Arnold Wu Co-Head of Transportation Sector

Investment Banking Asia-Pacific BNP Paribas

Recent Developments of Shipping Finance

Recent Developments of Shipping Finance

Basel III in focus

Shipyard and ship financing

Where is China in the ship demand cycle?

Development of International Maritime Centre in

Singapore, Hong Kong and Shanghai

How does Hong Kong continue to be the International

Maritime Centre?

• About BNP Paribas

Q &A Page 1

Basel III in focus

in response to the 2008-2009 crisis and bank's bankruptcy, regulators have set out a series of directives by way of the Basel Committee to harden bank regulations and therefore create bank's constraints to prevent new crisis

Page 2

Basel III regulations consider three indicators:

the capital of a bank the balance sheet total the liquidity

Basel III has set new standards for these three elements

three domains from the backbone of the new regulatory framework:

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Basel III in focus

solvency (capital buffer)

to absorb potential losses stricter definition higher hurdles

size (leverage)

to limit on growth of assets

liquidity (short term and long term) to ensure sufficient level of liquidity to withstand

potential flight of capital

liquidity balance

between the money the bank has (liabilities) and the granted loans (assets)

solvency balance

between the bank's equity (financial reserves) and the granted loans (assets)

liability (money) will be more expensive,

more selective management of granted loans

increase of the level of equity,

mobilize more capital to face assets (credits)

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Basel III in focus new regulations to reinforce:

reduction on Market Activities <limited Proprietary trading> + Lending

higher capital requirement

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Basel III implications

the Basel Committee met on 6 January 2013 to set the minimum liquidity requirements under Basel III

the Basel Committee has also decided to:

enlarge the basket of high quality liquid assets

adjust the method of calculating the LCR

ease the timetable for the LCR requirements be phased in progressively between 1 January 2015 and 1 January 2019

impact on banks:

lower returns on equity higher liquidity requirement

overall costs increase/lower return

reduced order

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Shipyard and Ship Financing - A Highly Capital Intensive Industry

shipyards require continuous influx of cash from new orders as well as bank loans to provide working capital for current building projects (purchase of raw materials and equipments)

shipyards are under stress from tightened cashflow: suspension of contracts/delay

cancellation

liquidity crisis amongst shipyards:

smaller/private: consolidation/collapse

stronger yards: support by government/local banks

shifting focus to high value contracts e.g. offshore upstream contract and LNG

Europe

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Shipyard and Ship Financing

shipyard financing is traditionally supported by local governments and local banks

amongst the top banks that lend to shipping, mostly are European banks with an aggregate loan portfolio accounting for over 80%

Asia

Mainland China

Republic of Korea

Japan

due to global financial crisis, increased capital adequacy regulations and the USD liquidity drought, banks are competing for dollars

"Too much policy-driven, easy to neglect other market factors, leaving many ships without owners”

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Where is China in the Ship Demand Circle?

over the last five years, banks and ship owners keep watching on political players shaping financing decisions

China's first LNG terminal, to be built across the border from Hong Kong in southern Guangdong province, is being almost entirely underwritten by Chinese banks. Beginning 2005, the terminal, the first of a projected three along the China coast, is slated to begin receiving LNG from Australia's Northwest Shelf delivered by transport franchise holders COSCO and China Merchants

China's banks were swimming in deeper pools of cash, "lending criteria is getting tougher." In short, they're very focused on big projects backed by the right people – like China's State Council backing LNG projects

Shipping : A highly cyclical and fragmented industry characterized by separation in many sectors with different business cycles

according to Salomon Smith Barney, Beijing aims to see natural gas account for 8% of China's energy consumption by 2010—up from 3% in 2001. Longer term, much of China's natural gas growth could be supported by pipes rather than by tankers. But then many are betting China will never have enough energy whatever its source—and any means of delivering it efficiently stand to grow far into the future

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Where is China in the Ship Demand Circle?

Chinese energy consumption

Chinese vessel demand

China's oil demand in 1996 was 3.7 million barrels a day, 4.2 million in '97 and 4.9 million in '01. In less than that time, seaborne oil imports will have nearly tripled—from 0.6 million barrels a day in 1998 to 1.6 million barrels this year

China – A planned economy vs market economy

China is expected to have as an LNG importer in the future, the build-up of their LNG processing capabilities in the transportation and receiving areas is extremely important, these projects in themselves are capital intensive and with 170,000 cubic-meter (CM) vessels now costing in the region of US$200 million each, a large pool of capital will be required

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Where is China in the Ship Demand Circle?

ship finance in China

that points to up to US$18 billion in finance requirements over the next 8 years. Such regular opportunities for large scale financings get bankers a little weak at the knees and certainly get their undivided attention

at the global picture, order book for LNG newbuilding stands at 7.3 million CM against current supply of 11.3 million CM: 128 ships in service and 65 on order

