More shipping funds insolvency expected as sector's plight deepens
THIRTEEN of the world's 19 biggest shipping banks have stopped lending to the industry because too many ships are chasing too little cargo value, cutting cash flows and leading to vessel seizures, reports Bloomberg.
Investors who had been promised annual returns of 15 per cent have instead lost EUR37.5 million (US$49 million) when Germany's Container Flotten-Fonds went bellyup last year.
German tax exemptions for shipping funds, designed to provide cheaper financing than banks, are becoming meaningless, said Christian Nieswandt, head of domestic shipping clients at HSH Nordbank.
"The shipping fund market is more or less dead for years to come," he told Bloomberg. "There will be further insolvencies."
Like the US housing crisis, ships were bought at the price peak in 2007. After values slumped, the size of the loan in relation to the value of the ship used as collateral for the funding from banks rose.
The contract price for a 8,500-TEU ship dropped 31 per cent to EUR92.5 million in 2011, from a peak of EUR134 million in 2007, according to Morgan Stanley. Values will decline to EUR89.5 million this year, said the bank.
With even big players like AP Moeller-Maersk and Hapag-Lloyd showing losses last year as fuel costs rise, overcapacity persists and a price war threatening on the Asia-Europe route, many carriers cannot pay their debts, according to the VDR German shipowners' association.
Shipping funds financed purchases with borrowed money from banks, leaving them vulnerable when lenders raised interest rates, said Christian Luber, a Munich lawyer representing investors in failed German shipping funds.
"It is like when you buy a house: the less equity you put in, the more interest you pay," said Mr Luber, adding that banks financed 70 per cent of newbuildings with investors providing the rest.
Christian Murach, transport finance head at KfW IPEX-Bank, said some German shipping funds have been unable to service their debt "for years" and their ships may have to be sold. This prompted banks to write down the value of their portfolios, thus increasing expectations of further bank loan losses.
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