With the slump in the shipping market now in its fourth year, bankers are putting to sea and seizing ships to protect the value of their loans to struggling shipowners.
Lenders to the shipping trade, themselves lashed by the eurozone crisis, are recruiting management companies to take over and operate defaulting owners’ ships rather than sell them at a heavy loss or take a write-down on their loan books.
Earlier this month, Credit Suisse and a group of Chinese banks seized seven tankers from Singapore’s Dongfang Shipbuilding to pay outstanding debts of around $250 million (R2.1 billion) after the Singapore Supreme Court ruled in favour of the creditors.
“The banks have so many problem loans today — at a time of extreme political, social and regulatory pressure — that they don’t know which way to turn,” said Nigel Prentis, the head of research, consulting and advisory at HSBC Shipping Services.
Bibby Ship Management is among companies aiming to capitalize on the slump by offering to run vessels for a fee, including chartering out a ship on behalf of a bank.The UK-based group said it was in talks with a number of European banks.
“What we do is come in and provide technical management of the vessel and provide a full crew to run the vessel and get it to a standard where it is fit for resale by the bank or whatever they want to do,” Bibby’s business development manager, Brian Williams, said.
Bibby has teamed up with asset recovery specialist Marine Risk Management (MRM), whose staff include former special forces personnel, which can arrest a vessel from its owner on behalf of a bank and sail it to another jurisdiction with a letter of authority from an admiralty court.
“The biggest difference to the last major crisis in the 1980s is the value of the assets could be up to 10 times higher, which is why banks have been reluctant up to now to force anything in the hope that the market was going to recover. Clearly that’s not going to happen, and banks are looking at taking other action now,” MRM chief executive John Dalby said.“We provide them with an option to technically and commercially manage a vessel and then sell it as a going concern subsequently.The alternative is writing off massive loans.”
Global syndicated lending to the shipping sector slumped to $245m in the second quarter of this year from over $3.9bn in the second quarter of 2011,Thomson Reuters data showed.
Surplus capacity due to brisk ordering during the boom years has pushed the nominal resale value of a supertanker, used to transport crude oil, down to around the $90m level from $162m in 2008.
“Many banks are thought to have contingency plans to take over ships and run them through the cycle rather than further undermine values with an auction process,” Prentis said.