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Ship finance shortfall likely to see yards and lines go under

Ship finance shortfall likely to see yards and lines go under

Singapore: The cigarette butts outside the swish St Regis Hotel in Singapore where the Marine Money Asia conference is being held told their own story. Piled high and dragged to the quick, these were the urgent stress relievers for ship financiers, bankers and CFOs as the full enormity of the financial shortfall facing the shipping industry became crystal clear.
Figures vary on just how big a gap there is between ships on order and secured financing in the wake of the global financial turmoil but whoever you ask the hole is a yawning one. Simon Rose, ceo of New York's Dahlman Rose, told Seatrade Asia Online that there are $500bn worth of ships on order of which half have no financing and banks are struggling to cover the half that have financial terms in place. Rose described the predicament the industry faces as 'historically defining times'. 'If you've ordered ships and you don't have money to pay for them then you are in deep trouble right now,' he warned.
Mark Pankhurst from Deutsche Bank said during a lively, controversial roundtable discussion in the morning: 'The reality is there is a lot of owners who will walk away from their orders. Shipbuilders will go bust ... There will be a general consolidation in the shipping industry."
Such a negative outlook for shipyards as well as lines has already seen the proposed indicative sale price of Korea's giant Daewoo Shipbuilding and Marine Engineering (DSME) nearly halve in the past couple of weeks to around $4bn. A 50% stake in the world's third largest yard is being sold by state run Korea Development Bank. Mused Harold Malone from Jeffries in New York, "What will the national governments of shipbuilders do, especially China, to protect these industries?"
As charter rates decline so inevitably will newbuild valuations. Malone estimated there could be as much as an 80% drop in containership prices while Pankhurst said 'prices could go down to just the price of the steel'. Speaking metaphorically on just how low prices could go Tobias Konig of KG giant Konig & Cie said, 'Imagine a falling knife. Don't try and grab it until it hits the ground.'
Konig did try to inject some optimism among the nervous Blackberry wielding audience, reminding delegates, 'This is not the end of the world. People are still alive. They're still consuming and oil is still moving.' Likewise Pankhurst pointed to China as a source of hope. 'The China growth story has not gone away. They have 12 trillion to spend. If anything is to save the shipping industry it is China's demand.'
By common consent among panellists dry bulk and especially containers are the sectors most in jeopardy, while tankers and offshore have better fundamentals.
Speaking to Seatrade Asia Online earlier in the week, renowned container analyst Charles De Trenck, founding partner of Transport Trackers, said that the container industry needs to immediately scrap 1m teu of ships and another 2-3m soon. To put that in perspective the current container fleet according to box watchers AXS Alphaliner stands at 12.8m teu. Jested Konig at the conference, 'Brand new 12,000 teu ships could go straight to a scrap yard.' That had delegates reaching nervously for their Marlboros. [15/10/08]

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