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Eco ships have 'halved value of existing vessels'

Some disquieting views on ship finance were aired by Deutsche Bank's head of finance Nick Roos and others during the opening day of the Maritime Cyprus 2013 conference in Limassol yesterday.

Roos outlined how the actual value of the shipping fleet was $550bn while banks' exposure was $450bn, meaning they had a total leverage of 85% loan to value (LTV). This situation was "unsustainable because of regulatory pressure on banks," he said - as suggested by the fact that total bank lending had only grown by 5% since the 2008 crisis. There was now a funding gap because $270bn worth of ships was on order, which banks "couldn't possibly" finance, he added, meaning capital markets would have to step in.
Elsewhere in the session it was pointed out that market values of ships had typically collapsed by 50-60% since the crisis, meaning some LTVs were now as high as 150% to 250%.
Questioned from the floor as to whether German shipping banks - estimated to account for about 80% of outstanding shipping loans - were "close to insolvency", Roos countered that these were "banking book losses and not trading losses" but conceded that shipping banks were "in a very, very tough place at the moment."
Pressed further as to whether shipowners were shooting themselves in the foot by ordering eco ships that were "half the cost" of existing vessels and would therefore deprive their current fleets of work, Roos riposted that it wasn't so much eco ships were half the cost but that they had served to "crystallise the value of existing vessels ships out there", in many cases halving their value and causing their nominal working lives to be reassessed downward from 25 years to nearer 15 years - a prospected he admitted could lead to "catastrophic losses".

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