Shipping crisis to extend into 2013, says Moody's

Defaults among ship firms set to gather pace with tighter financing
(LONDON) The global shipping slump is expected to last well into 2013 as a glut of vessels and a growing credit squeeze will challenge even the toughest companies in the seaborne sector, Moody's Investor Service said on Wednesday.

Hard times: For crude tanker operators, sanctions imposed by the West over Iran's disputed nuclear programme would hurt as the country faces growing hurdles to sell its oil
Shipping companies, especially in the oil tanker and dry bulk sectors, already hit by worsening economic turmoil, weak earnings and oversupply ordered in the good times now face tighter financing as banks cut their exposure to risky and dollar denominated assets such as ship finance to meet tougher capital rules.

'Oversupply in both sectors is quite sizeable and we think that it will take 12 to 15 months to see the light at the end of the tunnel,' said Marco Vetulli, senior credit officer with Moody's, a ratings agency. 'All shipping companies sooner or later will be impacted by the situation,' he told Reuters.

Ship owners went on an ordering spree between 2007 and 2009 bolstered by earnings which saw rates in the bulk sector for larger capesize vessels, transporting iron ore and coal cargoes, reaching a peak of over US$230,000 a day in 2008 and over US$180,000 a day for crude oil supertankers.

Average capesize earnings reached just under US$6,000 a day this week and below operating costs, while supertankers have hit just over US$13,000 a day, slightly above operating costs.
'Companies were able to save liquidity thanks to very good years they had. But now, especially marginal players, will start to suffer and I am expecting an increasing number of defaults especially in dry bulk among marginal players,' Mr Vetulli said.

Mr Vetulli said despite reasonable iron ore and coal demand in China, one of the main drivers of dry bulk activity in recent years, fleet growth would continue to take its toll.
The Baltic Exchange's main index, which tracks rates to ship dry commodities, reached just over 780 points this week, off its peak in May 2008 of 11,793 points before financial turmoil battered the sector. 'I don't see the possibility for the main index to be above 1,500 points on average (this year),' Mr Vetulli said.

The ratings agency downgraded the shipping sector to negative from stable in July last year.
The crisis has already claimed casualties including Malaysia's Swee Joo Bhd, which went into bankruptcy last year.

PT Berlian Laju Tanker, Indonesia's largest oil and gas shipping group, last month defaulted on its US$2 billion debt.

Separately, General Maritime, which had filed for Chapter 11 bankruptcy protection in November, said in February that private equity firm Oaktree Capital Management will provide it with US$175 million in new capital under a restructuring plan.
Mr Vetulli said a sector recovery was more likely to take 15 months. 'It will be a painful process,' he said in an interview.

Soaring fuel costs and the eurozone crisis have also added to pressures faced by ship owners.
Mr Vetulli said ship scrapping had helped soak up some of the excess vessel availability in the dry bulk sector and the tanker market. Slow steaming, a method where ships slow their speed to cut fuel consumption, had also saved costs.

'Generally my perception is that tanker operators tend to be a little stronger from a (financial) liquidity point of view than dry bulk players but the level of problems in the market is very similar,' he said. 'For products tankers the fundamentals of the industry are a bit better and in 2013 it will be the first of the sectors to emerge from the crisis.'

For crude tanker operators, sanctions imposed by the West over Iran's disputed nuclear programme would also hurt as the country faces growing hurdles to sell its oil.
'It will change the normal trades globally. I think it may have a negative effect on the sector because this kind of geopolitical crisis is not, especially in that region of the world, a good scenario for this market,' Mr Vetulli said. 'Maybe some players will be able to make money out of it. But in general it will be negative for the industry.'

Danish shipping company Torm said last week its banks had agreed to extend until March 15 a suspension of repayments on its US$1.87 billion of debt to allow more time for talks aimed at finding a way out of its funding crisis.

Banks are expected to tighten credit lines to the sector.

'A lot of problems are related to covenants and liquidity. So things are getting more and more difficult,' Mr Vetulli said. -- Reuters

Sinochem Saves Dorval

Bankrupt Japanese chemical tanker owner operator Dorval Shipping hasbeen offered a lifeline from Chinese petrochemical trader Sinochem.

According to Japanese financial reports, under a plan tabled this week Sinochem will take a majority 51% shareholding in a new joint venture company to be named Dorval Sinochem Tankers.

Dorval will hold the remaining 49% stake. The deal includes Dorval’s in-house shipmanagement company.

Dorval applied for court protection in December last year after collapsing with some JPY 15bn ($192m) in debt. Its failure was blamed on overinvestment in new tonnage amid a moribund chemical tanker market, rising fuel costs and an appreciating domestic currency.

It has been attempting to rebuild its business under the Tokyo district court. The new planned joint venture remains subject to the court and creditor approval. A creditors meeting is due to be held in Tokyo next week.

Dorval was building four 19,800-dwt newbuildings at the Fukuoka and Usuki shipyards in Japan for delivery in 2011 and 2012. However it is understood the company has disposed of all its assets as part of the administration process and that the new joint venture will act initially as a pure operator rather than tanker owner.

The move will give Shanghai listed Sinochem the chance to expand in the chemical logistics business through Dorval’s expertise in the Asian Pacific market.

The Dorval Sinochem Tanker board will have two representatives from Sinochem and three from Dorval. The company will be headed by Dorval’s current president Tomohiro Yanagi.