Interview with Maxim Agadzhanov, CEO of Gazprombank Leasing, on vessel leasing prospects
For the second year in a row, Gazprombank Leasing has been keeping its rates of marine and river vessels leasing and holding the top positions in Expert RA rankings. In his interview with IAA PortNews, Maxim Agadzhanov, CEO of Gazprombank Leasing shares the company’s approach to the shipping industry clients.
- Mr. Agadzhanov, Gazprombank Leasing has recently financed the delivery of multipurpose tugboat Finwhale to the Marine Rescue Service. Are there any plans on further development of leasing in the segment of auxiliary ships?
- The transaction on the delivery of multipurpose tugboat Finwhale worth $6.75 million under financial leasing agreement to Marine Rescue Service was a challenge for us and it was quite specific in terms of interaction with the industry companies. The ship joined the offshore fleet [Ed.: special-purpose vessels] and its acquisition was regulated by the terms for competitive procurement in electronic form under Federal Law No 223-FL. That is the answer to your question. It is actually a one-off case as offshore sector ships are not involved in freight and passenger transportation. The Finwhale will be deployed for towing of vessels in distress, response to oil spills, patrol and other purposes.
Financing of the tugboat for the Marine Rescue Service has generally continued the pursuance of a strategy launched by Gazprombank Leasing last year to develop the financial leasing in the water transport segment. That was a capital intensive transaction just like the shipping industry itself. So, in this case leasing will ensure a stable balance of the lessee’s assets and expenses while reducing its financial risks.
"Leasing will ensure a stable balance of the lessee's assets and expenses while reducing its financial risks"
- What is the volume of Gazprombank Leasing transactions in 2020? Which are the major ones?
- In the first half of 2020, the volume of our transaction reached RUB 0.75 billion. As of today, we have already doubled this amount. In this segment, transactions are minor but they cover the growing demand of Russian shipping companies on mutually beneficial terms. Besides, we are involved in large projects on fleet modernization. Those are long-term transactions and they will probably be extended to 2021.
- How did the results of the year’s first half change the company’s portfolio?
- In general, we are striving to diversify our lease portfolio and restrain our risk-appetite so the results of this year’s first half speak for themselves. The lease portfolio of Gazprombank Leasing Group increased by 12% to almost a record of RUB 255 billion.
Over the first six months of the year, we decreased the share of railway venture assets in our lease portfolio by 26 p.p. Our further diversification is seen in expansion of financing, particularly in leasing of sea and river vessels where we currently hold the third position among more than 100 of active leasing companies. And that is a good result.
- What are the problems of working with shipping companies?
- There are no problems as such. We are just to look for flexible approaches to finance the shipping industry clients as the structure of financial flows depends on ship types. Besides, specific approach to liquidity assessment should be taken into consideration when it comes to such objects. We actually know how to do that since we have been accumulating expertise and experience in structuring of transactions on sea and river ships leasing for more than seven years of interaction with shipping companies.
"We are to look for flexible approaches to finance the shipping industry clients"
- Has the coronavirus crises affected your work with the industry companies?
- Indeed, we were witnessing the adjustment of shipping companies’ activities in the first half of the year. Water transport industry also found itself under the pressure of constraints. Throughput of Russia’s seaports in January-August 2020 fell by 2.4%, year-on-year, to 544.2 million tonnes. The decrease in turnover of crude oil by 12% and oil products by 2% affected implementation of the cargo traffic plans and signing of new contracts.
However, the analysis of the pandemic implications should take into account the specifics of the sea and river traffic market. For example, the market of Arctic cargo traffic saw a minor decrease, only due to the increase of cargo transportation time caused by introduction of anti-covid procedures in ports. The statistics confirm that: throughput of seaports in the Arctic Basin fell by 9% in the 8-months period of 2020. The situation in river segment is different as it depends on the season. The peak season for grain transportation is autumn.
As we see, not all segments saw a positive dynamics in the first half of the year. Meanwhile, gradual recovery is underway and the Ministry of Industry and Trade of the Russian Federation expects the seaborne cargo traffic to grow by almost 10% in 2020 to 20.3 million tonnes with cargo turnover to reach 38.4 billion t-km (+5.1%).
We try to bear in mind the current consequences of the pandemic in the transport industry. We are ready for a detailed discussion of transactions to ensure a maximum profit for clients not neglecting our own risks. There again, we adhere to a moderate risk policy.
"We try to bear in mind the current consequences of the pandemic in the transport industry"
- What are the projects you are involved today? What do you think about the support of projects on marine facilities construction and offshore and development?
- We focus on the Northern Sea Route development, infrastructure projects and development of gas & oil fields. Our specific partnership with companies operating on the offshore fields covers the leasing of both towing ships and special-purpose ships intended for construction of structures. In our opinion, shelf development is among the promising activities where leasing instruments can be applied for financing purposes.
- Last year, Gazprombank Leasing had its largest lease transaction worth RUB 16 billion. Is there anything similar in the process today?
- That transaction of 2019 was a unique experience for the team of Gazprombank Leasing. We succeeded in offering our client favorable terms of financing and also enhanced our expertise in structuring of demanding transactions. Today, our company is in negotiations with a number of major clients on similar leasing transactions. As soon as we finance them, we will share the news with your agency and other industry focused media.
- Are you looking into the segment of passenger transport, cruise ships?
- It would be right to say “no” but there are some factors that should be in a spotlight when working with a certain segment. First of all, this type of assets is hard to pay back if we speak about newbuildings. Besides, the current trends in the global market should be taken into consideration. The prices for seagoing cruise ships sank drastically during the pandemic, the market plunged and it is hard to predict the time of its full recovery. It is the best time for the purchase of assets. Given a proper structuring, Gazprombank Leasing is ready to consider potential transactions on acquisition of cruise ships under leasing agreements.
- Are you ready to finance equipment and facilities for ports?
- We are analyzing the opportunities of port infrastructure leasing. Most likely, we will look into the matter next year.
- What opportunities for the development of national shipping are provided by operational leasing? Which segments are optimal for it and what are the plans of Gazprombank Leasing in this respect?
- In the segment of financial leasing, our operation is comprehensive, including the segment of ships. Meanwhile, we are looking into operational leasing. It is an interesting line of business with shipping companies but I don’t think we will come to it soon.
- What is the role of state support in water transport and marine facilities leasing? Do you think additional support is needed?
- As we see, the existing support measures on subsidizing of lease rates and implementation of utitlization grant programme are being actively applied by shipping companies for construction of new vessels. In 2020, allocations for subsidizing interest rates on leasing are as high as RUB 3.8 billion with RUB billion already spent for subsidized leasing. It is an efficiently functioning mechanism. However, we see that replacement of obsolete fleet and ships subject to scrapping is slow. Perhaps, zero VAT for lease transactions involving seaborne and river transport could be an effective measure …
"Zero VAT for lease transactions involving seaborne and river transport could be an effective measure"
- How do you compete with the leaders in financial leasing of marine and river ships? What is the alternative you can offer your clients?
- Like in any other segment, we have to compete with other leasing majors and we succeed in it. In all key segments of the business we are among the top-five or hold leadership. Not all leasing companies are involved in the water transport segment but there is a competition in it. So, we generally offer our clients a comprehensive approach with respect of time limits, price terms, business and risk assessment specifics. Besides, the core of our business is people. Our team of experts is among the best in the market and they are eager to meet all the customers’ requirements.
Interviewed by Vitaly Chernov.