Wolffkran boss says funding a critical area
Funding for tower crane purchases will be even harder to receive on favourable terms due to the new Basel III banking regulations, Wolffkran CEO Peter Schiefer told the International Tower Cranes conference in Berlin, organised by KHL Group.
The Berlin conference, held in early November, was a chance for manufacturers to talk in depth to major tower crane customers, and Schiefer took the opportunity to talk about tower crane financing, which he said was a topic which has increasingly been discussed by the Committee for European Construction Equipment (CECE)’s tower crane division.
Schiefer, who heads up the CECE’s tower crane group, is also the operator of one of the largest tower crane rental fleets in Europe. He has ample experience in the finance industry, having worked as a merchant banker and in private equity, before purchasing Wolffkran with the partner of his capital management firm in 2005.
Obtaining finance to purchase a tower crane can be a difficult process, since the financing company does not have a solid asset, but rather they are financing multiple sections of mast, jib, hoists and rope, which over their working life can be reassembled in many different cranes, said Schiefer. Compared with a mobile crane, which has a road licence and is a single unit, this presents problems for banks and financiers.
The situation has not been helped by a few unscrupulous companies, prior to the financial downturn, who borrowed money on tower cranes, and then when the company folded, it was found that the cranes had been sold.
Schiefer said it was important to stress that new banking regulations, Basel III, will make the situation even worse, because there are higher asset requirements for lenders. While a tower crane typically has a working life from 10-25 years, most owners will aim to pay it off over the first 5-10 years of its life. But securing financing for terms this long is a problem, said Schiefer, and fleet owners may be forced to resort to ‘balloon financing’, where the crane is financed for four years, and then refinanced when this term ends.
Balloon financing is a problem because interest rates can rise significantly during the period of the initial loan, meaning that when it’s time to refinance the interest costs will be a lot higher – in short it injects a significant element of risk into the balance sheets.
In light of the new banking regulations, Schiefer said that fleet owners should look at taking a number of steps in order to receive longer-term financing for tower cranes. These include educating banks and lenders that tower cranes will continue to produce revenue across their entire working life, which is normally at least 15 years; implementing a robust inventory management system so that banks can be confident that the items they’re lending on are easily trackable; discussing the impact of proper maintenance of equipment on working life and residual value; and highlighting to lenders that tower cranes are almost never the target of theft, since stealing a tower crane is highly impractical.
Efforts from Wolffkran on its rental fleet in Europe have included barcode inventorising for the major items in the rental fleet. In total, noted Schiefer, they have more than 20,000 individual components in their fleet.