Daily Management Review

Shipping companies are in a vicious circle of debts


07/24/2017


Dutch shipowner Vroon is conducting difficult negotiations with banks, trying to find a way out of the long recession in the shipping industry. However, the situation is not easy for the creditors too, writes Reuters.



Mgunn
Mgunn
Vroon, a 127-year-old family business that serves about 200 vessels and transports cattle, oil and other goods, wants to expand its credit lines and adjust repayment schedules.

But European banks that actively lent to the sector, when it boomed more than ten years ago, have a heavy burden of "toxic" debts after the global financial crisis of 2008-2009 and a decline in the shipping market in 2010.

Shipping companies and banks are in a vicious circle of debts, which hinders the industry’s recovery. The surplus of available vessels for hiring is of great concern, and profits suffer because of a decline in demand and instability in the global economy.

As reported earlier, the bankruptcy of one of the largest container carriers, the South Korean company Hanjin Shipping Co Ltd, has become an indicator of the deplorable state of the industry.

"We have difficulties in meeting all debt repayment obligations that we have, and this is what we are discussing with our banks. These discussions are constructive in nature, but they are not easy for us and for banks," told Vroon’s financial director Herman Marks Reuters, "The lack of profit in the industry causes a lack of financial resources."

Vroon is confident that it will be able to reach an agreement with his creditors in the near future, said Marks.

According to Reuters sources, the lack of capital in the shipping industry, which transports 90% of world goods, including oil, food and industrial goods such as coal and iron ore, is estimated at $ 30 billion this year.

Some banks have stopped lending to shipping companies, and the remaining banks are now more conservative with regard to financing, said Marks.

"This is an industry that requires consolidation," he added.

This consolidation has already begun, especially in the sphere of container transportation. The Danish Maersk Line, the world leader in this sector, acquires the German competitor Hamburg Sud, and the Chinese COSCO Shipping Holdings Co Ltd offered $ 6.3 billion for the Hong Kong company Orient Overseas International Ltd.

In June, Rickmers, the third-largest shipping company in Germany, filed for bankruptcy. Since March, bankruptcy documents have been filed by Singaporean Ezra Holdings Ltd and US companies Tidewater, GulfMark Offshore and Montco Offshore.

"Probably about $ 150 billion of troubled bank debts were stuck mainly in European banks, primarily German banks," said Michael Parker of Citigroup.

The rating agency Moody's reported in June that it expects further losses, as problems with the credits of sea carriers continue to grow, which could affect the profits and capital of banks in 2017 and beyond. 

source: reuters.com






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