Shipping industry looking to new sources of funding
The shipping sector is looking to new sources of finance in place of bank funding, according to survey by international legal practice Norton Rose Group.
While 43% of respondents said that they expect their primary source of funding will continue to come from bank debt over the next two years, 31% said that they expect this would come from private equity and 18% from export credit agencies.
Some 42% of respondents to the Norton Rose Group survey believe that a lack of available funding poses the greatest threat to the stability of their business and 40% say that the cost of borrowing is their primary concern.
Harry Theochari, global head of transport, Norton Rose Group, says: "The past three years has seen a notable decline in the availability of bank lending to the shipping sector and this has had a considerable impact on many shipping businesses. Shipping companies are now looking beyond traditional forms of finance and are readying their businesses to weather further economic uncertainty over the next 12 months."
"The key priority post-2008 has been to ensure secure funding lines are in place. The sector is drawing on the experience of the past three years and preparing to attract new forms of finance by reducing operating costs further and disposing of non core assets. We're seeing more and more opportunities for new equity investors to enter the market, particularly from private equity which is showing growing interest in the sector."
Ben Rose, partner, Norton Rose (Asia) LLP, Singapore, says: "Following the global financial crisis in 2008, we saw relatively few signs of enforcement action being taken by lenders, who remained patient and co-operative with their shipping customers. This picture has now changed and we appear to have entered the enforcement phase of the crisis, with many ship owners desperately negotiating with their lenders to standstill/refinance and yet others seeking court protection.
Lenders have become less tolerant of persistent defaulters and are more willing to enforce troubled shipping loans (or sell distressed loans to opportunistic buyers). They are under extreme pressure to protect their balance sheets.
Only owners with good business models and manageable levels of debt are likely to remain safe. Repossessions and enforcements will increase into 2012 and insolvencies are likely to follow. However, the position in SE Asia remains relatively positive and we believe that this region will experience the quickest recovery in the shipping sector following this extended (and still deepening) crisis."
The survey, entitled "The Way Ahead" is the third transport report released by Norton Rose Group. It details the views of 1,100 international respondents from a range of companies involved in transport including financiers, owner/operators, manufacturers, government entities and professional services firms. 263 of the respondents are from the shipping sector.
Copies of the Norton Rose Group "The Way Ahead" survey can be downloaded from www.nortonrose.com from 10 February 2012
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