STATE FINANCING AGENCY GIVES THE AGING NATIONAL FLEET A NEW LEASE ON LIFE

RACHMAN PASHA President Director of Pann Multi Finance

The majority state-owned ship financing and leasing company, Pann Multi Finance, has been in the business of renewing Indonesia’s all-important maritime fleet ever since it started business in 1974.
A World Bank study had revealed that most of the national fleet was obsolete and needed to be replaced – and the key obstacle to achieving that was finding the financing in a world where commercial banks were reluctant to get too deeply involved in the volatile world of shipping.
In addition, the Indonesian shipping industry was far from strong and did not have the financial resources to carry the cost of building and buying new ships. The answer, says Pann Multi Finance President Director Rachman Pasha, was financial leasing. “We started by buying a second-hand vessel and leasing it to a shipping company,” he says.

Since then, the company has financed the purchase of about 175 ships, equivalent to between 30 and 35 percent of the national fleet. Just over a third of those ships are owned by Pann Multi Finance and are leased out to shipping companies. Ownership of the others has been gradually transferred from Pann Multi Finance to the shipping operators.
“They have an option to buy after the first half of the leasing period,” Mr. Pasha explains. “If they want to buy the ship, they will pay us every month for a certain period, and by the end of that period they will become the owner.”

SINCE 1974, the company has financed the purchase of some 175 ships.

Lease terms usually depend on the age of the vessel and the conditions attached to the finance raised by Pann Multi Finance. Most ship purchases by the company are made at the request of shipping companies after Pann Multi Finance has carried out an assessment of whether a leasing deal would be profitable.
In theory, at least, a shipping company could go directly to the market and buy a second-hand vessel from an existing owner, but most choose to use Pann Multi Finance’s services. “We know about ships and we have the expertise,” says Mr. Pasha.
“Most of our people here are specialists in economics or finance, or they are shipping engineers. We have connections with brokers in Europe, Japan and elsewhere, and that is why they come to us.” And, he suggests, the shipping companies could end up paying a bit more on a direct deal than they would by leasing and then buying a ship from his company.

Pann Multi Finance has branched out into non-shipping business, including the recent purchase of 10 aircraft, which it purchased from Lufthansa which it leases out to Indonesian carriers, accounting for about a fifth of the company’s total business. Other non-maritime activities include a small chain of hotels and truck leasing. The company is also involved in leasing and selling a fleet of fishing vessels under a mandate from the government.
However, Mr. Pasha adds that the company has decided to get “back to basics” and to concentrate on ship leasing, and is planning a substantial capital spending program. “We want to become a big, international company in the future,” he says.
Pann Multi Finance is currently 93 percent owned by the government with an Indonesian bank holding the other seven percent, but there are proposals to seek a foreign investor as a partner to help finance the investment plan.

“We expect to have direct investment in the future, and are now trying to restructure the company,” says Mr. Pasha. “After that, we can sell our company to foreign investors, and possibly sell shares to the public.”
Whether or not it is transferred to private, and most likely foreign, ownership or remains in state hands, Pann Multi Finance appears to have a viable future at the center of Indonesia’s maritime sector.
Shipping is crucial to this nation of around 220 million people spread across numerous islands, says Mr. Pasha. “We support the shipping sector, and it creates trade and jobs for the people. We are only part of the whole activity,” he adds.
“We have the demand, and shipping will always be needed because commodities have to be transported. In addition, a ship can be used for about 25 years, and after that it has to be renewed, so there will always be a need for ships. We have a secure market.”