12 November 2009

DOHA: QInvest, Qatar's largest investment bank and Fortis Bank Nederland have joined force to launch a Shariah compliant mezzanine fund targeting financing opportunities in the marine transportation industry.

Each party committed $50m to the QInvest-Fortis Bank Nederland Shipping Fund (the Fund), making it the world's first Shariah compliant ship financing fund.

The proposed Fund aims to raise $ 200m and will target mezzanine investment opportunities in deep sea vessels. The Fund has an average life of 5 years and seeks to benefit from the down cycle of the shipping industry through an extended investment period of around 18 months.

With a target of an internal rate of return of 15 percent, the Fund will also have a principle repayment component of 5 percent.

QInvest CEO Shahzad Shahbaz said that the remaining $100m will be raised from institutions or high network individuals in the GCC region.

"We feel that given the investment proposition, given the structure of this fund and the potential returns, there should be good demand for it," he told reporters at the agreement signing ceremony of the joint venture between QInvest and Fortis Bank Nederland here yesterday.

Harris Antoniou, CEO of the Energy, Commodities and Transporation division at Fortis Bank Nederland said: "The mezzanine Fund is a good idea now because we are close to the bottom of the shipping cycle. Shipping has always been a cyclical business with boom and bust times."

"Now due to the worldwide crisis, we are going through a period of a very week market which was anticipated already even before the crisis simply because of the cyclical nature of the shipping business."

He added that the global trade was reduced by 30 percent last year and shipping was one of the sectors that were hard hit. However, in the longer term prospects for shipping are quite good.

There is huge requirement for capital in the shipping industry because there is a large order book of new ships to be delivered. There is a large part of which still needs to be financed, said Antoniou. "Going forward we will need substantial amount from outside the banking sector," he said.

Gust Biespoek, Head of Global Transporation at Fortis Nederland pointed out that the international banking community that has been traditionally active in shipping finance for a number of reasons, has become more conservative.

As a result a funding gap has emerged between senior debt and pure equity which up to a year and a half ago would have been funded by the senior debt portion provided by banks.

"But it is not the case anymore so there is room in the capital structure which we call the mezzanine." He added that the Fund is a unique product in the international finance and an innovative solution to come up to feel this gap.

He said there will be certain limits of financing for each of the main shipping sectors like tankers, containers ships and dock areas so as not to create any overemphasis on any of the individual sectors so as to create maximum possible diversification within the shipping market.

By Nasser Al Harthy

© The peninsula 2009