Valuation And Application Of Shipping Financial Lease

The international shipping market is a derived demand frominternational trade. The business cycle of global shipping market has highcorrelation with the world economy. Shipping industry is acapital-intensive industry which is highly correlated with the internationalfinancial markets. Shipping finance includes new vessel investment,freight collection and settlement, insurance and derivatives. Vesselinvestment weights the largest proportion of ship financing.With the slowdown in global economic growth, as well as the Europeandebt crisis intensified in2011, the shipping market is facing severechallenges. Most shipping companies’ annual reports show huge loss.The most important index of shipping market, BDI index, hits a recordlow.Shipping finance market’s environment of2011continued the trend ofprior years. Financial institutions keep control the risk by shortening theterm of the loan and reducing the proportion of loans. European financialinstitutions are major source of funding of ship financing. Those major ship finance banks in Europe hold lot of European debt loans, theirliquidity and core capital ratio are affected. The Euro sovereign debtcrisis is worsening and cause great constraints on the new loan. While thecrisis faced by the European bank create opportunities to China banks toparticipate in international shipping finance markets.This paper first discusses the composition of the shipping market, and theshipping market supply and demand analysis. The second chapterdescribes the concept, characteristics and risks associated with financiallease. On this basis, the article highlights the main mode of internationalshipping finance leasing business, advantages, and challenges in the crisisand future development. The third chapter analysis the main features ofinvestment, risks and valuation model for financial leasing in shippingindustry from the perspective of investors.The last chapter of the article focus on the case analysis and applicationof financial lease in China shipping market. The finance lease caseintroduces project participants, financing structure, operational costs,analyze the future cash flows, and calculate IRR of the project. Then thearticle further explore constrains caused by financial institutions,government policy, experts and future opportunities and development ofChina’s shipping finance.