Lenders Ramp up Pressure on 'Toxic' Shipping Debt
Financiers are set to take a tougher stance towards distressed shipping loans including more enforcement action to recoup funds, while capital on offer to the industry is expected to shrink further, a leading transport survey showed on Wednesday.
The global shipping sector is reeling from a near-decade-long downturn, which has seen companies collapse and banks scale back exposure or exit entirely from providing finance.
While there are signs of returning confidence in shipping, as players eye better prospects and the worst of the recession abates, the industry faces a financing black hole estimated at $30 billion this year.
In an annual survey by international law firm Norton Rose Fulbright, 41 percent of respondents said funding would become even tighter - a level that was much higher than counterparts polled in aviation, rail and logistics.
In addition, 54 percent of those canvassed said they expected that enforcement actions taken on troubled shipping loans would increase over the next five years.
"As assets reach a certain value, lenders are becoming more confident that enforcement action will enable them to recover the value of their loans," Harry Theochari, Norton Rose Fulbright's global head of transport, told Reuters.
"More lenders are becoming prepared to force the issue with borrowers."
Of those polled, 23 percent said bank debt was expected to remain the shipping industry’s primary source of funding, while a smaller proportion - 15 percent and 14 percent - saw private equity and shareholders providing financing.
"Respondents are losing confidence in the industry’s ability to access finance," Theochari said.
A glut of vessels, concerns over the world economy and potential protectionism are among the risks faced by the shipping sector.
"A global downturn would also have serious repercussions for shipping, which has not yet recovered from the (2008) financial crisis and continues to suffer from the effects of stubbornly low commodities prices," Theochari said.
"While it is encouraging to see that sentiment has improved over the past year, the industry remains on a long path towards recovery."
The survey - which polled 196 respondents across the transport industry including companies, financiers and government entities - said rail and aviation prospects were more upbeat, partly due to better markets and more funding.
By Jonathan Saul
