Bankers spy ‘green shoots’ for yacht finance

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Bankers on a superyacht finance panel at Superyacht Investor London 2024.

"What's the long-term future for yacht finance?" - panel at Superyacht Investor London 2024.

Yacht finance has come through a “bumpy” period but there are “green shoots” of recovery according to bankers speaking on a panel at Superyacht Investor London 2024.

Geopolitical instability and high interest rates have depressed the market and lenders have felt the pinch.

“I think we’ve been on a journey for the last two years, which has been quite bumpy and difficult,” said Robin Clayton, head of Asset Finance, Investec.

“I think there’s a nervousness around the market generally in terms of valuations and things like that. In terms of the last three or four months I’ve seen a few green shoots. Enquiries have definitely picked up and I think probably that’s in anticipation of a fall in interest rates because that’s really hurting the market. I’m actually quite optimistic.”

Candy shop

Olivier Blanchet, head of Yacht and Jets Finance, BNP Paribas, said some ultra-high net worth individuals were “not in the mood” to buy vastly expensive assets such as superyachts because of the world’s economic and political landscape.

Blanchet, whose market is mainly Western and Central Europe with a focus on Thailand and South East Asia, agreed that lending rates were making business a “challenge”.

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However, Michael Schuler, executive director, Aviation and Yacht Finance, Credit Suisse said the bank’s acquisition by UBS has thrown up “a lot of potential” to operate in the USA, given the dominance of the US in the superyacht market – about 53% of yachts are owned by Americans, according to data presented at the conference by Richard Lambert, head of sales, Burgess.

“We have received so many requests directly from American clients,” he said. “I feel like the big boy in the candy shop.”

Yacht finance panel at Superyacht Investor London 2024.

Olivier Blanchet, BNP Paribas (second left) talks at Superyacht Investor London 2024.

Profitability of transaction

But even if enquiries do rise, the banks remain very selective about the clients they take on. “At the end of the day, we have few clients and assets eligible for financing because we are demanding on the selection criteria,” said Blanchet.

For BNP Paribas, the ratio is about 5%, so out of every 100 enquiries they select about five to take further, says Blanchet.

“We look at the compliance profile of the clients, the potential of development we could have with the client, the suitability of the assets from forward and future values, including the environmental aspects in relation to the evolution of the regulations and last but not least, the profitability of the transaction,” he added.

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For Schuler, every 20 enquiries are short-listed down to about five and “then we narrow it down to maybe two”.

“Because mostly the client doesn’t qualify for yacht financing,” he said. “His total wealth is not enough for us. Or maybe the yacht is too small. Sometimes it doesn’t make sense, in terms of administration costs or transaction costs, to finance a yacht below 30m.”

Seize the vessel

Credit Suisse is not in the business of lending on a “stand-alone basis”, according to Schuler.

“We always ask for a substantial private banking relationship. Whenever we have to weather a storm, we feel more relaxed when the client is banking with us because we are close to the bank and we are close to the client. It really helps. Otherwise, if something goes sour, it’s going to be difficult. So lucky us, we never had a repossession so far.”

Blanchet agreed, saying a wider relationship with the bank provides reassurance for some clients.

“If you are looking for just a dry loan, there are hedge funds, private debt providers and other dry lenders, but you have to pay the cost,” he said. “That’s the big difference. And if something goes wrong, believe me, they will not hesitate at all to draw the carpet and the seize the vessel.”

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Clayton, however, says Investec, as a “relative newcomer” into superyacht finance, will do dry loans and sees further potential outside the UK.

“We don’t ask for AUMs [assets under management] and things like that,” he said. “We are very much client driven. It’s got to fit the bank’s criteria. And in terms of Europe and beyond there’s definitely a gap in the market, 100%.” Investec is “tiptoeing” into the market in Europe on a “deal-by-deal basis” and, as a South African company, will look to do business in Africa, as well as opening an office in Dubai, according to Clayton.

“There are bespoke lenders out there who will play around in Europe and beyond and there’s definitely a need for them,” he adds. “Hopefully, we can join them to some degree but we will be cautious.”

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In light of global warming, the eco-credentials of an asset are something which the commercial banks are keen to push.

Many are signed up the UN’s Net Zero Banking Alliance which pledges to reduce their portfolios to net zero carbon emissions by 2050.

Credit Suisse is behind the Yacht Club de Monaco’s SEA Index, a tool to empower owners and stakeholders to reduce their carbon footprint. Another similar scheme is the Water Revolution Foundation’s YETI Index.

However, Schuler admits it’s “difficult” to get some owners to embrace exploring a yacht’s eco footprint, which he finds “extremely frustrating”.

“In order to close the deal, we don’t push it back,” he said. “We just try to get a discussion with the client and try to raise some awareness, but simply they are saying, no, not interested. Period.”

Greenwashing

BNP Paribas is also a member of the alliance and Blanchet suggests clients focus on “environmental components” to protect the future value of their asset, but he says a more transparent methodology for emissions in the superyacht industry would help.

“One of the issues we have for the yacht industry is that we don’t find a common ground,” he said. “We would like to see a common methodology, a benchmark as we have in the automotive industry.”

But he added: “What you have to understand is that at the banking regulation level, people are talking about what we call the green and black factor,” he said. “If we can demonstrate that what we are doing is good, then we will have an incentive in terms of risk-weighted assets. If it’s not, we will receive a penalty. That means that we will increase the cost.”

Clayton says Investec is “committed” to lending in the sustainable space and is exploring a “two-tier rate system depending on the ESG aspects of deals”, but he warns against “greenwashing”.

“It’s always the question of what is really green and you end up in a difficult discussion with the client,” he says.

Ultimately, the banks are in the business of making money and environmental credentials are unlikely to be a deal breaker.

“Of course, we don’t want to lose the client,” says Schuler. “That’s the reality.”

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