Thirteen of the world’s 19 largest shipping banks stopped new lending to the industry amid an “extreme” vessel surplus that’s cut cash flows and led to vessel seizures, financier DVB Bank SE (DVB) said.
The Rotterdam-based transportation lender that’s financing 1,500 vessels through 450 loan agreements is one of six remaining banks funding shipping, Dagfinn Lunde, a member of DVB’s board of managing directors, said at a presentation in London today. As many as 100 were lending to the industry four years ago, he said.
Fifteen DVB loans worth $2 billion breached loan-to-value clauses after asset prices fell during the past four years and needed additional cash or security to regain compliance, Lunde said. The bank controls 20 ships, has seized and sold others and is prepared to take over more as rates for vessels “haven’t hit bottom yet,” he said. Lunde didn’t give a total figure for numbers of vessels seized.
“We don’t mind taking the ship at all if there’s a risk the loan is coming under water and the owner says he’s not willing to support or stand behind or do something,” Lunde said. “I just say ‘please give me the key.’”
The glut of vessels will depress freight rates for container ships, tankers and dry-bulk vessels for at least the next 12 months and as long as two years, Wolfgang Driese, chief executive and chairman said at the presentation.
Crisis Not Over
“The crisis is not yet over,” Driese said. “It’s a composition of lower demand and an idiotic situation that everybody ordered at a time when they should have stopped ordering ships so there’s a huge over-capacity in the market.”
Overcapacity at the world’s shipyards is “extreme” and needs to be addressed to pave the way for a recovery in freight rates, Lunde said.
“We have a capacity for shipbuilding which is about double what we need for normal fleet renewal and that’s really scary and it doesn’t go away,” Lunde said.
Prices for new ships will drop further over the next 12 to 18 months, forcing some yards to close, then bringing supply of ships and demand into balance, he said.
Delays in delivering new vessels are due to owners postponing completion in a poor market, not because they can’t pay, he said.
Export credit agencies are loaning money to owners unable to secure finance from banks to pay the final instalment on new ships, he said. Shipbuilders are also providing “sellers’ credit,” effectively deferring the last payment so the vessel is able to leave the yard.
DVB’s lending volumes for shipping reached $14.6 billion in in 2011, comprising 52 percent of all loans, and covering seven sectors and 67 sub-sectors in shipping, according to the presentation. The bank is the world’s ninth-biggest lender to the industry and completed 93 deals last year, it said.
Rates for oil tankers that haul crude are “especially bad” because of “brutal supply and struggling demand,” Lunde said. Tankers account for 32 percent of DVB’s loans. Freight rates to haul manufactured goods in boxes on container ships are expected to recover as soon as the end of this year, he said.
Today’s market is all about cash flow, according to Driese.
“It doesn’t help me to finance a vessel at 50 percent in today’s depressed market if you can’t pay the first instalment and can’t generate the cash flow,” he said.
Many owners of vessels seeking finance are approaching DVB amid the curbs on new ship finance lending elsewhere, he said.
“German shipowners have learned that their friendly banks have disappeared and they are eager to talk and we are selectively following up on their invitations,” he said.
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