With effect from 1 January 2013, DVB separated its existing offshore financing activities in offshore drilling and production as well as in offshore support from the Shipping Finance division, to establish a fourth division Offshore Finance (total lending volume as at 31 March 2013: €2.5 billion) alongside its existing financing activities in shipping, aviation and land transport.
In the following interview Geir Sjurseth, Head of the newly-formed Offshore Finance division and part of DVB’s managerial staff since August 2001, talks about his vision, the essential strategic points and distinguishing structures of the business model.
The interview was conducted by Elisabeth Winter, Head of Investor Relations
Geir, what is the strategy behind the formation of DVB’s Offshore Finance division at this point in time?
It has become evident over the years that the offshore industry is driven by very different economics and demand drivers versus the traditional sea going shipping transportation. Further, the size of DVB’s offshore business has grown relatively more than conventional shipping, thus justifying a separate division. In a competitive banking environment, oil & gas, or “energy”, is considered a long-term sustainable growth industry which has attracted “energy” dedicated investors, lenders, ECA institutions and other related stakeholders, thus further emphasizing the ring fencing from traditional shipping. Some of the larger offshore financing banks are also managing their offshore business in separate divisions.
What are the key drivers of DVB’s Offshore Finance activities?
We are a highly competent team of professionals supported by in-house research and corporate finance colleagues who are 100% dedicated to support our clients’ need for strategic and corporate advice. Thus, I consider the division as a fully integrated offshore boutique catering to owners and operators in the OSV market, subsea, construction vessels, seismic, accommodation units, drilling and floating production units.
Does the business model you are pursuing with Offshore Finance differ from DVB’s general market approach?
No. The fundamentals of DVB’s transport finance model stay the same – supported by thorough financial and credit analysis of the clients we are pursuing; the assets we are financing and the industry our clients are operating within. However, we need to address particular characteristics applicable to the offshore value chain which may differ from conventional shipping. This typically relates to highly specialized and complex offshore equipment which is needed to support existing oil and gas fields and the exploration of new deep water fields. On the other hand, our clients’ charterers, the oil majors and the integrated contracting companies, I consider amongst the world’s best credits.
How would you express your mission statement for DVB’s Offshore Finance division?
Firstly, as a transport finance (& energy) bank, the Offshore Finance division shall enjoy a visible share of the Bank’s total lending book, a minimum of 15% which is not unrealistic over next five years, a business which shall continue to produce above average earnings and equity returns.
Secondly, DVB’s Offshore Finance is to be among the world’s five highest ranking and mostintegrated providers of i) debt financing, ii) advisory services, iii) participant/underwriter of bond issues and iv) market, industry & product intelligence.
Thirdly, DVB’s Offshore Finance shall enjoy a high level of reputation and visibilityin world offshore hubs and fora, and be recognised as a lender with high business integrity and financial solutions orientated.
Who are your clients, where are they located and what kind of assets are you financing?
As mentioned above, our clients are owners and operators of offshore vessels, rigs and floating production units supporting the multitude of existing offshore fields; fields under developments and seismic shooting to verify potential new fields of economic interests, controlled by national oil companies and international independent oil companies. The offshore division covers the global markets for offshore owners and operators, in particular addressing the four key offshore hubs, Norway, Middle East, India & Singapore, and finally the Houston, South America axis. The division has people located in Norway, Singapore and New York covering their respective regional markets.
One of DVB’s major competitive strengths is a highly diversified credit portfolio…
… Yes, and it is important to stay diversified. DVB Group is a uniquely focused transportation bank providing financial solutions to our clients. To manage and reduce risks implicit in our lending, or debt finance business, we need to spread/reduce risk concentration along several dimensions: by asset types and age of assets, by satisfactory employment of the assets financed, by client and country of borrower and by flag etc. Offshore Finance represents no exception. On the contrary, driven by the often specialized and complex equipment that we finance, a well balanced and managed Offshore Finance portfolio is critical to achieve and maintain. One of our short- to medium-term objectives is to reassess DVB’s total Offshore Finance portfolio to see how we can enhance or rebalance the various asset classes pertaining to risk versus return and diversification considerations.
Offshore Finance portfolio by asset type (31 March 2013: €2.5 bn)
Does Offshore Finance comprise more than DVB’s key lending activities?
Yes, we have been and are quite active offering strategic and corporate advice to clients, being mandated to execute raising of private capital to allow a client to faster expand its business; do sale and leasebacks of assets on their balance sheet as an alternative; work with company shareholders to sell an offshore company or for an established player or Private Equity to identify and execute acquisitions of a specific target company.
Where is DVB’s Offshore Finance team located and how would you characterise your team’s major strength?
The Offshore Finance team is located in DVB’s hubs, from New York covering the Americas, to Amsterdam, as the new shipping/offshore hub for Europe and to Singapore covering the markets from the Middle East to Asia and the Pacific. The team’s major strengths are: i) offshore industry knowledge, ii) a long track-record from providing offshore financial solutions globally; and iii) the most importantly – we are very close to our clients and possess a unique, worldwide offshore company knowledge as the market is highly integrated.
Some sectors of the maritime shipping industry (mainly container vessels, crude oil tankers and dry bulk carriers) still suffer from the aftermath of the world economic crisis with excess capacity still prevailing – but declining in 2013. How do you assess your Offshore Finance markets in 2013 and beyond?
Offshore Finance enjoys a healthy and promising market outlook. Driven by national and independent oil companies’ growth in E&P spending at a trendline growth of some 11-12% per year, backed by a stable oil price around the US$100/barrel mark, existing fields see an enhanced oil recovery output while new and large deep water fields attract more equipment. In particular subsea and construction, drilling and floating production see good prospects. As always, in good markets owners are tempted to place new-building contracts, thus in a few subsectors like PSVs and jack up drilling units, the order books tell us to act cautiously when looking at new financings. However, I do not feel we are close to any market peaks, this time driven by a more sober market responding to somewhat lesser access to debt finance.
Geir – and finally – what is your vision for the medium-term future?
I am thankful for all the support we get, but realistic enough to understand that, while the offshore industry is doing fine, we are not entirely disconnected from the outlook for transportation industry in general and the maritime shipping sector in particular. Our objective is to grow the Offshore Finance portfolio, revenues and advisory fees. However, caused by the currently stressed banking and shipping environment, this needs to take place in a very well managed and balanced form and substance which includes regular updates to the Board of Managing Directors, Supervisory Board, Credit Committee where applicable, also for purpose of verifying that lending guidelines and exposure policy are aligned with the Division’s strategy and growth objective.