime of a vessel depending on the type of vessel and the segment the vessel operates in. In Pareto Bank we can be more flexible – we can provide tailor-made financing structures, Flo-Bakke explains.
– In our fleet, several ships have passed 20 years of age. We could never have requested financing of these vessels in a larger bank. They would not have considered it, says Andersen.
The benefits of a long-term cooperation
Pareto Bank and Oslo Bulk share a long common history. Mutual trust has led to many positive aspects of the collaboration. From being a bank specializing in smaller financing, Pareto Bank has over the last years increased its capacity significantly for customers such as Oslo Bulk.
– The bank has experienced solid growth over the recent years and our capacity is increasing. Today we can provide financing of $20 to $30 million in a single transaction if everything lines up, says Flo-Bakke.
Shipping is a highly volatile and capital-intensive industry where predictability is a competitive advantage. Pareto Bank can offer this because they strive for close and transparent collaboration with their customers.
– Pareto Bank focus on close customer relations, and they also know our business very well. They have insight into all of our contracts and activities, and we keep them up to date monthly. In this way we can efficiently solve problems and possibilities as and when they arise, says Andersen.
Alf also highlights quick processing time and predictability as an important competitive advantage for Pareto Bank.
– If I´m buying a vessel, I can count on Pareto Bank to provide timely feedback. In good times, processes go swiftly, and I need to know I have the financing in place in a very short time, otherwise, I might lose the opportunity to buy the vessel.
– Alf knows I´m just a phone call away. In Pareto Bank we have short decision lines, and can allocate resources quickly if he needs financing, Flo-Bakke agrees.
A shipping company with environmental commitment
In Andersen’s newest business project he wants to contribute to reducing all the plastic ending up in the ocean. Therefore, he is replacing all plastic water bottles with cardboard bottles on the entire fleet of Oslo Bulk within the end of 2021.
– Every sailor drinks one and a half liters of water a day. For our fleet, it amounts to 200 000 plastic bottles a year, Andersen says.
Drinking bottles are the largest plastic consumption of disposable plastic. It´s difficult to recycle, so you have to deliver them in port. Unfortunately, plastic is hard to get rid of. Many ports refuse to accept it. Then you have to store them on deck, where they easily can blow out to sea.
– We have developed a carton that can hold water and we will offer this product to the shipping industry. Many shipping companies have communicated their aim to be plastic-free on board, so our product has received a lot of positive attention, says Andersen.
– Financing the business of a shipping company that also takes environmental responsibility on behalf of the industry as a whole is a bonus for Pareto Bank, and is something that matches our values and goal of contributing to a sustainable future, enthuses Flo-Bakke.
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Om Pareto Bank
Pareto Bank ble børsnotert i 2016, og Pareto AS er bankens største eier. Banken har en forvaltningskapital på rundt 20 milliarder. 2022 var bankens beste år noensinne med et resultat etter skatt på kr 555,5 mill. Pareto Bank har en god kapitalbase og solid plattform for videre lønnsom vekst.
Vi er spesialisert på eiendomsfinansiering, bedriftsfinansiering og skipsfinansiering. Banken har en særlig sterk posisjon innen finansiering av boligutviklingsprosjekter. I tillegg tilbyr vi en rekke forskjellige finansieringsløsninger til mellomstore bedrifter. Innen shipping retter vi oss mot norske rederier, eiere og det norske prosjektmarkedet. Vi bygger alltid vårt arbeid på faglig kompetanse og bruker vår kunnskap til å skreddersy løsninger. Vi er ubyråkratiske og får ting til å skje. Raskt, ryddig og tett på.