The motives for shipping asset securitisation: sale-leaseback transactions in the shipping industry

ABSTRACT

This study investigates shipping firms’ motives for using sale-leaseback (SLBs) transactions. Given the bleak conditions in the shipping industry that have persisted since its collapse in 2008, numerous firms have sought ways to relieve short-term financial distress and secure long-term sustainable growth. This study analyses financial ratios of 123 shipping companies in Korea, 25 of which elected to use SLBs in 2019, in terms of growth, profitability, liquidity and leverage for the period of 2016–2018. Consistent with previous findings, the results show that applying for SLBs is associated with a lack of liquidity. By exploring SLBs as a new financing vehicle for shipping companies, the vast majority of which have been under financial distress and constraints in recent years, this study enriches the existing literature on shipping finance. Besides, this study’s findings on shipping companies’ motives for using SLBs can provide helpful suggestions for designing and implementing government policies for restructuring national shipping industry.

KEYWORDS:

• Financial distress
• liquidity
• sales & leaseback
• shipping finance
• shipping industry

Acknowledgments

The authors express their gratitude to the Editor-in-Chief, Associate Editor and anonymous reviewers for their constructive and insightful comments on the earlier version of this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. ‘Shipping ECA Finance’, 2018 edition, Allen & Overy LLP.

2. ‘Review of Maritime Transport 2019ʹ, United Nations Conference on Trade and Development.

3. Economic Statistics System, Bank of Korea (http://ecos.bok.or.kr), accessed on 11 January 2020.

4. Trade dependence of South Korea is the highest among the major economies.

5. K-Stat, Korea International Trade Association (http://stat.kita.net), accessed on 11 January 2020.

6. According to Clarkson Research Service, the annual volume of shipping sales and purchase market is, on average, approximately USD 18 billion for the period between 1995 and 2019.

7. The tonnage tax system was first introduced by the United Kingdom in 1999 in order to maintain national fleet and seafarer workforce.

8. SLB provided by KOBC is applicable only to South Korean domestic firms.

9. New firms are excluded for the reason that financial data for the 2016–2018 period is unavailable.

10. The authors are grateful to an anonymous reviewer for suggesting this point.

11. Retrieved from Financial Statement Analysis in each respective year.

12. The worst performance was in 2013 with the ROE of −37.6%.

13. ‘A Study on Ways to Enhance Maritime Finance Capabilities through a Comparison of Overseas Cases’, Korea Maritime Institute, published in December 2019.

Additional information

Funding

This research was supported by 4th Maritime Port Logistics Training Project from the Ministry of Oceans and Fisheries (Republic of Korea) and the Korea Maritime and Ocean University Research Fund.