Global shipping bankruptcies to accelerate: DNB

OSLO (Reuters): The global shipping downturn may already have hit bottom but bankruptcies will accelerate because of the slow pace of recovery, DNB Bank, the world’s top arranger of shipping loans, said on Thursday.

Around 10 per cent of DNB’s shipping customers have already breached their loan covenants and shipping lending losses are set to rise through 2013 as the downturn drains dwindling reserves, shipping division head Harald Serck-Hanssen told Reuters in an interview.

“This is a cyclical downturn not a structural downturn. Ninety per cent of world trade is carried by ships so if globalisation is set to continue and there isn’t a global meltdown, then it’s just a matter of time,” Serck-Hanssen said.

Shipping firms hold around 7 per cent of DNB’s 1.28 trillion crown ($225.49 billion) loan book, making the Norwegian bank one of the most vulnerable to the plight of container, tanker and bulk shippers.

The segments collapsed as ship owners went on an ordering binge between 2007 and 2009 and the new vessels hit the market just as the global slump curbed demand and global trade.

With charter rates below breakeven levels in some cases, ratings agency Moody’s recently warned that the slump could last well into 2013 and challenge even the toughest companies.

“We hope it’ll recover earlier but hope is not a strategy so we have to plan and prepare for the worst and on that basis, we share Moody’s concern that this year and next will be tough,” Serck-Hanssen said. “This year and next year you’ll definitely see more companies going into restructuring or bankruptcy protection.”

Danish shipping company Torm A/S has been struggling to make payments on its $1.87 billion debt while Indonesia’s largest oil and gas shipping group, PT Berlian Laju Tanker, a firm with exposure to DNB, recently defaulted on its debt.

“Right now about 10 pct of our clients are in breach with their loan agreements - that’s a little bit over 10 pct in value of the loan book - and some of those will go to restructuring. I expect this rate to rise,” Serck-Hanssen said.

“But ... there’s a long way from breaching covenants to restructuring, and again a long way to litigation. Breaching covenants is a way to get them to the table and enter into a dialogue,” he added.

DNB plans to keep its shipping loan book broadly steady this year but there would be a shift toward segments tied to the booming offshore energy sector.

Serck-Hanssen added that the market was also at or near the bottom both in terms of freight rates and asset values.

“We are close to the bottom. In freight rates, we may already have seen the bottom,” Serck-Hanssen added. “On asset values, on old ships you’re very close to the scrap price. And on new ships you’re very close to the historical lows if you adjust for steel prices and exchange rates, so there’s not much lower to go.”

Serck-Hanssen added that new, fuel efficient vessels will be so important in the recovery, the few who can afford them will be the survivors.

“We’re very fortunate that in the shipping markets bank debt is not readily available and not more can invest in newbuilds right now,” he said, highlighting the dilemma of buying new, efficient ships just as the market is struggling with overcapacity.

“So the strong owners with equity, liquidity and with close banking relationships will be the winners because they’ll be the ones to order the new fuel efficient ships.”