‘Business booms for Covid-secure yachts’ – Credit Suisse
Business is “booming” for luxury yachts, as owners, including some first-time buyers, prioritise Covid-19 security for their families, friends and contacts, Michel Buffat, from Credit Suisse, told Superyacht Investor’s recent Town Hall.
“We have seen some people, who chartered before, have now stepped up to buy their own yacht,” said Buffat who is the bank’s head Aviation & Yacht Finance, based in Zurich, Switzerland. “They put their crew in quarantine two weeks before they go to the yacht, so they can be sure everything is done properly. This is one of the reasons we see people buying yachts. That has a significant effect on the boom we see in yachts.”
While the owners of some smaller and medium-sized yachts were looking to upgrade to larger or modern vessels, the owners of very large yachts were not active in the market. “The owners of the very large yachts – in the 80m [253ft], tend to keep their yacht for a longer time, so they don’t switch quickly,” Buffat told delegates. “Typically, they have the yacht custom-built, so they like to stay with them for some time.”
That partly accounts for the lack of pre-owned larger yachts on the market, he added.
Financing for construction was also in demand. “We are working on the financing for purchase of a very large yacht and have similar requests for yachts bigger than 100m [328ft].”
‘Nice number of transactions with Asian clients’
The size of superyacht in demand varied according to region, according to Credit Suisse’s yachting department – which mainly focuses on pre-owed transactions and equity releases. “For example, we have a nice number of transactions with Asian clients,” said Buffat. “They typically buy smaller yachts, whereas in Europe, particularly in Eastern Europe, you see a preference for the very big vessels at 110m [361ft] or even bigger.” Demand was mainly from Russia but buyers in other east European countries were also active.
By contrast, demand in Asia Pacific (APAC) region, particularly in Hong Kong, was for vessels in the 45-50m (148-164ft) category. The Middle East market, normally busy for the bank, remained quiet.
Regretting the recent insolvency of German shipyard Nobiskrug, Buffat said its financial difficulties underlined the importance of conducting due diligence before selecting a builder. Credit Suisse requests to see the financial records of a yard before commissioning construction in order to minimise the possibility of a default. Conducting due diligence checks on client is also important and became critical for the bigger boats, he said. “With very large projects, the client becomes even more important because such vessels are much more difficult to sell, should we have to repossess them, and the market is really liquid.”
For 40-50m yacht acquisitions, cash accounted for between 60% to 70% of deals, with financing making up the remainder. Outside the US, there are a higher proportion of cash buyers. “I don’t think too many yachts [acquisitions] are financed. The majority is by cash, which is probably a good idea for owners.”
‘The majority is cash’
It is vital for new owners to realise that buying a luxury yacht is not a route to profit, he added. “This is the biggest luxury asset you can buy but you cannot make money with it. You can charter out and reduce running costs but that’s about it. This is reflected in our loan-to-value rates.”
Turning to sustainability, Buffat hoped the Superyacht Eco Association (SEA) Index, a rating system based on vessel carbon emissions, developed by the bank in partnership with Yacht Club de Monaco, would enable comparisons between vessels. Launched in September 2020, there are indications the index was making headway in the industry.
“Shipbuilders tell me they have a conversation [with owners] about sustainability topics in nearly all new builds. Not all clients will build something that is very sustainable but at least the topic is there. So, I conclude owners are looking into sustainability and they will consider the index when buying.” A good rating may also, in future, influence the availability of financing, he added.
The Superyacht Investor Town Hall meeting – titled Is finance available? – took place on Thursday April 29th. Joining Buffat at the Town Hall was Jim Simpson, First Republic Bank, senior MD. Buffat’s verdict on the topic was: “Financing is available for clients of the right financial standing for a yacht of good quality, which is not too old.”
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