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Financing in Marine Shipping Companies: Keppel Corporation

Updated: Aug 18, 2022

Financing in Marine Shipping Companies: Keppel Corporation

1. Introduction

The practice of shipping has been in existence for over 4000 years, and it started between Mesopotamia and Bahrain. Since then, shipping is experiencing constant change, and it is now distinct from the way it was 4000 years ago. The discovery of global sea routes has revolutionized shipping into one of the most preferred means of transport for bulky goods. Accessing capital is the epicenter of building any business in the world. Similarly, Shipping requires capital to smoothen its operations. Owing to the highly technologically vessels, it requires, shipping needs a substantial amount of investment capital. For this reason, there is need to research on efficient financial strategies for the marine shipping companies. This study aims to provide answers to the best ways of financing a shipping firm, notably, Keppel Corporation.

Keppel Corporation deals with business in the infrastructure industry, marine and offshore properties, and asset management. In such a company, knowledge about financing is a prerequisite for the creation of innovative services and products. Since it is an asset-based company, funding is a crucial factor for it to achieve its goals. Today, many ships are flagged out because having another flag on their decks. This challenge is unfortunate for the marine shipping company, and it affects the seafarers’ obligations and rights in the social, economic, and welfare aspect. Del Gaudio (2018) explains that how most shipping companies collapse due to financial hurdles hence this source and other credible authors was vital in my study. Research in the financing field may facilitate the growth of the shipping industry and assist companies like Keppel Corporation to operate without financial hurdles.

2. Literature Map

With reference to the Venn Diagrams in figure 1 and 2, there is a correlation between the different kinds of literature used in this paper. Rau and Spinler (2016) use the pecking order theory to explain the capital structure in the shipping industry. It provides empirical evidence on how the shipping companies can source capital for their investments. Their work is closely related to Borch and Solesvisk (2016), who researched the shipping industry in Norwegian. They highlight the various financial strategies that can be implemented by various shipping companies in their quest to carry out investments. Moreover, it highlights the differences between the different methods of financing. Later in the article, they explain the best financial strategy which combines the multiple advantages from the distinct sources of the marine shipping companies.

Another prominent financial analyst Del Gaudio (2018) examined ways in which the Italian shipping companies financed their operations. His work is useful in my research since it involves the financing mechanisms of small, medium-sized, and large companies such Keppel Corporation. The author highlights the merits and disadvantage of each method of financing based on Italian legal laws. There is an association between his work with Poulsen and Johnson’s work (2016) who state the major challenges facing shipping companies when trying to source for finances. Furthermore, they outline various ways to manage the expenses of a shipping company by cutting down costs regarding labor and energy consumption rates.

The static trade-off theory which was used to analyze the liquidity and solvency in the shipping companies by Yeo (2016). His work is vital in understanding the liquid assets in a shipping company. Besides that, it expounds the various financial activities which take place in a shipping company as well as how the shipping company can pay its debts if it has more assets than a liability. Zheng and Smith (2017) support Yeo’s work by examining China’s shipping company. After a thorough investigation, they provide corporate strategies which are essential when a marine shipping company wants offshore investments. Also, they give the regulations to be followed in case the company wants to venture into the European market. These regulations include labor laws and management structures.

In the logistics perspective, Shin et al. (2017) explain the finances which are involved in the shipping of goods. They propose that shipping companies should include into their budget all the operations which will be undertaken by the company. Additionally, they should ensure that there is a balance between income and expenditure to enable the company to make profits. Their research is interrelated with Grammenos and Choi (1999) who studied the logistics of a Greek shipping company. They came up with a report showing all the expenses incurred by the company regarding transportation of goods. Also, they illustrated the different fees and taxes charged in various countries. Grammenos and Choi’s work enables an individual to understand that the marine shipping field is extensive and a company should be able to adapt to any environment.

Stokes (1997) explains the credit procedure involved in shipping finance. He explains what the company can offer to a credit company to qualify for large loans as well as how a shipping company can maintain a good credit history. His work is supported by Cheng (1979) who explains how a shipping company can manage its finances. He provides a management hierarchy stating that it is essential for a marine company to have a financial department. Albertijn and Drobetz (2011) further highlight the shipping finance operations through the Miller and Modigliani's proposition theories while Brooks (1985) explains how the approach can work in real shipping operations. The research methodologies of Yeo and Albertijn with Drobetz are the one used majorly in this paper.

2.1 Venn Diagrams

Figure 1

· Pecking Order Theory for finance

· Marine shipping working environment

· Italian shipping companies’ case study based on finance outlook.

