MARKETS FINANCE
Shunned from on high Big banks will jettison shipping as they try to protect their depleted balance sheets post-Covid. That’s a shame, argues Dagfinn Lunde, as canny shipowners have been making tidy profits of late
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or all the talk that shipping will escape 2020 as one of very few industries to have had an improved year financially, do not expect banks to fall back in love with our industry any time soon - they’re scarred from previous exposure to shipping and have far greater debt concerns to worry about. As we go to print shipping looks set to be on course for improved average earnings by as much as 25% year-on-year, a tremendous achievement, but one that will receive scant attention from the biggest names in banking. Ship finance post-Covid will start by an enormous reduction among banks because they are incurring losses in their overall businesses. Shipping is a small industry that banks care little about in the grand scheme of things. The situation is not helped by the fact that the cruise sector is posting stunning losses, as is the offshore
ISSUE THREE 2020
segment. An OSV, which originally cost $40m, is typically on the market for $3m or $4m these days - that is a worse situation than the horror show I remember all too vividly from the mid-1980s. Whatever argument shipowners have for shipping, bankers are unlikely to buy in because of the industry’s notorious volatility. There’s few syndicates any more, just a handful of club deals. The big picture is brutal - banks are reporting losses, shipping is so marginal to them. Only smaller banks still have an appetite for our industry, led by Greek, Cypriot and some Norwegian names. We have to be realistic. Newbuilds (remember them?) are no more a problem to finance as that comes from readily available export credit as has been the case for the last 10 years. But ship orders are increasingly rare with these uncertain times for future incomes as well
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Bankers are unlikely to buy in because of the industry’s notorious volatility
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as the very high risk that today’s shiny new vessel could become obsolete tomorrow. Credit where it is due - the Greeks have been buying secondhand tonnage on a grand scale this year, which to my mind are working out as fantastic buys. Bear in mind breakevens in shipping are so low these days that pretty much any vessel purchase this year has proved profitable. Loan levels are so low, as is LIBOR; owners are only paying the margin, it’s next to nothing. Combine that with the extraordinary low orderbook today and you would think that the markets are nicely poised for those who have been brave enough to expand their fleets during the pandemic, not that the banking community will appreciate this astute play. ●
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