Financier: Ships loans may be difficult to obtain
The shipping industry is sailing towards turbulent waters in the next few year, a ship financier said today.
Paul Slater, chairman of the Naples, Fla.-based First International Corp. and managing director of Griffin Holdings Group, said because of turmoil in the capital markets following the sub-prime mortgage crisis, “banks have begun to increase pricing, reduce leverage and tighten covenants on new shipping loans, and some have shut their doors as they face increasing difficulties in selling down their commitments.”
He predicts “newbuilding deals that have not yet secured finance will face severe problems beyond pricing and new loan covenants. Many will simply not get financed.”
In addition to problems in the capital markets, Slater believes demand for transportation and freight rates may be headed downward.
“Tanker markets have already retreated from the excesses of 2004-2006 and will continue to decline further as the order book delivers. Those owners that did not secure period charters will rue the day as today’s rates barely cover costs and certainly don’t pay for the price of newbuildings. This situation is set to continue for some years unless there are large cancellations of newbuilding orders.”
Speaking at the MareForum conference in Amsterdam today, Slater also predicts trouble ahead for the dry bulk market. “After a couple of years of extraordinary freight rates in most dry bulk sectors the outlook is highly uncertain. The continued China boom is coming to an end and whilst volumes may remain at today’s levels, the growth will be in low single digits.”
This week has been a volatile one for investors in shipping stocks. Consider DryShips, one of the best performing dry bulk stocks during the past year. Its stock climbed from $13.30 to $131.34 Monday. It fell about 17 percent in value on Tuesday, but then bounced back Wednesday, rising 9 percent. Other dry bulk stocks had similar swings, falling Tuesday, then bouncing back when some analysts called the drop a “buying opportunity.”
Slater also believes “the container sector will struggle to produce any real investment returns as the capital demands continue to escalate and revenues remain flat as excess capacity continues to grow. As world trade in manufactured goods slows down and ship capacity continues to grow profits will further decline and many ships will be forced into lay-up.”
“As the majority of shipping companies are still privately owned the extent of the problems will likely remain private,” Slater said. “However the public shipping companies will face an exodus of shareholders as revenues shrink and debt financing continues to be unavailable.”