MAY 29, 2013 — With less competition in the market and a high demand for refinancing, the perfect time to be in the maritime finance business is right now, according to Svein Engh, Group Head and Managing Director of CIT Maritime Finance at CIT Group Inc. (NYSE: CIT), a major provider of financing to small businesses and middle market companies.
CIT Group launched CIT Maritime Finance back in November 12, 2012, appointing Mr. Engh to head the new business (see earlier story).
Prior to joining CIT, Mr. Engh served as CEO of Octavian Maritime Holdings, Inc., where he built a new shipping company with sponsorship from Octavian Advisors, LP, a New York-based investment fund. Before joining Octavian, he was Managing Director, BNP Paribas Fortis where he was responsible for building the maritime portfolio in the North American market. He has also held executive positions with Christiania Bank in New York, Singapore, and Oslo. Mr. Engh earned a BBA and MBA from Ohio University.
Following is the transcript of a CIT Group video featuring Mr. Engh
Why did CIT decide to re-enter the Maritime Finance market?
It's a very good time to get back into this business for a number of reasons. The banks that have been active in the sector for the past ten to twenty years are struggling with loan portfolio issues. A lot of the European banks have funding issues and shipping is predominantly a U.S. dollar business. The banks have capital issues and capital requirements. What that means for CIT is less competition, improved pricing, tighter terms and a much better risk-reward ratio. So it's really the perfect time for us to enter.
What types of ships will you finance?
We don't want to be overweight in one particular sector; building a balanced book is the goal. We will look at everything from Tankers, Dry Bulk, Product Tankers, LNG. We're going to do Car Carriers, more industrial type ships and containerships. We will also focus on assets in the ultra deepwater offshore services sector, which include drilling rigs, large supply vessels, subsea construction vessels and so on.
Where do you see growth opportunities?
We already see a lot of opportunities across many sectors. We see a lot of new deal originations as well as secondary loan purchase opportunities. We've had some success already in buying loans in the secondary market. We are looking at portfolios, but more importantly, [in terms of] new business origination we have a pipeline that is building quickly. We are looking across many sectors in shipping, as well as offshore services. There is less competition, as I mentioned, creating a lot of opportunities.
What are the challenges facing the market today?
The main challenge for the market is still the oversupply of new tonnage entering the market. Shipping had a boom period between 2004/2005 and 2008 up until the financial crisis. And during that period when the rates were at historic highs, there was a lot of ordering of new vessels because the owners were flush with cash. After the financial crisis, you had too many ships for too little business and that overhang is still the main problem for the sector.
What are the financing needs for the sector?
It's a combination of a couple of factors. Number one: there is an ongoing need to finance ships. Whether it's new buildings or second-hand vessels being sold and bought, there are fewer banks there to do it at this point. Second, a lot of the major companies during the boom period ordered a lot of ships, but they also did a lot of financings, which are now coming up for maturity. They have to be refinanced and there's a lot less capacity to actually do all these refinancings that are coming through. So that's going to be a real challenge and we hope to certainly play a role there.
How active are private equity firms in the sector? Do you expect their interest to increase in 2013?
The private equity sector has become more active as of late. Private equity is looking to buy at the right time and to sell at the right time. So timing is then crucial. The problem is if you're a private equity player and you have a five-year window to buy and sell, you want to sell when you can and not when you have to; and that's one of the key issues to keep in mind when you invest in ships.
What do you look for in a maritime company in order to provide funding?
Well, the key thing to look for both as a lender and as an investor is that you're dealing with experienced, honest and ethical management teams. That's certainly number one. For us as a lender, I think that's where my experience comes in. The other thing is that we want to focus on companies with high quality assets because as long as you have good assets securing your loans, you can generally manage through cycles and that's the key for us.
What role does CIT play in the market?
CIT has a very deep knowledge and understanding when it comes to transportation in general. If you look at our activities on the aviation side and on the rail side, it's a logical fit in my mind to also build a shipping and offshore business alongside these other businesses. I think the mindset of CIT, with its focus on prudently growing assets, is perfect for Maritime. Having experienced and dedicated professionals in this business is a key driver for success.