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Tuesday, June 23, 2009

Dry bulk shipping finances are through the worst: bank

Tuesday, 23 June 2009

Commodity-shipping lines are "through the worst" after last year's market collapse hurt companies' finances, Nordea Bank AB said. The Baltic Dry Index, a measure of shipping costs for commodities, plunged a record 92 percent last year as steel demand and the global economy slumped. That cut vessel values and prompted companies including Hellenic Carriers Ltd. to get waivers on loan rules, or covenants. At least five shippers including Armada (Singapore) Pte have sought bankruptcy protection because of the market's plunge.
"There has been a lot of renegotiations and restructuring of many loan facilities," Carl Steen, head of the shipping, oil services and international division at Nordea Bank Norge ASA, said in an interview at a TradeWinds conference in Oslo today. "We have been through the worst period."
Steen told the conference he "would not be surprised" if more than 30 percent of the new ships on order were canceled over the next three years. That would affect commodity ships "to a great extent" and tankers "to a limited extent," he said. Cancellations across all fleets are currently in the mid- 20 percent, Steen added.
The world's fleet of dry-bulk vessels will expand 42 percent this year and next, according to estimates from London- based Drewry Shipping Consultants Ltd. The figure from Drewry's May monthly report is based on current order books and doesn't include scrapping, delays and cancellations.
Equity over debt
Shipping companies will have to finance new vessel deliveries by selling equity rather than taking on debt "because there is not sufficient banking capacity in the market," Steen said.
Credit has been tougher to get since Lehman Brothers Holdings Inc. failed last September, sparking a financial sector crisis and forcing governments around the world to inject funds and take over banks. Lloyds Banking Group, Britain's biggest mortgage lender, is now 43 percent state-owned.
DryShips Inc. raised US$475 million last month from a share sale and yesterday announced an agreement with a Deutsche Bank AG-led syndicate to waive terms on a US$1.125 billion credit line.
Operators of tankers carrying loads such as crude oil may face a "difficult period" this year and in early 2010 but on "long-term it is not looking that bad," Steen said.
Tankers with one layer of steel separating their cargoes from the ocean will be outlawed under international rules coming into force next year and taking full effect five years later.

Source: Bloomberg