Japan Update: As the Clock Continues Ticking

As we continue to edge towards the end of the Japanese financial year in March 2024, traditional Japanese owners are feeling more of an urge to start re-investing their earnings in 2023. However, there remains a lack of investment opportunities in both the time-charter business (via newbuildings and second-hand ships) and sale-and-leaseback (“SLB”) projects across the board.

The physical time-charter market for bulkers has remained subdued despite being halfway into the fourth quarter, which has been a seasonally stronger market compared to the other quarters of the year.

On the flip side, newbuilding prices have been resilient in the face of a stacked forward orderbook into 2027, yet somewhat maintaining a healthy level of newbuilding enquiries.

There is no lack of appetite for project time-charters. In fact, we witness time-charter duration on the bids increasing to 8-9 years from the ‘standard’ 5. That said, it is still proving difficult for owners to make sense of the charter levels for such long tenures to justify placing newbuilding orders at the current price levels.

Besides the lull in project time-charter business, there has also been a slowdown in SLB financing enquiries from abroad. Foreign owners are sitting on cash which they are happy to deploy in paying down debt as opposed to increasing leverage in the prevailing high interest rates environment. The interest in US dollar financing in Japan has therefore shifted towards long-term fixed rate structures, which is difficult for owners to hedge given the uncertainty in the long-term interest rate environment. Existing floating rate SLB enquiries of late generally comprise of either firm sector assets (in gas, crude, product, PCC’s) where owners look to ‘cash out’ in a good market, or dry borrowers whose credit are challenging for owners to assess.

Furthermore, due to the cash generative dry market in the years leading up to the current one, the confidence of traditional lenders in the shipping market has been somewhat rejuvenated to a fair extent. This has resulted in Owners facing more competition with the resurgence of traditional funding sources in both Europe and Asia.

It is also interesting to note that in response to the declining availability of financing needs within Japan due to the tough investment climate, regional Japanese banks have started to diversify their lending base overseas. Such banks have made moves to set up regional offices in hopes of widening their global reach to foreign borrowers. To date, there are numerous Japanese regional banks who have achieved remarkable success in doing so.

In most recent times, it is also reported that Hiroshima Bank, having already set up representative offices in Thailand (Bangkok), China (Shanghai) and Vietnam (Hanoi), will set up a representative office in Singapore targeting to provide advisory and support to maritime companies in the robust shipping community.

As the investing and lending climate continue to evolve, it is necessary for Japanese owners to remain agile and creative to venture beyond the traditional investment opportunities available in Japan.

Whilst this may be easier said than done, it is becoming more of a necessity considering the tax system in place that puts a yearly clock on owners to re-invest their earnings. It’s either that or face hefty taxes – proverbially caught in a rock and a hard place.

By Eugene Quek, Partner & Head of Projects in Japan, SSY