[January 16, 2007]

Natixis plays for high stakes abroad

(Lloyds List Via Thomson Dialog NewsEdge) EXPLORING the road less travelled is not every bank's idea of mapping out a successful future in the shipping industry.

But Natixis is one ship finance house which has acquired an adventurous turn of mind.

The bank's portfolio embraces loans to companies in countries such as Vietnam and Iran risks which may be considered too far off the beaten track for some mainstream ship financiers.

Natixis' appetite for the unusual partly reflects the French bank's lineage.

Although its roots go deep, Natixis is not yet a name on the tip of everyone's tongue. It is a new brand, the result of the recently consummated merger of the corporate and investment banking arms of Banques Populaires and Caisses d'Epargne.


But the name is only one letter removed from Natexis, Banques Populaires' finance and investment arm which is essentially the source of the latest incarnation's ship finance portfolio.

The subtle name change is inspired by Natexis' merger with Caisses d'Epargne's Ixis. But Natixis' head of shipping finance, Michel Degermann, explains that Ixis has not contributed to the merged business's loan portfolio.

Ixis had a team of three people who focused on arranging French tax leases. These leases were syndicated down to savings banks in France and not kept on its books.

In contrast, the old Natexis ship finance operation did keep transactions on its books, and at the end of 2005 the loan portfolio stood at $1.5bn.

In terms of asset types, bulk shipping accounted for more than 50% of the portfolio, with tankers leading the way with 34% and followed by dry with 17%. Containerships, at 15%, were the next largest category.

In 2006, Mr Degermann says, the bank produced new business of about $1.1bn, lifting the overall portfolio to about $2bn.

Although this is a healthy one- third increase on the position a year earlier, Mr Degermann modestly points out that 'it is easier to grow from a low position' and when asset values are high. 'Our policy is to grow the portfolio although not at any cost,' he says.

Natixis is budgeting to produce new business of $1bn again in 2007.

'This is easy to achieve if you want to grow quickly by participating in big-ticket, low-risk syndications which, unfortunately, are also low return,' Mr Degermann says.

'You have to be selective and secure the right return.'

Knut Mathiassen, Mr Degermann's deputy, believes the bank has gained a reputation as a 'fast and friendly' syndication bank.

'Now we are well known,' he adds, 'we have moved to bilateral deals and arrangers as the next logical step.'

Natixis is not attempting to compete with the likes of the major players, such as Nordea or DnB NOR, for big mandates.

'This is difficult unless we undercut them,' Mr Degermann observes. 'But then, how do we syndicate it?'

Nevertheless, Natixis' move towards bilateral loans and arranging is understandable.

Syndicate participations that were attractive when the margin was 1.5% lose their allure when refinanced at 60 basis points, Mr Degermann points out.

'You should be getting a better return than corporate units,' he declares.

When margins on mainstream business are meagre, credits in more 'exotic' locations can provide attractive returns for banks at ease with the terrain.

'One way we aim to achieve better returns is to be more flexible than other banks, for example in terms of the flags we will accept,' Mr Degermann explains.

'We have the expertise so it is no real issue to accept flags such as Indonesia, Vietnam, Brazil and Argentina.'

The Natixis group has 'a strong international footprint' deepened by ownership of the former state credit insurer Coface.

As Natexis Banques Populaires, for example, it was the first foreign bank to establish itself in Vietnam back in 1989.

Mr Degermann observes: 'We are still the only foreign bank with a Vietnamese mortgage booked in Ho Chi Minh City.'

And Natixis is finalising a $57m facility for Vinalines, which Vietnam's state-owned shipping company will use to acquire second-hand container vessels or dry bulk vessels. The deal has been conducted through Natixis' Ho Chi Minh City branch and involves Vietnamese flag and mortgages. The Vinalines facility is emblematic of the bank's diminishing dependence on traditional western sources of ship finance business.

At the end of 2005, about 45% of the bank's shipping portfolio was sourced from outside Europe and North America, with 20% produced in Asia.

And Mr Degermann says the European proportion of the portfolio is decreasing while the Asian and Middle East contributions are on the rise.

Natixis has, for example, a large exposure in Iran through the National Iranian Tanker Co.

'The appetite for Iranian lending is very small,' Mr Degermann points out.

'There are some German and French banks, but the US can't even go close, and the UK is finding it difficult.' Natixis, which has a representative office in Tehran, participated in the $108m refinancing of three NITC suezmax tankers flying the Iranian flag.

More significantly, the bank acted as co-underwriter on a $1.1bn facility to help fund the construction of 14 newbuildings in South Korea. This facility comprises both Iranian-flag and offshore financing for NITC, which Mr Degermann describes as 'one of the most dynamic companies in the country.'

The attraction of the NITC business is not difficult to divine: Mr Degermann says Natixis is receiving 'three times the margin we would have got for Cosco business which we declined.'

He adds: 'NITC is a money machine, like Euronav or Frontline.

'With an extremely profitable counter-party and three times the margin, this is good business.'

Higher margins are meant to reflect higher risks. But Mr Degermann is comfortable with the bank's exposure in countries such as Iran and Vietnam.

'We lend to state-owned entities or well-establsihed companies.'

In Vietnam, for example, he says lending to state-owned companies is a 'kind of sovereign risk.'

Although the loans are not guaranteed by the government, the chairmen of the companies are normally ministers.

Natixis may have recently declined to participate in a Cosco deal, but that does not mean China is not on its radar screen.

Last year, the bank completed its first deal with a 'PRC' company, albeit using an offshore structure.

Mr Degermann says Natixis now hopes to break new ground in international ship finance by extending a loan to a Chinese company in its local currency and backed by a Chinese mortgage. In 2006, DnB NOR became the first foreign bank to break into the Chinese mortgage loan arena, but its deal was in US dollars.

Natixis' loan would be for the equivalent of between $20m and $25m to help finance two small bulk carriers for a privately-owned company.

The vessels will be used to discharge iron ore from capesize bulkers and take it up river.

Natixis, whose Shanghai branch has a yuan licence, hopes to close the loan 'very soon.'

Although increasingly international in its outlook, the French market still accounts for the largest single slug of Natixis' shipping portfolio: at the end of 2005, its share was 19%.

And leading French shipping group CMA CGM is the bank's largest customer within the industry.

The Natixis group's global exposure to CMA CGM is about $500m but only a relatively small part of this falls into the category of ship finance, the rest being in sectors such as real estate and project finance for ports.

The mix of business Natixis has been pursuing so far seems to be paying dividends.

Mr Degermann says the bank's return on equity in 2005 was well over 20%.

'Our performance is helped by having small overheads while handling larger and larger transactions.'

With a decent pipeline of deals that will close in 2007 already in hand, Mr Degermann is comfortable with the budgeted $1bn of new business production.

But again he stresses that size for size sake is not what Natixis is about.

'Our aim is not to triple the portfolio in two or three years.

'It is to secure a high return on equity and to contribute positively to the bank's image in local markets.'

Copyright 2007 Informa Martime Trade and Transport

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