Cruise ships a beacon for Germany's KfW
Hamburg
THE call of the Caribbean is proving irresistible for Germany's KfW Ipex, the development bank that funds the shipbuilding industry.
After lending 1.1 billion euros (S$1.7 billion) to finance pleasure ships last year, including part of the funding for two new Royal Caribbean Cruises Ltd vessels built in Germany, KfW Ipex is preparing to fund yet more cruise liners, earmarking a total 2.8 billion euros in new shipping loans this year. More than half of its 16 billion-euro maritime loan book is now devoted to cruise ships.
With passenger numbers rising at an annual rate of 4.5 per cent, the global cruise industry is one of the few bright spots in a shipping market awash with debris after eight years of crisis in the container segment. It also offers European shipbuilders an opportunity to steal a march on Chinese competitors, who are still several years behind technologically in this corner of the market, Carsten Wiebers, the global head of KfW Ipex's maritime industries business, said in an interview.
"We don't expect the Chinese to reach a standard in the next five to six years that can rival international cruise ship companies in existing markets," said Dr Wiebers, 53, who has led KfW's maritime funding for 18 years. "There's little risk that the cruise industry will see overcapacity, which is a very heavy burden for other shipping segments."
KfW Ipex's large exposure to the cruise industry is unique among German shipping lenders, which have traditionally focused on container ships and bulk carriers. By the end of March, Dr Wiebers had increased the cruise share of the bank's maritime- loan book to 51 per cent from 32 per cent in 2009, when the global financial crisis had sent the shipping market into a slump from which it has yet to recover.
By contrast, at Norddeutsche Landesbank, which is seeking to diversify while shrinking its 18 billion-euro shipping loan book, cruise ships and ferries have just a one per-cent-share.
At KfW, which boosted its maritime loan book by 10 per cent over the past seven years, cruise ships accounted for 30 per cent of new shipping loans last year. Commitments included two new liners for Miami, Florida-based Royal Caribbean, which controls about one-quarter of vessel capacity in the North American and European markets.
Those contracts are for 12-year terms with a "considerable portion" syndicated with an international banking consortium, according to Frankfurt-based KfW, which declined to disclose further details.
The industry is booming in Europe, where top shipyards including Germany's Meyer Werft GmbH and Italy's Fincantieri SpA are working to capacity to fill orders similar to Royal Caribbean's US$1 billion Ovation of the Seas that has been cruising around Asia, Australia and Europe since its delivery in April.
To lure as many as 4,180 passengers on board, the super-cruiser boasts a capsule on a swivel arm from which guests can view the ship from 300 feet in the air, while others can try the world's first simulated skydiving experience offered at sea.
"Investment activity has shrunk drastically in all segments of shipping except the cruise industry," said Dr Wiebers, who is set to take up a new role as KfW's head of aviation and rail financing next month.
Much of the wider industry's demise stems from the fact that ship financiers ignored technological advances, lending clients too much money too long for vessels that aged rapidly, Dr Wiebers said. With this in mind, KfW has changed its focus to companies with bigger fleets and corporate structures.
"We practically don't take any asset risks," Dr Wiebers said. Almost two-thirds of KfW shipping loans are covered by export credit insurers like Euler Hermes Group, he said. BLOOMBERG
