YACHTING NEWS

Marine finance: casting off the capital in superyachts

Superyachts are an iconic statement of wealth and privilege, but even the richest of the super rich will think very carefully before investing tens of millions in their luxurious floating getaway.Nigel Ash reports.

Marine-Finance1000

The modern superyacht is increasingly a style statement, with exclusive suppliers taking on the shape, the interiors awarded to separate design houses and only the blueprints for the hull drawn up by traditional naval architects.

Roman Abramovich is believed to have paid around US$1.2 billion by the time he took delivery of M/V ECLIPSE from Germany’s Blohm + Voss yard in December 2010. At 163.5m (537ft), it is the world’s largest private motor yacht. It is also a devastatingly sleek and attractive vessel which some have called a “floating work of art”. By contrast, SHAMARA, the 64m (210ft) superyacht of the UK’s post-war celebrity industrialist Sir Bernard Docker, cost him US$1.3 million in 1950s dollars and had all the exterior style and functionality of a cross-Channel ferry.

Nevertheless, however wealthy the person who buys a new or pre-owned superyacht, or decides to refit an existing vessel, there are good arguments to avoid locking in substantial sums of capital in an asset that will almost certainly depreciate, whatever the economic climate.

 

Funding options

Consequently, very few individuals fund their new floating holiday home directly. The 36-month average for a new-build, from signature to delivery, means that the earmarked funds are earning little or nothing. Superyachts are typically classed as costing US$10 million upwards and whilst financing an acquisition with bank money may add to a vessel’s final price, it avoids the opportunity cost that will almost certainly arise from having money welded into a superyacht project.

A classic funding route is via a yacht broker, who often provides other pre-sale products such as surveying, insurance and legal services. That loan would then be sold on to a bank. With European superyachts, however, yacht broker finance is rare and owners go directly to their bank.

By and large, bank finance for these vessels has come with extra strings attached. Funding a superyacht purchase has generally been included as part of a wider wealth management portfolio, which the client would also be expected to invest in. Pre-crisis, a few financial institutions set up stand-alone superyacht finance units, as sprats to catch the mackerel of other business. However most have since closed down or integrated these discrete operations with the rest of their wealth management operations.

Roman Abramovich

The personal touch

One exception is Merrill Lynch International Bank, where Victoria Riding, from the international credit and banking division, maintains that clients can really benefit from a dedicated marine finance product. Although Merrill Lynch does offer the yacht finance product as part of an overall wealth management relationship, they have the edge over many other banks, in that marine finance is structured by a banking team with expertise in the building, refitting, purchasing and running of superyachts.

Riding herself is qualified to speak, since she was instrumental in the development of one of the very first dedicated superyacht finance products to be offered in the market. This was back in 2002, when she was working for Ansbacher and Co.

 

"The client becomes directly involved early on because superyachts are highly personal assets"

 

“Some of the banks that have come in to the market offering yacht finance from their wealth management platforms are asking for a lot”, she says, “to the extent that the yacht becomes almost irrelevant and the financing becomes almost unrecognisable as yacht finance. Most of these clients do not need to borrow and as such, they are reluctant to commit a significant portion of the rest of their wealth in order to release equity from the yacht. It just doesn’t make sense for them.”

The great majority of Riding’s work is financing new builds or purchases of pre-owned vessels for individuals who actually already own superyachts. This might include bridging finance while the first vessel is being sold. During the initial stages of a deal, she might be approached by the Family Office or another representative, but the client tends to become directly involved early on because, as Riding points out, superyachts are highly personal assets.

In spite of the volatile economy, the superyacht industry benefits from lifestyle appeal and judging from this season’s gatherings of immaculate new vessels, the prestigious European superyacht yards appear to have plenty of business with healthy order books. The real pressure has been felt in the sub-35m end, where many yards have been offering deals. There has also been a growth in the stock of second-hand superyachts and a consequential rise in relative bargains.

With regard to new builds, Riding says that she has a select list of approved yards with which she will work. Having the bank involved can give added comfort to the client. Funds are only released as contracted stages of the build are reached and the work is signed off by the bank’s surveyor. Equally, if there are delays that trigger penalties, the bank holds the paper trail for the client.

 

The connection network

The banking partnership can be especially useful for an ultra high net worth individual acquiring their first superyacht. Riding points out that her people can connect a client to a wide, tried-and-tested range of other professionals from lawyers and fiduciary experts to underwriters and yacht management companies, the last of which can help victual and run a boat, including finding excellent crews, who remain at a premium.

Superyacht owners know they sail in an exclusive and rarified world, and the vessels in which they travel are reflections of their personality. It is not simply the financial investment that keeps these exquisite vessels at sea. There is a large cast of support staff, crewing, provisioning, fuelling, insuring, surveying and maintaining the boat.

“People who can afford to buy and run their own superyacht, patently don’t need to borrow against the vessel,” says Riding, “but sometimes releasing the capital invested in a superyacht can make strong financial sense.” 


Further details
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W: www.ml.com 
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E: emeawealthmanagement@ml.com