French container line CMA CGM has completed a US$648 million sale and leaseback on eight vessels with China Merchants Bank subsidiary CMB Financial Leasing. CMB was advised by law firm Watson Farley & Williams.

The eight vessels are operated by Singapore based Nepture Orient Lines (NOL), which was acquired by Marseille based CMA CGM in June. An acquisition loan syndicate was led by HSBC, BNP Paribas and JP Morgan. With the help of this sale and leaseback deal, and other cash resources, CMA CGM has now paid off the $1.7 billion acquisition loan in full.

The deal involves some of the younger vessels in the NOL fleet, which are typically between 9,300 TEU and 13,892 TEU in size.

The deal illustrates the ability of Chinese lessors to sign very large financings- at a time when bank debt is in short supply from traditional European ship lenders. On 24 November Hannover based Norddeutsche Landesbank (NordLB) announced yet more writedowns on its shipping loan portfolio for the third quarter. They bring total provisions for the first nine months of 2016 to Euro1.651 billion. The company has said that the full year total is likely to be more than Euro2 billion.

In the runup to the 2008 financial crisis NordLB was one of the world's biggest shipping lenders. In Spring 2016 NordLB made a strategic decision to reduce its ship finance portfolio from Euro19 billion to between Euro12 billion and Euro14 billion by the end of 2018.

Against this background of restricted balance sheet capacity in Europe, it is the Chinese banks and leasing companies that are taking the opportunity to increase their activities in the global market.

Shanghai based CMB Financial Leasing said earlier this year that it wanted to expand its ship financing, taking advantage of good opportunities that exist in spite of the overall industry downturn. As of December 2015 shipping took up only $2 billion out of its total $17 billion total leased assets. Around 50% of this was dry bulkers, and the company said it was looking to add more product tankers, containers and Liquified Petroleum Gas/Liquified Natural Gas vessels.  

International expansion has also been one of the main areas of focus for 2016. CMB has the balance sheet capacity to do very large transactions, and in 2015 signed a $540 million sale and leaseback on two Floating Storage Regasification Units (FSRUs) for Golar LNG. The latest deal with CMA GGM fits into this pattern of sizeable deals with top quality operators.

In June Navig8 entered into a sale and leaseback with CMB Financial Leasing for three of its 37,000 DWT Interline coated tankers. The net proceeds of the transacton were $91 million. Navig8 has signed seven year charters with CMB, with options to repurchase them during the charter period, beginning at three years after delivery of each vessel.

Established in 2013, Navig8 Chemical tankers is a joint venture between  Navig8 Group and Oaktree Capital Management, focused on the transportation of chemicals. It currently operates a fleet of 27 fuel efficient high specification chemical carriers. Eighteen were built at Hyundai MIPO in Korea. The full delivery of its fleet is expected to be completed in mid-2017. 

In April, Navig8 entered into a sale and leaseback with Bank of Communications Financial Leasing for four 49,000 DWT Interline coated medium range tankers being built by STX Offshore & Shipbuilding in Korea. Delivery dates run from March to June 2017.       

Under the sale and leaseback agreement, BoCom Leasing is providing pre-delivery funding as well as the delivery payments. The net proceeds of the transaction was $140 million. The vessels are on ten year bareboat charters, with Navig8 having options to purchase each of them after four years.    

For the moment the bank owned Chinese lessors have unrivalled balance sheet capacity to put to work in the global shipping market. Nonetheless, concerns remain about the health of the banking sector in China, and the potential for a crisis caused by Non Performing Loans. This year has in particular seen a surge of residential mortgage lending, leading to worries that loan underwriting standards are getting looser.