Sky high vessel prices worry ship financiers

Sky high vessel prices worry ship financiers International banks that finance new and second-hand ship purchases are growing increasingly wary of a market that looks like it will bust quite soon, a panel of ship financiers said Tuesday in Singapore.
   Speaking at the Sea Asia conference, the panel said it is likely a matter of when, not if, prices for ships begin to fall, despite the growing influence of public equity investors looking to sink money into some aspect of the shipping industry.
   Earlier in the conference, ship owners said they are viewing the current market with restrained excitement as money pours in from investors, because it gives the ship owners more ways to finance vessel purchases or leases.
   The bankers, understandably, had a dimmer view, as increasingly costlier deals are layered atop a competitive banking climate in which lower and lower interest rates are offered.
   'The biggest challenge is how ship financiers view the current market,' said Tom Zachariassen, relationship manager at Nordea Bank in Singapore. 'The price of newbuildings and second-hand ships is sky high.'
   The high prices for ships, coupled with a looming glut of capacity in the tanker and dry bulk vessel industry has some shipping lenders wracked with trepidation.
   'Ship owners are making massive profits on second-hands and newbuildings, which is good for the market and banks overall, since the money is often reinvested into the market,' Zachariassen said. 'But banks still have to finance these deals.'
   For instance, a 5-year-old 17,000 deadweight ton capesize vessel would have sold for $53 million in January 2006. Today, it sells for about $92 million. With lease financing of 75 percent, what would have been $40 million of debt in January 2006 is now $69 million.
   'It's not just ship financiers that are facing these challenges,' he said. 'Ship owners are facing equity challenges too. But the ship owner can recover costs and make profits if the market does well. The maximum a bank can do is get its loan repaid.'