Credit crunch good for shipping industry

SINGAPORE : The current global economic downturn presents Asian banks an opportunity to play a bigger role in the shipping finance industry.

Many of their western counterparts have cut back or withdrawn from the arena after being hit by the financial crisis.

This was among the issues discussed on the second day of the Sea Asia trade conference, which has broken its attendance record this year.

The global shipping finance industry is estimated to have been worth at least US$80 billion last year. That accounts for syndicated deals and refinancing deals, without accounting for bilateral deals.

But the current economic slowdown has battered the sector, with only 7 out of over 30 shipping banks still active, according to Dagfinn Lunde, a member of the Board of Managing Directors, DVB Bank SE.

Many have left or scaled back operations due to losses from the financial crisis, and this has created opportunities for new players to sail into the sector.

Experts said banks in Asia are in a good position to do so as they have remained relatively unscathed compared to their Western counterparts. Observers believe the current credit crunch may actually benefit the industry.

"The credit crunch could be positive in the long term, because it will most likely lead to a larger share of the order book being cancelled. If not, the whole shipping industry is going to be built to death, and the shipyards are going to suffer for many, many years," said Harald Serck-Hanssen, executive VP, DnBNOR (Global Head Shipping, Offshore & Logistics).

This is against the backdrop of low charter rates, which have been pushed down by low demand for ships, partly due to export declines. However, there are concerns that there may be big political incentives to keep orders going.

Many jobs are on the line as these shipyards are often major employers.

Also keeping them afloat are alternative sources of funding which more are expected to turn to. This includes private equity, high yield bonds, convertible bonds, and Sovereign Wealth Funds.

Meanwhile, all eyes are on China becoming the next big player in the offshore markets.

"Due to the backdrop of oil and gas activities in China, they will start to learn because the national oil companies will of course award projects to the local yards... Give China 8-10 years, they should be able to catch up," said Lionel Lee, managing director of Ezra Holdings.

The outlook for offshore markets remains buoyant. Industry players believe that more projects will be brought on to the market if oil prices continue to stay at the US$50 to US$60 level.

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News & Politics

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• shipping
• finance