· Understanding Shipping finance operations as well as the sources of finance.

· Empirical research in China’s shipping corporation

· Financial challenges facing shipping companies and how to solve the drawbacks.

· Shipping in Norwegian perspective with regulations from European countries.

Figure 2

· Expenses in a shipping company

· Finance operations and procedures in a shipping company

· Credit processes for a shipping company.

· Miller and Modigliani’s proposition theories for finance

· Finance management in a marine company including asset management

In running research, it is vital to have other research methods which will act as substitutes for the primary methods. This way, the results from the study will be accurate and credible as opposed as being carried with one theory or model. Likewise, in understanding financing Keppel Corporation, various models and approaches have been used. All the articles in the table above have used multiple theories in analyzing the finance processes in the marine shipping companies.

3.1 Research Question

How can marine shipping companies such as Keppel Corporation finance their investments?

This first research question is prone to differences depending on the type of company and the segment.

3.2 Theoretical Framework

Shipping Economics and Ship Finance

To start a successful shipping company requires a significant amount of capital. The reason for the high investment capital is because it is an asset-based sector. Supply vessels for a shipping company can cost up to $100M because of the high-tech equipment they have in their systems. For a shipping company such as Keppel Corporation to stay ahead of their competitors, it needs to remain profitable as well as find capital for its investments. According to Borch and Solesvik( 2016), shipping is an international venture, and the shipping company can choose their jurisdiction based on the legal laws of the various countries.

Ways of Financing Shipping Companies

· Private Funds

· Debt Financing

· Shares

3.3 Theories

3.3.1 Miller and Modigliani’s Propositions

Proposition 1 argues that the distinct capital structures that firms do not affect the value of the firm and there is no better capital structure than the other (Rau and Spinler, 2016). On the other hand, Proposition 2 states that the amount of capital required for equity relies on the rate of return on the company’s assets, cost of debt, and debt ratio.

3.3.2 The Pecking order Theory

It forecasts the external debt financing using the internal financing deficit According to Del Gaudio (2018), the pecking order theory states that the need for external capital drives the fluctuation in equity ratio. It proposes the firm to use internal capital and safest securities first before attempting to source from external funders.

3.3.3 The Static Trade-off Theory

The theory states that companies attempt to have an optimal capital structure. According to Yeo (2016), the company balances the merits of debts, for instance, tax shield, with debt cost, such as the cost of distress.

3. Critique of two well-researched Methodologies in the Literature Review

Before examining the journals, it is vital to state that research that is concerned with the financial aspect utilizes a quantitative method of data collection. The primary purpose of the quantitative approach is because it analyzes data and predicts relationships between multiple variables (Zheng and Smith, 2016). Furthermore, it can examine the possible effects and create designated results. This paper has used the quantitative methods majorly alongside with its limitations such as standardized procedures which can lead to wrong interpretations if the researcher fails to include all the diversions in the data. Also, descriptive and inductive methods of data collection and analysis were utilized.

4.1 Article 1

Albertijn, S., Bessler, W. and Drobetz, W., 2011. Financing Shipping Companies and Shipping Operations: A Risk‐Management Perspective. Journal of Applied Corporate Finance, 23(4), pp.70-82.

4.1.1 How the Research Method was applied

The primary objective of the research was to find out if there is a standard pattern between marine shipping companies regarding financial strategies. Since the researcher has cannot manipulate the behavioral elements in the research, case studies were used to determine the relationship between various shipping companies such as Keppel Corporation. The major sources of data, in this case, were the historical data of the individual companies. In this paper, several companies were used to investigate how the shipping firms finance their investments.

The firms used in this case had similar results while others produced contradicting outcomes. Furthermore, the firms selected for this are based in the Singapore Exchange Limited (SGX) stock market.

During selection, the basis was the Singapore Shipping index and Energy Index. The companies were the revenue was from other sources were excluded. Shipping companies from the segment concerned with offshore were included because they involved the marine processes.



Yangzijiang Shbld

E: BS6

Star Cruises

E: S21

Singapore Shipping

E: S19

Samudera Shipping

E: S56

Keppel Corp

E: BN4

Keppel T&T

E: K11

Chuan Hup Holdings

E: C33

(Source:, 2018)

The study utilized data from 16 years back to come up with logical conclusions. Most of the companies selected had offshore and tanker operations. Collection of data was from SGX database where the annual financial reports for the companies are illustrated. After that, the capital structures from annual financial statements were obtained. Equity ratio calculation is carried out by dividing debt by equity which is found on the balance sheet of the annual financial report.

