Germany’s zombie shipping company

Losses and debts can be a deadly combo for any shipping company to handle. In a report from the Wall Street Journal looking at so-called “zombie companies” in Europe, one logistics company stood out. Norddeutsche Vermoegen Holding GmbH & Co. KG was the only shipping company mentioned in a country.

Zombie companies are those companies that are unable to repay their obligations but keep operating as debt is continually restructured by lenders. In the case of the zombie companies profiled by the Journal, lenders are reported to having as much as “$90 billion worth of outstanding shipping loans” with Norddeutsche Vermoegen being one of the shipping companies getting debt relief by as much as half a billion euros from HSH Nordbank.

The German shipping company has reported losses of $1.1 billion spanning 2010 to 2015. The financial statements that WSJ got a hold of traced these profits to the “loan forgiveness of the bank” granted to the shipping company.

Both HSH Nordbank and Norddeutsche Vermoegen declined to comment on the alleged benevolence, the other issue about to burst the German economy. Residents of Schleswig-Holstein and Hamburg own 90% HSH Nordbank and it will be “bitter for local taxpayers,” according to Michael Kruse, a member Hamburg’s state parliament allied with the opposition, should the company go under the money lost.

As of calendar year 2016, $26 billion of industry-related loans were traced to 5 of the largest ship lending banks in Germany as noted by Moody’s. This is 37% of all loans, up from 28% compared to reported loans for calendar year 2015. Moody’s said that the banks better brace themselves for more losses to come their way.

The German shipping industry benefits from a unique structure supported by Kommanditgesellschaft funds. These funds are allotted to German shipping assets, serving as a buffer against the threat of bankruptcy. It serves the purposes of the banks to keep this industry afloat, so even if several shipping companies could no longer repay their loans, very few bankruptcies are declared. This was confirmed by the German Shipowners’ Association’s managing director, Max Johns.

Faced with this reality, the European Central Bank announced in May a plan to conduct bank inspections on-site, particularly banks in charge of shipping loans.

New York-based shipping industry consultant Basil Karatzas was quick to point out how bad the financial scheme has gotten. “Some of these zombie companies are getting financed at 2% [interest rates] because banks are trying to throw good money after bad.” He is one of the thought influencers that attributed this decline in European productivity to zombie firms.

The one light at the end of the tunnel is the concerted effort to reform insolvency laws in Europe. With bankruptcy courts intervening in time to monetize the nonperforming loans, stakeholders (pun intended) worst enemy would be time.

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