As the number of banks in traditional ship finance shrinks, the gap is being filled by alternative providers. eShipfinance.com is a new venture from a recognised name in ship finance.
There are maybe half a dozen instantly recognisable names in ship finance, and Dagfinn Lunde is one of them. He was head of shipping and offshore at the specialist shipping bank DVB Bank until compulsory retirement. Today he is a co-founder and chairman of SFG Ship Finance Global, which encompasses a new venture in the provision of ship finance: eShipfinance.com
eShipfinance.com is designed to make it easier for both borrowers and investors to engage with each other online. The digital platform allows borrowers to present their proposals using industry standard tools, online.
The platform allows borrowers to use online tools to prepare a free business plan and present their project. Once satisfied that the business plan works, the borrower can arrange an online meeting to discuss the project further.Thereafter, the project enters a validation phase. This is where the borrower will need to submit documents supporting the project for validation and analysis. For this analysis, the borrower will have to pay a token fee, which is adjusted against the final arrangement fee.
During this validation process, the platform, using third-party integrations, conducts all the standard KYC/MAL checks and draws upon other industry partners for market forecasts and values. eShipfinance.com uses its own risk model, which is designed for risk-weighted pricing; so the higher the risk, the more interest is paid by the borrower. For example, a vessel with time charter would carry a lower risk compared to a vessel trading spot.
As this is asset-based finance, the asset is an important part of the analysis. Therefore, the older the asset, the greater the risk. The platform will accept vessels up to 17 years of age at drawdown, but places a limit of 20 years at maturity.
Similarly, while there is no obligation for guarantees and the borrowing is purely asset based, the more information and securities that are provided, the lower the risk and thus the potential interest rates also fall.
As well as the algorithms in place, projects are also validated and reviewed by a panel of distinguished industry experts.
At this point, the borrower is presented an initial offer including a fixed interest rate with the preliminary term sheet and standard documents. On acceptance of the offer, the project is then ready to be presented to the selected investors.
Investors on the platform are by invitation or by application. It is not a crowd-funding platform. Once a project is open for subscription, the investor will have the option to invest 10% to a 100% of the amount, with a minimum of US$1M.
Once fully subscribed, the deal moves to the deal closing phase till drawdown of the loan. The platform also manages the practicalities and formalities of the transaction using standard processes and documentation at low cost. This includes the provision of a term sheet.
Conditions apply: fixed rates start from 6.5% p.a. with leverage of up to 50%. There is an arrangement fee of 1.5% to 2%.
All transactions occur directly between the lender(s) and borrower’s; the funds are transferred directly to the borrower via an escrow account, while the mortgage is held directly by the lender(s) via a security agent. As a facilitator of the project, eShipfinance.com is not subject to financial regulations.
TST Comment: There are so few traditional banks remaining in ship finance and these must meet higher levels of capital requirements and compete internally for that capital. Furthermore, the banking model has swung toward corporate finance, with the lender looking for other streams of income from the deal. This has opened the door to alternative finance models. Some are supported by groups of high net worth individuals looking for a countercyclical play, or by private equity looking for high yield on low-priced assets. Dagfinn Lunde’s model is bringing online disruption while maintaining the classic and familiar banking elements of KYC, term sheets and so on. Acting as a facilitator only, the model is more akin to boutique finance houses without the overheads. There is clearly a demand for alternative finance among smaller owners, but should eShipfinance.com become a major force is the ship finance market, its model will be easily replicable by the larger institutions.