Green funding for shipping in the Norwegian Capital Markets
The Norwegian capital markets have been and continue to be attractive and a widely used sources of equity and debt funding for shipping and offshore companies from around the globe.
This is to a large extent due to the high industry knowledge among the participants in the market and their ability to deliver tailor made solutions for the company or project in need of capital. For the shipping sector where both regulatory requirements and public perception of the industry is driving a development towards a more environmentally sustainable business model, the Norwegian equity and debt markets could provide good opportunities for green funding.
Norwegian Equity Market
The Norwegian equity market has several features that allow very efficient transactions and fund raisings. Specific projects and transactions can get access to capital through a private placement structure with slim documentation and a working over-the-counter-market giving initial liquidity to shares. Oslo Stock Exchange is furthermore only surpassed by the New York Stock Exchange as the global market place for shipping companies, and offers efficient listing processes compliant with the EU regulatory regime.
Several shipping companies have recently completed transactions in the Norwegian equity markets to support their green investments. Examples include ADS Crude Carriers’ equity offering for acquisition of four VLCCs being fitted with scrubbers, Okeanis Eco Tankers’ private placement related to its newbuilding program for eight crude tankers fitted with scrubbers and Hunter Group’s listing on Oslo Axess and equity raises related to its newbuilding program for seven VLCCs fitted with scrubbers. We are currently working on and expect to see several other transactions connected with the shipping industry’s preparation for reduction of the global sulphur cap to 0.5 % on 1 January 2020, as well as other green investments within the industry.
Norwegian Bond Market
Green Bonds has recently become more widespread in the Norwegian bond market, both in terms of overall volume and the sectors using Green Bonds as a source of funding. In 2015 the Oslo Børs became the first stock exchange in the world with a separate list for Green Bonds. The purpose of the list was to increase the visibility of green investment choices and it currently features 16 issuers.
Regardless, the use of Green Bonds is a new development in the shipping industry. In May 2018, shipping giant NYK issued a USD92 million Green Bond, the first ever in the industry. The proceeds were used to fund, inter alia, LNG-fueled ships, LNG bunkering vessels, ballast water treatment equipment, and SOx scrubber systems. NYK communicated to the market in connection with the transaction that it would participate in a shipping industry working group to be established by the Climate Bonds Initiative (an international non-profit organisation working for climate change solutions) with the purpose of formulating evaluation criteria for Green Bonds issued by shipping companies.
A company committing to a green feature in its debt instruments will likely have some increased costs relating to monitoring and reporting on use of proceeds. On the other hand, the issuer will be able to market its green profile and potentially diversify their investor base as there are specialised funds investing only in green funding.
According to a recent report by DNB Markets, it is currently difficult to document a lower credit margin on Green Bonds compared to non-green bonds in the Nordic bond markets, meaning that a Green Bond currently does not provide cheaper funding. However, with investors with over USD45 trillion under management having made public commitments to environmentally responsible investments, this may change over time.
A Green Bond is a bond where the proceeds are used exclusively to finance a project with clear environmental benefits. Issuers accept, inter alia, to document and report on use of proceeds and it is recommended that a third party is engaged to verify the “greenness” of the bond.
Sources: DNB Markets, Climate Bond Initiative, International Capital Markets Association – Green Bonds Principles.