Joint Ventures as Alternative for Ship Financing

0

Eromosele Abiodun writes on the need for stakeholders in the shipping sector to embrace joint ventures as alternative sources for ship acquisition

For several years, shipping has been recognised as one of the catalysts for socio-economic development. Because of distances it has since the ancient times been at the fore front of opening up of the world and thus a major driver in of the process of globalisation.

Specifically, container shipping has been both a cause and effect of globalisation. Container shipping is believed to be the world’s first truly global industry.

Container shipping could claim to be the industry which, more than any other, makes it possible for truly global economy to work, it connects countries, markets, business and people, allowing them to buy and sell on a scale not previously possible. As a matter of fact, it is impossible to imagine world’s trade, and ultimately our lives as consumers, without container shipping. Shipping has led to a phenomenal growth in world merchandise trade, which has consistently grown faster than output.

In 2006, goods loaded at ports worldwide are estimated at 7.42 billion tonnes, up from 5.98 billion tonnes 2000. The value of total world export increased from $6.454 trillion in 2002 to $40.393 trillion in 2005 representing an increase of 64 per cent. However, the reverse seems to be the case in Nigeria. It is on record that no fewer than 90 per cent of shipping companies owned by Nigerians have either completely shut down their operations or are barely struggling to survive.

Ironically, all the shipping companies based in Lagos are either dead or struggling to survive while the ones in Warri and Port-Harcourt are thriving.

THISDAY findings also revealed that all the companies are also heavily indebted to banks and are mostly unable to service the loans they took to buy ships.

The companies, sources volunteered, also owe their crew arrears of salaries ranging from six to 14 months, while some have sold off their vessels. Genesis Worldwide Shipping, which was once seen as a thriving indigenous shipping company just four years ago, has completely gone under with not a single ship to operate. The company, at its peak less than five years ago, had six ships.

The same fate has befallen Joseph Sammy Nigeria Limited with one of its staff describing it as “almost dead.”
Piqued by the spiral effects of the death of indigenous shipping due to lack of funds and unfavourable policies, maritime stakeholders have questioned the federal Government’s wisdom in warehousing over $100 million in the Cabotage Vessel Finance Fund (CVFF) while its purpose suffers.

Speaking at a breakfast meeting organised by the Shipping Correspondents Association of Nigeria (SCAN) for public relations officers of maritime and related organisations, the Public Relations Officer of the Association on Nigerian Licensed Customs Agents (ANLCA), Dr. Kayode Farinto, said the problem was due to lack of patriotism.
“Our indigenous ships will continue to die because of the fact that we are not saying the truth. CVFF takes care of assisting our indigenous ship owners with funds. The CVFF holds nothing less than N70 billion in an escrow account. What happens to that fund, ”he said.

Similarly, the Special Adviser on Seafarers Affairs to the President-General of the Maritime Workers’ Union of Nigeria (MWUN), Comrade Henry Odey, said that Nigeria was only able to rescue citizens trapped in Liberia during its civil war because the Nigerian National Shipping Line (NNSL) was still operational.

Groupings and JVs
Meanwhile, in a bid to find solution to the problem, experts in the nation’s maritime industry have called on Nigerian ship owners as well as other stakeholders in the shipping sector to embrace groupings and joint ventures as alternative sources for ship acquisition.

For instance, Principal Partner of the Law Firm, Kenna & Partners, Prof. Fabian Ajogwu (SAN) who made a presentation at the second edition of the Nigeria Ship Finance Conference and Exhibition (NIFSCOE) in Lagos on the theme, “Advancing Ship & Maritime Infrastructure Financing in Nigeria: Innovative Concepts & Sustainable approaches,” said that shipping has evolved globally lamenting but Nigeria has continued to look at the issues from the traditional standpoint.

Ajogwu argued that ship ownership has gone beyond one man owning and managing vessels to an era where group of individuals/ organizations own vessels and outsource the management to experts in the business.
Nigerian ship owners, he said, need to utilise the power pool system as it would be better they own five per cent of a vessel working for any of the International Oil Companies (IOCs) and the Nigerian National Petroleum Corporation (NNPC) than to own several vessels without businesses and the vessels end up making them bankrupt.

According to him, “You could either have the money to buy the ship or you have to take on debt capital or a hybrid of both equity and debt. Today’s sophisticated shipping and the resources required means that the traditional way of it is obsolete.

“People need to raise funding but a ship isn’t a hotel that you build and expect patronage. Rather, you have to secure the source of repayment upfront by having contracts within the oil and gas sector. It is this stream of cash flow that would enable you repay the debt.”

Ajogwu also warned the Nigerian Maritime Administration and Safety Agency (NIMASA) not to disburse the CVFF to individual ship owners because the NIMASA doesn’t have the capacity to ensure repayment.

He said: “NIMASA doesn’t have to reinvent the will with regards disbursement of CVFF. They should do onward lending to the banks so that they lend to the ship owners. The banks have the wherewithal to do the feasibility study of the projects as well as the business plan. The banks are also in better position to chase after the ship owners to ensure that they are successful and repay the loans, ”he said.
He also noted that there are some ship building and ship acquisition funds all over the world that Nigeria can benefit from.

“These funds help the European ship builders to sell while it helps us acquire the vessels. We should be able to tap into such opportunities. We have to build companies or funds that own ships. Nigeria isn’t in Mars; we are in a world where some of these processes have been tested so we just have to replicate the initiatives to suit the local environment in the country.”

He stressed the need to separate assets ownership from operations as most Nigerian ship-owners lack the managerial skills to handle the management aspect of the assets.

On his part, the Managing Director of PAC Capital Limited, Mr. Christopher Oshiafi noted that British Airways owned less than 10 per cent of the airplanes in its fleet.

He stated that ship owners could approach Export Credit Agencies (ECA) with the Nigerian Import-Export (NEXIM) Bank and other Pan African banks.

Oshiafi maintained that availability and reliability of cash flow from the project would convince the financiers that the ship owners would be able to repay the debts.

He also admonished the NIMASA to provide assurances to the financing banks to provide the deficits if the revenue from the investment falls below projected expectations as this would enable the financiers become more willing to sponsor ship acquisition.

President of the Nigerian Indigenous Ship owners Association (NISA), Mr. Aminu Umar described the business environment for ship owners in the country as “extremely challenging.”
He lamented that beyond the obvious challenges of funding, there is also another problem of infrastructure.

“The infrastructure isn’t up to the global best standards and it has posed several safety issues to ship owners. We have ugly experiences as a result of channels that aren’t dredged and there are no tugboats to assist the vessels. The channels aren’t well dredged so vessels encounter accidents and we can’t see the underwater. We only use the chart to see the draft of the water. These are infrastructure challenges and there are no provisions for emergency vessels for incidents offshore Nigeria. These are infrastructure deficits that the government should address” he said.

Need for CVFF
Concerned by the plight of ship owners, NIMASA late last year announced that it would disburse the indigenous CVFF in the first quarter of 2019.

The Director General the agency, Dr. Dakuku Peterside, said the fund which was derived from two per cent deductions from every contract awarded, was meant to help grow the capacity of indigenous ship owners and also provide the needed capital for them to acquire vessels.