What’s the right choice for financing your subsea newbuilding?

With an extremely robust outlook for the subsea market for the next five years, one of the major challenges for the sector is an ageing global fleet, with a majority of ROV support vessels and dive support vessels at or more than 15 years old.

“Subsea vessels find themselves in a sweet spot,” said Fearnley Securities, director, investment banking and partner, Fredrik Joys, because they can operate in both the oil and gas market and in the energy transition.

Speaking during the Annual Offshore Support Journal Subsea Conference, Mr Joys provided an overview of financing options for owners, detailing conventional banking, alternative financing and the bond market.

Mr Joys said European banks are returning to shipping, reversing a trend that began in 2021, when gross lending to the sector fell 36% from US$455Bn to US$283Bn. He said European banks are now growing at a 7% year-on-year level.

Banks can be the cheapest sources of capital for owners, but they have high amortisation requirements, he said.

When bank financing declined in shipping, it “left a vacuum” that was filled by alternative lenders. As a result, a “golden age of private credit” emerged, Mr Joys said.

Alternate financing can include “sophisticated institutions deploying large amounts of capital from pension funds or ultra-high net worth individuals promising returns that are slightly above what banks do.”

He also highlighted the bond market, most notably the Nordic bond market, which has been around for the offshore market for more than 20 years.

“Bonds can enhance free cash flow to your company due to substantially lower compensation and debt repayment profiles, which in turn enable either dividend payments or, maybe most importantly, reinvestment into new ventures,” he said.

So how should owners fund a newbuild programme? Banks will “happily provide commitments to newbuilds” with a commitment fee, while alternative lenders can too, but they need a high return from the date of commitment, making them potentially prohibitively costly.

He said Fearnley Securities would not recommend raising standalone bond financing to fund newbuilds.