The data obtained from SGX was useful to determine dividend payments, decreased share capital, increased share capital, and the beginning of bonds. Most of the companies in the report provided shares to the employees which slightly increased the share capital. Interests’ rates for the study were obtained from the International Monetary Fund. These data was crucial in performing regression analysis between the sets of independent variables. The mathematical illustration of the used regression model is shown below;

The odds of the results Y=1 or Y=0 is;

The outcome for the model becomes;

These variables for the research are:

· Y= Additional share capital

· X1= interest rate level

· X2= global Gross Domestic Product growth

· X3= dispensed bond current quarter 25

· X4= dispensed bond for the latter quarter

· X 5= Additional share capital/remitted dividend for the current quarter

· X 6= increased share capital/remitted dividend for the latter quarter

4.1.2 Contribution of the method to Research and Theory

(Table exported from excel as an image)

As we can see the coefficient of interest level is vital and illustrates that the probability that an increase in share capital can result into an increase in the level of interest. Interest rates are crucial when a shipping company such as Keppel Corporation is looking for a loan from the bank. When the interest rates are high, the loan will stress the firm’s financial resources. Concisely, the regression analysis shows that both the Miller and Modigliani’s propositions and pecking order theory can indicate the financial strategies of a marine shipping company. Moreover, since the increased share capital has a positive correlation with the level of interest, the shipping company can consider acquiring capital from the capital markets instead of getting it from debt.

4.1.3 What Gaps the Method may leave

The major gap left by the case study is that the data acquired from this method cannot be used in other situations globally. Despite the data obtained is from a shipping company, it cannot be generalized to the same industry in the global market. Moreover, the rate of interest levels and capital access has variations in different part of the world hence generalization cannot be guaranteed to provide same results.

4.2 Article 2

Yeo, H., 2016. Solvency and liquidity in shipping companies. The Asian Journal of Shipping and Logistics, 32(4), pp.235-241.

4.2.1 How the method of research was applied

This study used the survey research design. It conducted a census of all the shipping companies in Singapore. This type of survey is considered descriptive in nature by Shin et al. (2017).The major purpose of the study was to create a baseline for financial management and performance of shipping companies including Keppel Corporation. The study population selected 21 marine shipping companies for the research. Additionally, it involved the use of secondary and primary data. The source of primary data was obtained through a questionnaire which is semi-structured. It had section for financial management service and another section for demographic data. The questionnaire entailed both open and closed question and Likert was utilized in each scale.

Secondary data for the study was collected through the published financial statements of the shipping companies. After obtaining the required data, it was modified to correct miscellaneous errors and systematically arranged for tabulation. Descriptive analysis using mean, standard deviation, and percentages were used to deduce specific patterns from the data. Some of the data was also represented in charts and cross tabulations. The regression model below was utilized to develop a connection between the practices of financial management and performance of the marine shipping companies.

The equation for regression used;


Y= Performance in finance as quantified by Return on Assets (ROA)

X1=an outcome change in Return on Assets due to an increase in analysis about financial reporting

X2 =Change in ROA as a product of an evolution in managing non-current assets

X3 =Change in ROA as a result of growth in the management of working capital.

The error is obtained after calculation between the dependent variable value and the real value as well as Statistical Package for Social Sciences was used in the analysis of the data collected from the study.

4.2.2 Contribution of the method to Research and Theory

The five-point Likert scale was used to rate the respondent's answers on the various financial management practices of the shipping companies such as Keppel Corporation. The practices which were put to the test include capital structure management, fixed assets management, financial reporting analysis, and working capital management.

Fixed Assets Management (FAM)

Aspects of FAM



Standard Deviation

The maintenance and repair of non-current is often undertaken




The frequency of counting non-current assets is done annually




The senior management have to authorize the movement of non-current assets




Non-current asset has been tagged




The firm has the non-current assets register







For instance, the table above contains the respondent’s response to how financial management is carried out. Owing to its mean of 4.42 FAM is preferred as the most popular financial management act. The respondents agreed that the company has the non-current assets register and also maintains it. Furthermore, they admitted that the senior management has to authorize the movement of the non-assets within the firm as well as the maintenance and repair of the non-current assets is carried out regularly. This statistic is useful to know the various categories of FAM and their states in the various firms.

