Aleksandr Babich: “Operational leasing is a very promising activity”
MASHPROMLEASING JSC is boosting its portfolio of shipbuilding projects. In his interview with IAA PortNews, Aleksandr Babich, General Director of MASHPROMLEASING JSC, tells about specific features of leasing for various types of ships, financing of PV300 cruise ship and prospects of the operational leasing.
- Mr. Babich, Krasnoye Sormovo shipyard is building a cruise ship of Project PV300, Mustay Karim, through leasing financed by Mashpromleasing. What are the parameters of this financing (rate, period) and how are they validated?
- Financing of the Mustay Karim cruise ship of Project PV300 for VODOHOD LLC, the lessee, is being performed under the USC Programme for leasing of sea-going and river-going civil ships with a financing schedule covering a period of 18 years (including the period of construction) and featuring a low gross leasing rate. Payments begin after signing the lease granting/acceptance certificate that is foreseen by the Programme based on the analyses of shipping companies’ business plans for performance parameters of cruise ships. Due to their high cost, such ships feature a long pay-back period and require the lowest possible rates for the leasing project.
- You mention a long pay-back period of passenger ships. What are the parameters of financing applied for their construction in this respect?
- Passenger ships deployed for transportation of people on regular routes nearly always need subsidies from regional budgets. As a rule, they do not pay back without such subsidies. In most cases, operational expenses of such ships exceed the revenues from tickets. Taking into account lease payments, they cannot do without regional support. Therefore, the Programme for leasing of sea-going and river-going ships foresees the rate of 2.5% per year for passenger ships. This rate has already been applied by us when implementing the leasing projects on construction of three Kometa 120M ships for Crimea and six Valdai45Р ships for Khanty-Mansi Autonomous Area and Nizhny Novgorod.
- Mashpromleasing is a captive company of USC, Krasnoye Sormovo is also a company of the United Shipbuilding Corporation. Does that provide any additional advantages under the abovementioned shipbuilding project?
- Although Mashpromleasing JSC and Krasnoye Sormovo PJSC are members of the same Corporation, are independent organizations promoting their own commercial interests when dealing with their vital issues. Besides, the shipbuilding contract was discussed and signed by three parties including VODOHOD LLC, the lessee, which has nothing to do with USC but has its interest in contract terms, especially cost and period.
Therefore, no advantages come from the company’s USC membership. Cost, period and terms of construction is something offered by the shipyard while leasing terms are our issue. All that has been discussed with the lessee. The same procedure would be in case of different companies with different ownership.
- M/V Mustay Karim is the second ship of Project PV300VD. Are the terms the same for M/V Peotr Veliky under construction at Lotos shipyard?
- The financing terms, both the rate and the period, are absolutely the same for those vessels.
- What are the advantages of leasing offered in shipbuilding by your company as compared with other types of loan-based funding?
- Under the USC Programme for leasing of sea-going and river-going civil ships, we offer shipping companies a finance product with a gross rate taking into account the profit-making capacity of ship owners depending on types of ships (dry cargo carriers, tankers, cruise and passenger ships, etc.) and on the geographic area of deployment (Northern Delivery, etc.). It ranges between 2.5% and 6.5% per year with a period of up to 15 years. The rates are adjusted depending on co-financing by banks which can be as high as 50% or higher of dry bulk carriers’ or tankers’ construction cost. Unlike loans, leasing does not imply any additional security.
- What is the company’s backlog of shipbuilding projects today, what is its structure?
- As of today, the company’s portfolio is RUB 24.6 billion including RUB 23.5 billion for vessels, which makes 95.5% of the portfolio. That is 50 ships for various purposes – cruise liners like Mustay Karim, paddle-driven cruise vessels of Project PKS-180, passenger ships, hydrofoils, barges, pontoons, tugboats, dry cargo carriers, tankers including chemical carriers. We have implemented sale and leaseback projects and two vessels are in operational leasing.
- Do you consider operational leasing to be promising. What are the prospects? What does your company do in this respect?
- The operational leasing is a very promising activity. Among the assets are vessels that are in high demand among ship owners (serial ones). The advantages of the operational leasing for shipyards include an opportunity of serial production with a scheduled maintenance and repair. The key advantage for ship owners is no financial participation of a lessee (no advance payment) while the payments are calculated basing on freight rates in the market. Of course, they should cover the expenses of the leasing company for the purchase of ships. Therefore, so called “long” bank financing is needed for the operational leasing, for over 10-15 years, or it is possible to buy into the leasing company. Currently, we are working on the second type of financing. Most companies in our pool of clients are interested in the operational leasing.
By Tatyana Vilde and Vitaly Chernov.