Lending to the shipping sector is set to remain tight well into 2010 and will lead to more consolidation among seaborne companies to weather the tougher conditions, a leading ship finance adviser said on October 23. Around 90 percent of the world's traded goods by volume are transported by sea and the international economic downturn has hit the shipping industry hard since October 2008.
Harry Theochari, head of transport with law firm Norton Rose whose clients include financial institutions and ship owners, said there was less appetite among some banks to get involved in lending to the sector partly due to tighter balance sheets and the weaker outlook for shipping.
"The difficulty will be for new entrants and the lower echelons of the shipping community. I think they will find it much harder to find money," Theochari told Reuters. "Things will get worse before they better," he said in an interview. "There are a lot of shipping companies in a lot of financial trouble and banks at some point are going to have to take a view on this."
Theochari said enforcement of troubled loans would pick up in the second half of 2010 as banks became more recapitalised.
"The banks will have got themselves pretty much sorted out by the end of 2010 and then they will be a lot more ruthless as to what they will be prepared to do and not do," he said. Pressures on the sector are set to be compounded by ship oversupply, which will gather pace in the coming months.
Theochari said Norton Rose was involved in transactions worth over $28 billion in 2008 out of an estimated $120 billion in shipping deals. Theochari said he would be "astonished" if sector lending reached $50 billion in 2009 and next year.
He said the pace of lending was only expected to pick up in the latter part of 2010. Major lenders to the shipping sector include DnB NOR, BNP Paribas, Royal Bank of Scotland, Nordea and HSBC. DnB NOR said this week it expected shipping loan losses to increase in future quarters.
The volume of syndicated lending in the first three quarters of this year in Europe, the Middle East and Africa was around $6.91 billion versus $15.18 billion in the same period in 2008, Thomson Reuters LPC data showed.
"What will happen during this very difficult period is more consolidation. We can see companies having to come together out of necessity," Theochari said. Loss-making Danish shipper Nordic Tankers said it was in talks with privately owned shipping group Clipper as part of a strategic search for alliances, partnerships or mergers. Theochari said there had been growing signs of private equity interest in the shipping sector. "It will reach a stage where somebody will start doing a few deals and I think we will see a lot more private equity funds and hedge funds involved in our business," he said.