Video - Expert Views: The super-yacht market
Expert Views: The super-yacht market
A super yacht or mega yacht is a large and luxurious pleasure vessel. There is no official or agreed-upon definitions for such yachts, but these terms are regularly used to describe professionally crewed motor or sailing yachts ranging from 40 to more than 180 metres in length. The super-yacht market is not well known and is generally the preserve of a limited number of ultra-rich individuals seeking to spend unforgettable relaxing moments with their family or friends in an exclusive setting combining intimacy, comfort and the possibility of travelling without constraints.
There are two ways of using super yachts, and each has its own legal and fiscal consequences for the yacht’s owner:
Private use, where the owner personally enjoys and benefits from their yacht.
“Business” use, where the owner charters out the yacht, notably to mitigate running costs.
The cost of a luxury yacht depends on its equipment and configuration, its amenities and its engine, for example. The reputation and expertise of the shipyard also has an impact on the price. A luxury yacht budget can be in the tens of millions of euros, and its running costs (maintenance, crew, insurance, fuel, port fees) total around 5 to 10 % of the purchase price every year. The assistance of technical, legal and financial experts is therefore essential for a project such as this at every step of the acquisition or construction process. It is both an investment project and a passion for our clients, but it needs to be a sound purchasing decision.
How to acquire and finance a super yacht?
The acquisition of a super yacht is a major project. The financing of this specialised asset must be carried out under attractive conditions ultimately enabling you to optimise your debt/equity ratio.
There are various types of financing:
Financing from the very first steps of the yacht’s construction
Financing of a new yacht on delivery or of a second-hand yacht
Refinancing of the super yacht’s market value, which allows the owner to borrow a certain amount in agreement with the bank and thus to generate liquidity, based on an appraisal of the yacht’s value and taking into consideration its depreciation over time.
The possible loan structure consists in taking out an amortising loan with a balloon payment (larger final reimbursement payment), in euros or US dollars, with fixed or floating interest rates. The support of the bank and its teams of experts is essential for the project to go smoothly: for example, the presence of the purchaser’s bank at the shipyard, from the yacht’s construction through to its delivery, will ensure that each key step is properly followed. Indeed, the future owner will have to make sure they are able to benefit from the expertise and supervision of a dedicated team with and extensive track record in financing on the super-yacht market. Maritime industry experts will also have to be commissioned by the bank in agreement with the client to supervise each step of the acquisition and construction process. This includes professionals intervening on technical aspects, legal and tax experts as well as lawyers. Lastly, rigorous monitoring is undertaken by the bank throughout the duration of the financing, notably via a systematic analysis of the yacht’s insurance policies and the correct renewal of its administrative documents, but also to control its proper maintenance and its market value.
Super yachts and the environment: a key issue for the future
Today, the maritime industry – and notably shipping (i.e. commercial maritime transport activity) – are controversial sectors because of the high social and environmental stakes throughout the yacht’s life cycle:
During the construction phase, with the shipyard’s environmental impacts taking into account the supply chain of the materials used (wood, plastic, etc.)
During the yacht’s use, of course, with the risk of marine pollution and the emissions of greenhouse gases from yachts with a combustion engine.
And, lastly, during its destruction phase at the end of its life.
Aware of the reputational risk of these social and environmental aspects, the luxury yachting sector has anticipated clients’ demands and given itself the means to limit its negative impacts, helped by an increasingly stringent regulatory framework. We could, for example, mention the energy efficiency design index, better known as EEDI, granted during the design and delivery phase, which required ships commissioned after 1 January 2013 to meet certain requirements in terms of using less polluting materials and consuming less fuel. Another example is the ship energy efficiency management plan, or SEEMP, which provides guidelines to help improve ships’ efficiency during their lives, notably with regard to reducing their environmental impact and running costs. As well as complying with applicable regulations, many projects currently underway or already delivered prefer increasingly innovative and ecologically responsible designs or engines with less polluting means of propulsion, enabling some yachts to use 30% less fuel than a yacht with a conventional engine of a similar size. Thanks to technical developments, yacht’s roofs almost all now have solar panels that meet a substantial portion of the boat’s energy needs. Lastly, the increasingly popular fully electric or hybrid boat market is likely to see rapid growth due to future restrictive measures, notably with regard to greenhouse gas emissions.
Societe Generale Private Banking’s support
The Societe Generale Private Banking super-yacht financing team in Monaco can intercede as soon as you start thinking about your construction project. Indeed, we have been working with numerous yachting industry experts for more than a decade, and can thus accompany you and put you in contact with professionals who have acknowledged skills in this field, as long as your yacht is at least 40 metres in length and built in European shipyards recognised on the market. If you are interested and would like more information, please feel free to contact Societe Generale Private Banking.