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Depressed shipping markets sink M&A hopes

Depressed shipping markets sink M&A hopes
The depressed state of the shipping market, due mainly to excessive vessel tonnage, is making it difficult for companies to actualise mergers and acquisition (M&A) deals, which are seen as a cure to the deflate the supply glut, industry players observed.

The shipping markets across container, dry bulk and the offshore vessel segments are all awashed with too much capacity, a problem accumulated before the 2008 global financial crisis.

“The way forward is a need for consolidation through M&A. But unfortunately it is now hard for companies to engage in M&A deals,” said Joachim Skorge, regional head and managing director of DNB Markets – Investment Banking, Singapore.

Skorge added that with falling asset values of ships, low cashflow and tighter access to financing under current challenging climate, parties interested in getting together would not have the necessary resources to do so.

“The trend is now clear – financial institutions are focusing only on the larger, more solid clients who are able to offer cross-sell ability. This creates a problem for medium to small companies that traditionally also have access to financing,” he said.

Venkatraman Sheshashayee, ceo of private equity-owned Miclyn Express Offshore (MEO), noted that players in the offshore sector recognise the need for consolidation, but it is not happening.

Sheshashayee said that “even if there is desire for companies to enter into M&A deals, neither parties would have the wherewithal as every single player has stretched the balance sheet and most companies are overleveraged.”

During the boom years of the shipping market, shipowners had jumped on the newbuilding bandwagon and ordered too many ships, resulting in a prolonged period of excessive capacity.

Abhishek Pandey, head, Asean, South Asia, Africa & Middle East – shipping finance & structured finance at Standard Chartered Bank, recalled that “too much liquidity had entered the market too cheaply”, giving rise to an unconscionable spike in orderbook.