Despite what the rumours have told and the newspapers written, it is starting to seem, that the third Oasis class or Oasis “type” ship is going to be built elsewhere than her sisters. The two first Oasis class ships were built in Turku, Finland. Now the situation seems, according to several sources, to be the following:
- STX Finland Oy’s equity level is not good enough for Finnish governmental guarantees
- STX France is capable to do the work
- STX France is partially owned by the French government
These three reasons might lead into contract, where STX and RCCL agree on building the vessel in France, where STX does not need to inject equity into shipyard, like they should do in Finland. After all, equity level is in shareholders’ responsibility, not government, unless it owns the company. Finish strategy in government ownership does not include ownership in shipyards. This is public knowledge.
Balance sheet 101
Why the equity level is so important? Well, equity level gives a very good and simple position to evaluate company’s own capital at the day it is valued. It contains share capital, sub-ordinated loans and other increases to own capital and the result of previous years. The latter is the reason to STX Finland’s bad equity level. Finnish governmental export guarantee company Finnvera’s rules require certain level of equity, which STX Finland Oy, the contractual counterpart ie the owner of Finnish shipyards, does not have. This would need injection to equity by STX group or a third party. In my opinion it is rather unlikely to find a third party, who would be interested in equity loan to STX unless a Russian investors create sudden interest but the time has basically ran out already.
STX Europe’s shipyard in France in Saint Nazaire is partially owned by French government. There is no equity problem then, and no controversial shipyard support paid to shipyard, because a government owned company is allowed equity injection if needed. This is not considered as illegal contribution in EU. RCCL has been in Saint Nazaire before and if STX Finland cannot guarantee the construction period, there is no other options. See the table for guarantees. The red indicates the guarantees needed from STX and the blue indicates the %-share of Finnveras share in guarantee process, if a ship is built in Finland. The percentage for Finnvera is 90%. The STX share is over 100% but according to my personal experience with banks, it is rather low these days. If a business wants a bank guarantee, it will have to have collateral at least 200% of the guaranteed value.
So, the news for Turku shipbuilding cluster might not be as good as expected but it is not the end of the world. With great references and a simple sales channel, France is not that far away.
UPDATE (15.12.2012): Local newspaper in Turku writes, that Finnvera’s availability to grant guarantees with higher risks has been risen on Friday 14.12.2012 by changing the law of export credits, which was reinforced in presidential committee . “If the competition environment, safeguarding Finnish employment and/or other important industrial policies require, Finnvera is allowed to give guarantees on more risky basis than earlier”, writes Turun Sanomat. There are no figures mentioned though. The changes allow the decision makers to use wider variety of tools when evaluating the risks and effects to industrial environment. The paper also states, that this does not change the situation with STX and RCCL orders. I have to disagree. It has been obvious for myself that governmental equity injection, which leads to governmental ownership of the shipyard is not the right toll to solve the problem today, it could something to consider when the dust has dispelled. However, this decision has definitely everything to do with the problem solving in STX Finland guarantee debate! The need of equity is related to own capital, which is related to guarantees , which represent 90% of the vessels value. The amount is so high, that the valid rules had required such a level of own capital that more equity would’ve been required from the owner of the STX Finland Oy. If and when the law has been changed, there is better possibilities to grant the guarantees on the basis, that “Finnvera trusts, that RCCL is going to pay the vessel and STX Finland Oy is able to build it”. That is what we need to keep in mind. Guarantees are not support. They are fiscal tools to create trustworthy and safe industrial environment! Now nobody cannot say, that Finnish government did not do anything to help. This is also legal procedure, as the change does not consider fiscal support but it considers guarantees and evaluation basis of them. This is what I call innovative negotiation and finance policy. 🙂