News / GCMD and banks launch financial help to end ship retrofit inertia

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Amid regulatory uncertainty following delay at IMO, Singapore’s Global Centre for Maritime Decarbonisation (GCMD) is launching a new fund to finance ship retrofits, enabling an improvement of service for the existing fleet.

Together with Singapore-based fund manager AIM Horizon Investments and several banks, GCMD has started the Fund for Energy Efficiency Technologies (FEET), which offers 100% upfront financing for a given retrofit installation.

Shipowners repay on a ‘pay-as-you-save’ basis, with amounts pegged to fuel economy improvements and regulatory cost reductions, making efforts to invest in and improve existing vessels more attractive in practice.

Currently standing at $35m, GCMD plans to scale up the fund to $500m by 2030.

Retrofits can lead to impressive performance gains, sometimes even halving fuel consumption on some vessel types, and any serious decarbonisation effort will necessarily involve altering the existing fleet.

But it is notoriously difficult to secure financing for existing vessels. On the sidelines of London International Shipping Week, one banker told The Loadstar the entire structure of ship finance would need to be changed.

“A retrofit … becomes part of the senior mortgage for the lender, meaning your existing bank needs to extend extra financing… which if you’re talking about anything more than half a million dollars, the banks aren’t going to bother with,” said Nikos Petrakakos, managing director of investment manager Tufton. “To say you can finance different parts you install on a ship, separately… would change the way every single lending document is done.”

Mærsk’s recent move to offer part-financing for retrofits on its chartered-in vessels was one measure to improve matters.

Now it is joined by GCMD, which is, likewise, sidestepping financing challenges with unsecured leases that decouple retrofit financing from ship mortgages.

Hardware, such as fins and ducts, sails, bulbous bows, are technically leased to the shipowner. At the end of the lease, the asset is transferred to the shipowner for a nominal fee, by which time the retrofit has paid back its installation costs many times over.

“It has taken a huge collective effort to create a solution that immediately reduces carbon emissions and has competitive economics that will enable it to really scale,” said Michiel Muller, partner at AIM Horizon & FPG AIM. “In GCMD, we have found a like-minded partner whose professional and scientific approach has impressed us since the start, and it was an opportunity to further expand our long-standing relationships with DBJ, ING, and DBS Bank.”

“The higher-tech things, like wind-assisted propulsion and air lubrication, are not as well-adopted,” said GCMD CEO Lynn Loo. “It’s really important to adopt these to save fuel today… and in the future. The fuel of the future is significantly lower in energy density; you want to be as efficient as possible per unit of fuel you’re using.

Ms Loo told The Loadstar that the outcome at the IMO was disappointing but not unexpected; and that shipping would almost certainly not meet the ambitious target of decarbonising before 2050.

However, she confirmed that to decarbonise would be essential in meeting the demands of shipping’s customers.

“Shipping is such an integral part of the global supply chain. Nike can’t sell you a pair of zero-carbon shoes if shipping doesn’t decarbonise,” she said.