With dry bulk rates across aboard at below cash breakeven level Hashim noted in the company’s annual review that logically speaking such a situation should not last long. However, he went on to quote economist John Maynard Keynes that, “Markets can stay irrational far longer than you can stay solvent.”
Bearing this in mind looking at the Baltic Dry Index (BDI) for 2016 he said: “We therefore think that the BDI will not push much lower than where we are today and will remain range bound within 350 to 750 points for the better part, or all, of 2016.” The BDI dropped to a new low of 291 points on Tuesday.
As a result this will leave dry bulk shipping companies needing to raise cash in 2016. Making a bleak prediction Hashim stated, “Most dry bulk shipping companies, especially the smaller and non-listed ones, will simply give up as they will not be able to manage against such overwhelming odds.”
The companies that would survive would be those that could cut “operational costs to the bone without comprising safety”, sell non-core assets to raise cash, call in funds from shareholders, and raise funds from sources such as bonds and leases. Hashim warned that companies unable to do this could face difficulties with their banks.
“It may come as a nasty surprise that Banks are now relooking at their ‘pretend and extend’ policy they have followed since 2008 and are seriously considering ‘pulling the plug’ on their doubtful loans.”
Any new financing would be “very conservative” both in pricing and loan-value-ratios.
“Do not be surprised to see more bankruptcies and action brought on by the lending banks on borrowers who have failed to show performance in terms of raising additional funds to bolster their liquidity to at least partially service their debt since their shipping revenues are probably not going to be able to do that this year,” Hashim concluded.
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