Alternative lenders are expanding OSV financing

The effectiveness of fleet-based financing approaches lies in their better risk mitigation compared with single-vessel transactions. "We favour fleet financing, especially in M&A situations, with MAG Offshore’s recent acquisition of 20 offshore support vessels from Atlantic Navigation our most recent example," said National Bank of Fujairah’s Bilal Hasan Ashraf.

National Bank of Fujairah stands as one of the few traditional banks still actively financing OSVs. Most traditional banks have withdrawn from the sector, particularly international institutions, citing ESG concerns and challenging market dynamics.

This vacuum is being filled by new sources of finance including Berlin-based credit funds. "Initially, credit fund pricing might seem daunting," said Alantra’s Konstantinos Kanellopoulos, "but the sector’s high profitability means this increased cost of capital remains sustainable."

The emergence of Chinese shipyards as key financing partners is another example. "Yards can provide finance directly or collaborate with leasing companies to offer seller’s credit," explained Oceans 8 Consulting’s Knut Mathiassen. "These structures typically bridge the first two to three years before transitioning to long-term leasing arrangements."

Nordic markets are pioneering innovative structures combining government green shipping incentives with commercial debt.

"I’ve recently been involved in a Norwegian project focusing on decarbonisation factors," said Mr Mathiassen. "The funding combines government subsidies with banks stepping forward to support the transition, though this model hasn’t yet reached the Middle East."

A byproduct of new sources of financing is the process can take longer. A recent refinancing of five vessels for an undisclosed regional operator highlighted the extended timelines now required for deal execution. "It took more than seven months, roughly triple the usual period," revealed Mr Kanellopoulos. "The key to success was helping new financiers understand market dynamics and securing appropriate legal opinions on termination clauses."

Typically, lenders are accepting 30-day termination clauses when offset by strong corporate guarantees. The market generally expects three-year minimum charter coverage, though this can be blended across fleet portfolios for rate optimisation.

For newbuilds, lenders do want to see contracts in place. "With a 10-year loan tenure, charter contracts should cover at least 30% to 50% of the period to ensure viable debt service’” said Mr Ashraf.

The final topic of discussion was Singapore’s OSV sector, which was seen as holding financing challenges and opportunities. "Several Singaporean OSV players struggle with legacy issues and current lenders show reluctance to restructure or accept haircuts," noted Mr Ashraf. "This creates a window for lenders to examine these exposures and structure viable solutions."