Hong Kong versus Singapore

Development of International Maritime Centre in Singapore, Hong Kong and Shanghai

shipping banks in Hong Kong: two French banks, BNP & Credit Agricole… Credit

Suisse, HSH.. Standard Chartered, HSBC, & local Chinese banks here in HK

shipping banks in Singapore:

there are many foreign banks involving in shipping, all the Norwegian, Germany, Japanese.. and local banks there doing shipping

shipping centre: physical (port throughput)

Hong Kong versus Shanghai

maritime centre: China (Shanghai) Pilot Free Trade Zone

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quality of legal firms

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How does Hong Kong continue to be the International Maritime Centre? – Critical Points

shipping is a very international industry, high quality of legal firms is critical from the very beginning process such as drafting contracts towards protecting owners in any disputes in maritime issues

juridical systems

law and order that people can rely on

London remains being the maritime centre not because of the number of ship owners but because the legal system, the arbitration system and etc.

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How does Hong Kong continue to be the International Maritime Centre? – Critical Points

cluster of maritime professionals – rich and strong business culture

people knows that this is the place they will get together

Singapore government is playing an active and positive role in attracting ship owners, and meanwhile, they invite banks to serve their clients

banks usually follow their clients

operating cost and living condition

low taxation environment

Leading International Bank with A Strong Presence in

Asia

BNP PARIBAS is an European leader in global banking & financial services

One of the largest international networks with operations in 75 countries and 185,000 employees

BNP Paribas Group has a well-balanced business model with strong retail banking activities, an important CIB division and investment solutions activities, coupled with strong fundamentals:

Core capital at 10.3% in 2013, 5 years ahead of the schedule (above Basel 3 framework of 9.0%)

Maintained profitability throughout the crisis: 2008 (EUR3bn), 2009 (EUR5.8bn), 2010 (EUR7.8bn), 2011 (EUR6.1bn), 2012 (EUR6.6bn) and 2013 (EUR 4.8bn).

BNP Paribas Group is a leader in financing the real economy, in particular in sectors such as energy, commodities, infrastructure and asset financing with global awards underlying strong fundamentals

BNP Paribas is among the world’s best rated banks (As of April 2014): S&P A+/ Moody’s A1/ Fitch A+

BNPP has received various awards for 2013 evidencing strong and diversified earning streams from all its business lines, client franchises and stringent risk policy culture and good cost control

S&P Credit Rating RABOBANK AA-

HSBC BANK AA-

ROYAL BANK OF CANADA AA-

WELLS FARGO AA-

BNP PARIBAS A+

JPMORGAN CHASE A+

BARCLAYS BANK A

CREDIT SUISSE A

DEUTSCHE BANK A

SOCIETE GENERALE A

UBS A

CREDIT AGRICOLE A

LLOYDS TSB BANK PLC A

COMMERZBANK A-

ROYAL BANK OF SCOTLAND A-

BANCO SANTANDER BBB

One of the Strongest Credit

GREATER CHINA 1860 INDIA 1860 JAPAN 1867 AUSTRALIA 1881 HONG KONG SAR 1958 SINGAPORE 1968 INDONESIA 1970 MALAYSIA 1974 PHILIPPINES 1975 SOUTH KOREA

Commitment to Asia-Pacific

Source: BNP Paribas

Up to 50 years of commitments to the shipping community starting in Hong Kong

2 regional hubs with Paris covering Europe, Russia and EMEA, and Hong Kong covering Asia Pacific, to ensure a global coverage of the industry

Supported by a global network through 75 countries where BNP Paribas maintains local coverage for a highly efficient service

Transportation Sector (Shipping & Offshore)

Hong Kong

Singapore

Norway France

Shipping & Offshore Desks Regional Shipping hubs

Global Shipping Expertise and Commitment in Ship Financing

The team works very closely with the broad BNP Paribas branch network spread all over Asia*, offering our clients an efficient contact point for any local support that they might require. There is also close liaison with other global shipping offices such as Paris, Athens and Oslo.

*Includes Japan, Korea, Mainland China, Taiwan, India, Indonesia, Malaysia, Philippines Thailand, Vietnam, Australia, etc….

In Asia Pacific, the Shipping & Offshore team is part of the Transportation Sector within Investment Banking APAC (“IB APAC”) and is organized over two poles covering the entire North, East and South Asian markets including Japan and Australia:

Hong Kong (11 staff): Regional Head Office covering Greater China and Japan, with fully integrated analyst and asset monitoring support teams

Singapore (7 staff): Regional satellite covering Southeast Asia, Korea and India

Asian Shipping & Offshore Finance Team

Greece

Japan

Vietnam Philippines

Mainland China

India

South Korea

Malaysia

Australia

Taiwan

Thailand

Hong Kong

Singapore Indonesia

Page 15

Q & A Thank you!

What do you think:

“Who will be the International Maritime Centre in Asia – Hong Kong, Singapore,

Shanghai or other port cities ?”

Recent Developments of Shipping Finance