Syndicated loans grind to a halt

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Michelle Wiese Bockmann - Friday 27 March 2009

 

SEVERE doubts have been raised about the global shipping industry’s ability to raise large amounts of capital, as shipping banks and owners declared that the syndicated loan market, a major source of funding, had “disappeared”. 
There have been just four syndicated deals done so far in 2009, a fraction of the 268 deals completed in the whole of 2008, according to Fortis Bank. 
In the first quarter of 2008, transactions worth $15.8bn were recorded, compared with $332m in the first quarter of 2009. For the whole of 2008, deals worth $70bn were concluded. 
“The syndicated loan market has disappeared. There are just bilateral and club deals only,” said the bank’s energy, commodities and transportation division chief executive Harris Antoniou. 
“Lending capacity is severely restricted on both sides of the Atlantic. This is going to create significant challenges going ahead,” he said. 
Syndication activity was “dead right now” as banks were nationalised and suffered “funding gaps to the detriment of shipping’s prospects”, Mr Antoniou told the 3rd Capital Link International Shipping Forum in New York. 
Fortis is one of the top five banks offering syndicated shipping loans. Its pessimistic assessment has major implications for the global newbuilding orderbook. 
Owners need to raise between $350bn and $500bn to finance vessels ordered at yards in Asia and Europe and due for delivery by 2012, with reports that only half the money has been raised. 
Capital markets are also “basically closed right now”, said Seanergy Maritime chief executive Dale Ploughman. 
HSH Nordbank deputy global head of shipping Robin Das indicated that his bank’s overall balance sheet “will be cut substantially”. 
The cost of finance has risen sharply this year, with spreads up to 300 basis points, from 50 bps-100 bps, the conference heard. 
Sliding asset values, which had seen some bulk carrier types fall by as much as 70% over the past six months, meant banks were prepared to finance just 50% of a vessel’s value, down from 80% in 2008. 
Even then, finance was only available if there were secure chartering contracts against the ship.
“Shipping bankers say they’re open for business in general settings, but when approached for loans, they indicate they are not lending to new customers and only support the core business needs of their best clients,” said one investment bank analyst. 
In 2008, there was a dramatic drop in UK banks funding US syndicated shipping loans. UK banks financed 29% of the $23.3bn of shipping deals done in the US in 2007. This shrank to 10% of $8.2bn in deals done by 2008, as the credit crunch took hold. 
“It’s now a very, very illiquid market,” said Daniel Rodgers, a partner with New York-based attorneys Watson, Farley & Williams. 
Shipping finance is now looking to private equity as a new funding source. Although as many as 100 private equity companies had contacted banks recently, many investors were “bottom fishing”, the conference heard. 
The private investors most likely to invest would be Greek-based shipping families, the conference heard. 
Mr Antoniou said that although the vast majority of shipping lending was in US dollars, it was currently difficult to fund a loan book in US dollars 
“Maybe we’ll start financing in euros, and see ships traded in euros,” he said