As yachts get bigger, finding the right financial solution
becomes even more complex. Russell Davies reports
Go deeper with GlobalData
“Let me tell you about the very rich,” the American novelist F
Scott Fitzgerald once wrote. “They are different from you and me.”
To which his fellow writer, Ernest Hemingway, responded: “Yes, they
have more money.” Nowhere is this difference captured better than
in the yacht market, or more specifically in the superyacht
market.
Certain things differentiate the superyacht market. For example,
when it comes to financing, it is efficiency not need that is the
determining factor. While most yacht purchasers do not actually
need the finance – they can usually dip into their own resources –
many still decide to use borrow. Paul Fowkes, director of corporate
jets and superyachts at Barclays Asset and Sales Finance, asks why
would someone spend £80m of their own money when they could inject
far less into the purchase, buy the yacht over a 10 year term,
knowing it is going to be sold after five, and invest the surplus
elsewhere?
Then there is the question of the value of the asset and its
depreciation. This marks a difference between the very rich and the
rest in the yacht market itself. A good quality superyacht is not
likely to lose any money. Fowkes says that he saw used yachts at
the Monaco boat show in September that had prices in excess of the
original contract purchase price. This is not the case for the
smaller end of the market, however. Fowkes makes an analogy with
corporate aviation’s relation to commercial aviation. Both these
markets move in different ways. Buy a Boeing 767 and it will
depreciate straight away, but the value of a Gulf Stream 550 will
be maintained.
The wealth of the wealthy continues to grow – 11.4 per cent in
2006, according to Capgemini’s World Wealth Report 2007 – and
this is reflected in the yacht market. The whole market – but
especially the superyacht market – has experienced incredible
growth over the last 20 years, says Alex McBarnet, director of the
yacht and aircraft group at Fortis
Intertrust. Demand is far exceeding supply. “The yacht industry is
struggling to keep up with this ever increasing demand,” he says,
“with more and more companies being set up or entering the market
and with yards developing greater production capacity.” Most
estimates currently suggest that the order books of the yacht
manufacturers are full up to 2012 or 2013 in the superyacht market
and even at the smaller end yards are booked solid up until 2010,
according to Remco Immink, founding partner of yacht finance
specialists, Ciris Capital.
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By GlobalDataGrowing in size
It is also the case that yachts are getting bigger and bigger.
At the top end of the yacht market size does matter. Immink makes
the point that when he first became involved in yacht finance
around 12 years ago the definition of a superyacht was a vessel
over 24 metres. A couple of years ago anything between 30 and 40
metres was considered large. “But if you go to the Monaco boat show
now with a 40 metre yacht, it’s a small one,” he says, “because the
really big boats are between 70 and 90 metres.”
And they are getting bigger. Rumours put Roman Abramovich’s
latest yacht at more than 175 metres and it has been reported that
Larry Ellison, CEO of Oracle
Corporation, had his yacht increased in size during the
construction phase so that he could trump his Microsoft rival, Paul
Allen. Then there are the toys, such as the Gibbs Quadski which is
an all-terrain vehicle that can be used as easily on water as it
can on land. Nor is any superyacht complete without its own
submarine or helicopter and, as the market continues to grow, there
are new developments in the types of yacht becoming available. One
such area is large semi-custom built yachts, according to McBarnet.
“This provides large yachts at lower prices and with short delivery
times.”
Insufficient data
But it is also a secretive world. While a yacht clearly
signifies a certain status on the part of the owner, not all these
owners want to talk about their boats. There is a certain
non-ostentatious ostentation going on here. But this reticence
means that there is little of the information that is available in
the corporate jet market, such as historic annual production
figures or future construction, which makes it difficult to assess
just how big a market this is. Fowkes estimates that in the
superyacht market deliveries over the next three years amount to
about £10bn, so that effectively is the size of the market. That is
not the level of information that most financiers and analysts
would like, but the statistical detail is likely to develop as more
banks and financial institutions come into the market.
Indeed, financiers are becoming more active. Not long ago
financial institutions shied away from financing large yachts,
especially those in structured ownership. “With the huge rise in
disposable wealth and the consequent growth in the yacht market,
financial institutions have woken up to it,” says McBarnet. Leasing
plays its part here, says Olivier Borgerhoff, head of yacht finance
at Fortis Lease
Group. “Leasing is one of the ideas that prospective owners
look into after choosing a yacht and the decision as to lease or
buy will be affected by their personal tax position and the degree
to which they intend to charter the yacht to other users.” Having
said that, its superyacht deals are financed through mortgage
finance, although it does offer the Italian lease scheme through
Fortis Lease SpA, its Italian subsidiary.
UK Yacht Leasing
In the UK it is the marine mortgage that dominates financing in
the yacht market, with Barclays, Bank of
Scotland and HSBC all
offering this facility, whereas in France it is leasing. The French
lease system is open to anyone who can fulfil four criteria: one
must be resident in the EU, have a French bank account, and
contract the scheme through a French leasing company. Finally, the
boat must be registered under the French flag and comply with
French regulations, but only as long as the boat is being
leased.
Barclays has a dual focus on the yacht market. Barclays Marine
Finance focuses on the smaller end of the market – anything
requiring a facility under £10m – while its corporate jets &
superyachts team deals with anything over that figure. The
financing of large vessels is normally done through a special
purpose vehicle with a charge over the shares of that SPV, a
mortgage over the yacht, and a guarantee from the borrower, whether
it is a corporate or high net worth individual.
Lessor points of view
Ciris Capital offers finance typically in the range of €150,000
to €50m, although it can go higher. Its bread and butter business
is on yachts up to about €10m. Its maximum term is 10 years and the
majority of its deals range between seven to 10 years, according to
Immink. Founded in 2002, Ciris also offers Italian lease facilities
through its Italian subsidiary, dealing with purchases of €500,000
and over.
Hypo
Alpe-Adria-Leasing operates in 12 central and eastern European
countries and it offers finance leases from €200,000 for the
purchase of yachts in a number of these countries. Most of the
boats it finances are registered in Austria, according to Stefan
Duller, a member of the management board, and most of the yachts
are financed over a term of three to five years, with an upfront
payment of around 20-30 per cent. Duller is also seeing a trend
towards larger yachts. Five to 10 years ago levels of finance of
€2m-€3m were not very common, but now this is typical of the deals
in this market. In financing the larger yachts – over about €10m –
a SPV is likely to be used with structured finance rather than a
finance lease.
Although Raiffeisen-Leasing
International is present in 15 central and eastern European
countries, it only offers yacht leasing through Raiffeisen Leasing
Croatia, which was established in 1999. It started to offer yacht
financing about four years ago and this is mainly done through both
finance and operating leases, and its clients are predominantly
SMEs and larger corporates. Dieter Scheidl, managing director of
Raiffeisen-Leasing International, says that the company works
closely with dealers in the country, although it does not have
formal vendor finance programmes with them. This is because each
deal is so individually structured it could not fit into a vendor
finance programme comparable with the car or equipment leasing
sectors.
He adds that the main barrier to growth in this market is the
lack of marinas on the Croatian coast. In particular, there is not
enough space to berth the boats. This lack of suitable space
manifests itself in another way in the superyacht market. As they
get bigger and bigger, it gets more difficult to get them into
certain ports, such as Monaco, for example. So there may be a limit
to the size a boat can go up to. But, as Immink points out, if you
have all that luxury on board in the first place, why would you
need to go into the port?