4.2.3 Which gaps the Method may leave

Research in any field must have its share of vulnerabilities and limitations. The validity of any given results depends on how these limitations are handled. The major challenge is that the survey method of data collection has an inflexible design in the sense that the researcher has to stick to the method without transitioning to other data collection techniques. Moreover, the researcher generalized the questions into universal one. This action will result in omitting the most appropriate items for the study. Also, the respondents participating in the survey may not produce accurate answers which can compromise the whole study from a holistic perspective.

4. Conclusion and Scope my Research Topic

This study aimed to investigate if the three defined financing theories are applicable in the marine shipping companies. A case study and survey was conducted to prove the recognition of the three fundamental theories of finance in shipping. As predicted, the finance theories formed the base in answering the research questions for this study. In regards to the first research questions, how can marine shipping companies such as Keppel Corporation finance their investments? The average equity/debt ratio in the shipping industry can concisely explain how the firms fund their investments. A low debt/equity ratio shows that a corporation is holding capital which is essential for survival in the volatile market.

The outcome of the regression analysis shows that marine shipping companies cannot prefer a financing method with the aim of reaching the optimal capital structure. Hence, the theory that explains the financing processes of companies such as Keppel Corporation is the Miller and Modigliani’s propositions which clarifies that the specific value of a company is not affected by its capital structure. Besides that, since there is a positive relationship between the rate of interest level and increased share capital, it illustrates that firms select less costly financing methods such as selling shares.

The scope of the research could be more significant if the number of independent variables could be increased. This way, other factors influencing financing decisions in a shipping company could be explored. Such improvements could result in more accurate outcomes but at the same time it will be time-consuming,and the scope of work could be tedious. Furthermore, including companies from other stock exchange platforms could make the research results better using regression analysis technique. Additionally, interviews with investors and lenders could have been conducted to identify the real market situation and to evaluate which factors they find critical. With the analysis of the gaps in this paper, my proposed study will focus on investigating how interest rates affect the firms in making financing decisions. In the research, I will include more independent variables and interviews to get the foundation of such financial choices. The most likely research topic will be:

“The role of interest rates in making financial decisions.”

The research will include scenarios in both extreme sides: High and low-interest rates as well as a case study to put the parameters into a real-life perspective.

5. References

Albertijn, S., Bessler, W. and Drobetz, W., 2011. Financing Shipping Companies and Shipping Operations: A Risk‐Management Perspective. Journal of Applied Corporate Finance, 23(4), pp.70-82.

Borch, O.J. and Solesvik, M.Z., 2016. Partner selection versus partner attraction in R&D strategic alliances: the case of the Norwegian shipping industry. International Journal of Technology Marketing, 11(4), pp.421-439.

Brooks, M.R., 1985. Fleet development and the control of shipping in Southeast Asia (No. 77). Institute of Southeast Asian.

Cheng, P.C., 1979. Financial management in the shipping industry. Cornell Maritime Pr/Tidewater Pub.

Del Gaudio, B.L., 2018. The Financing of Italian Shipping Firms. International Research in Economics and Finance, 2(1), p.26.

Grammenos, C.T., and Choi, C.J., 1999. The Greek shipping industry: Regulatory change and evolving organizational forms. International Studies of Management & Organization, 29(1), pp.34-52.

Poulsen, R.T. and Johnson, H., 2016. The logic of business vs. the logic of energy management practice: understanding the choices and effects of energy consumption monitoring systems in shipping companies. Journal of Cleaner Production, 112, pp.3785-3797.

Rau, P. and Spinler, S., 2016. Investment into container shipping capacity: A real options approach in oligopolistic competition. Transportation Research Part E: Logistics and Transportation Review, 93, pp.130-147. (2018). Singapore Exchange Ltd | SGX. [Online] Available at [Accessed 6 Jun. 2018].

Shin, Y., Thai, V.V., Grewal, D. and Kim, Y., 2017. Do corporate sustainable management activities improve customer satisfaction, word of mouth intention and repurchase intention? Empirical evidence from the shipping industry. The International Journal of Logistics Management, 28(2), pp.555-570.

Stokes, P., 1997. Ship finance: credit expansion and the boom-bust cycle.

Yeo, H., 2016. Solvency and liquidity in shipping companies. The Asian Journal of Shipping and Logistics, 32(4), pp.235-241.

Zheng, Y. and Smith, C., 2017. New voyages in search of treasure: China Ocean Shipping Company (COSCO) in Europe. Chinese Investment in Europe: Corporate Strategies and Labour Relations, Brussels: European Trade Union Institute, pp.231-250.

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