Friday, June 19, 2009
Loan defaults and ship arrests set to surge
Keith Wallis, Hong Kong - Thursday 18 June 2009
Harry Banga
SHIPPING defaults to date are only the “calm before the storm” and the industry faces a challenging 12-18 months ahead.
The next year will likely see a surge in the number of loan defaults and ship arrests, with little prospect of a box trade recovery and moves by countries to build national fleets.
At the same time, globalisation itself could be rolled back, while shipyards also come under pressure to cut prices.
But there are also some brighter prospects with a continued resurgence in dry bulk market and ship financing becoming increasingly available, a group of panelists told a Hong Kong Shipowners’ Association forum today.
Pointing to the probable rise in bad loans and ship arrests, Richards Butler partner Andrew Brown said the handful of defaults seen so far was the “calm before the storm”.
He said that while shipping had been better prepared for this downturn than previous slumps, shipping companies were running out of cash and financing options.
Mr Brown said banks were also coming under pressure, either because they had been told by their government shareholders to take a tougher line or because they wanted to pull out of shipfinance.
As a result, there could be selective action taken against specific owners. “I hope there won’t be a domino effect,” Mr Brown said.
Calyon Asia Shipfinance managing director Kenneth Lam the estimated $250bn of the current orderbook standing unfinanced was a “staggering number” and added that the actual amount was lower.
But he said that while the onus was on both shipowners and shipbuilders to find an equilibrium with delays and cancelled deals, there had already been more cancellations than had been reported.
Moves by countries such as China to build national fleets would also affect chartering opportunities for international companies, the forum was told.
Tiger Group Investments managing director Jack Sun said around 20%-30% of China’s cargo was carried on China-flagged vessels. He questioned what would happen if 60%-70% was carried on Chinese ships. “I think it will happen. I can guarantee you it’s coming.”
Noble Group vice-chairman Harry Banga said it was a “question of when, not if” the move took place.
He added that China was keen to get long-term security for the transport of agricultural and industrial products. China already has ambitions to import 50% of its crude oil on Chinese vessels, up from the current 10%-15%.
Mr Banga said the current dry bulk boom would continue, fuelled by cheaper iron ore and coal imports into China, port congestion and rising demand by India for imported coal.
He said China would import 550m tonnes of iron ore this year, up from 424m in 2008. This would create demand for 110 capesize vessels, around the same number that are due to be delivered.
