State guarantees State export financier Finnvera records loss of more than EUR 1 billion due to cruise ship guarantees

Turku Shipyard’s orders have not yet been canceled, but Finnvera is preparing for the fact that shipping companies that have ordered ships will not be able to repay the loan. The continuing problems in the sector would be felt in the figures for the entire national economy, says Pauli Heikkilä, CEO of Finnvera.

23.2. 13:00

State Last year, the export financier Finnvera’s result was a loss of almost EUR 1,200 million due to loan loss provisions made for export credit guarantee and special guarantee operations.

The Group’s final result was a loss of EUR 748 million, while EUR 349 ​​million of the losses were covered by the State Guarantee Fund.

Preliminary provisions were recorded in accordance with the accounting rules due to the deteriorating economic situation and the deteriorating situation of the customer industry, in practice cruise companies. Of the loss provisions, 1.1 billion are related to shipbuilding.

Provisions do not yet mean that the loans will result in final losses. So far, cruise companies have survived loan repayments and have managed to obtain new financing from the market.

Finnvera warned over the past year that its results would decline. The same rules apply to Finnvera as to other banks. As the outlook for the economy and customers deteriorates, credit losses are proactively prepared.

Managing director Pauli Heikkilän according to the corona pandemic hit the cruise ship industry very hard.

“Finnvera had to make large loan loss provisions totaling EUR 1.2 billion for export credit guarantee and special guarantee operations for 2020. 90 per cent of this relates to ships.”

Finnvera is a state – owned credit institution whose main task is to finance and guarantee the export projects of Finnish companies. It can finance other companies according to certain criteria.

Since the financial crisis of 2008, cruise ships have been traded with state-guaranteed loans, and in Finland the guarantees have been issued by Finnvera. Finnvera has EUR 4.4 billion worth of guarantees for ships that have already left Finland for the world’s seas. In addition, some EUR 7 billion in guarantees have been pledged for ships still under construction or on order.

In addition to Finland, large cruise ships are built only in Germany, France and Italy. In all countries that build cruise ships, government export credit agencies guarantee the purchase price of the ship, 80 percent of which is paid only when the ship is completed.

Should the shipping companies become insolvent, the banks could ask Finnvera for money.

Finnveran According to Heikkilä, most of the EUR 4.4 billion raised ship risk is related to the US Carnival Cruises and the US-German Tui Cruises, to which Meyer has delivered ships from Turku in recent years.

According to Heikkilä, Finnvera closely monitors the situation of shipping companies.

“Carnival is a listed company and the world’s largest cruise line. It has said it has raised large sums from the market for both equity and debt financing. Tui Cruises is a very important shipping company in Germany and in the entire German-speaking world, focusing on more expensive cruises, ”says Heikkilä.

According to him, US customers in particular are optimistic that people will go on a cruise again as soon as possible.

“The turnover of the industry has been cut to zero by official decisions, and it is quite clear that no company can endure it forever. The biggest unknown variable is the coronavirus, from which we do not know how the situation will develop. Fortunately, however, vaccinations are progressing. ”

For every EUR 1 billion cruise ship, about EUR 600 million will remain in Finland. Therefore, the significance of the fate of the industry for Finland is significant not only because of the guarantees given by Finnvera.

“The continuing problems in the sector would be reflected in the national economy figures,” says Heikkilä.

Meyer Turun according to the yard’s representative, the yard’s situation has not changed since the summer. Already in the summer, the German-owned shipyard said that it had negotiated an extension of the order schedule for the ships in the order backlog.

In practice, the yard is trying to save work, because new orders are unlikely to come right away. Cruise companies ordering ships are financially cramped due to the crisis.

The world’s cruise ships have been at anchor for virtually a year. Last summer, only a few cruises were run when the epidemic situation was temporarily a little better.

To the shipyard the good news is that orders have not been canceled. Their schedule is only slightly stretched. There are currently a total of six vessels in the order book.

They are scheduled to be built by 2026, when the schedule was originally a year earlier.

The Mardi Gras luxury cruise ship was handed over to Carnival Cruises during Christmas. The Costa Tuscany, to be built for Costa Cruises, was floated off the dry dock in January for final equipment. It will be handed over to the subscriber in the autumn.

Another ship for the Carnival, one ship for the Tui Cruises and three Icon ships for the Royal Caribbean are under construction.

The most worrying for the future is that there is no information on new orders. No one expects the cruise ship market to pick up in years to come. After the corona epidemic, cruise companies are in great financial difficulty, if they survive at all.

Many subcontractors also depend on the order book of the Turku shipyard.

The people of Turku Shipyard have been laid off throughout the year. In late summer, co-operation negotiations were launched at the yard, which resulted in a permanent reduction of a total of 250 employees. However, it is a relatively small amount compared to the number of people employed by the yard in recent years.

According to Meyer’s representative, there are 3,500 people at work in the shipyard area every day. There have been problems with corona infections, but workers are constantly being tested in the area and work has been able to continue.

Corona epidemic During the period, Finnvera has played an important role in financing not only exports but also small and medium-sized enterprises. Overall, the funding granted by Finnvera increased by 70 per cent to EUR 1.7 billion last year. The chapter includes all financing, including export credits granted.

Finnvera granted EUR 2.9 billion in export guarantees and special guarantees for large companies’ export transactions and EUR 1.1 billion in export credits. According to Finnvera, decisions on new large export projects decreased. At the end of the year, the liability portfolio of export guarantees and special guarantees for the Large Companies business was EUR 22.0 billion.

Correction at 13.20: Corrected in the second to last paragraph the word export guarantees as export credits.

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