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24-03-2012, 07:57 AM
The Straits Times
Mar 24, 2012
Choppy seas: Banks seize more ships
Trade slump, spike in fuel cost and low freight rates spell trouble for operators
By Jonathan Kwok
THE crisis in the maritime sector is driving more shipowners into the red and forcing banks to seize their vessels and sell them off to raise cash to clear debts.
Corporate lawyers here expect more firms to default on loan repayments as the industry is caught in a perfect storm of slumping global trade, plunging freight rates and huge loans taken to order ships during the good times. Fuel costs have gone through the roof as well.
The crisis in the sector, which is known for its wild cycles of booms and busts, was brought home by the case of Singapore-listed PT Berlian Laju Tanker.
The Indonesian carrier of liquid cargo, which is also listed in Jakarta, defaulted on debts of about US$2 billion (S$2.5 billion) earlier this year and is in talks with creditors about restructuring its loans.
Berlian Laju has won court orders in Singapore and the United States to protect its ships from being seized.
Mr P. Jeya Putra, director at law firm AsiaLegal, said there has been 'an increase in mortgagee actions in Singapore'. 'In fact, I got instructed on Sunday on a group of European banks wanting to enforce their actions on ships within Singapore,' he said.
Another lawyer, who declined to be named, said he is giving advice in 'quite a few' situations where shipping firms are looking to undergo orderly debt defaults.
'This is not a similar scale to the 2008 and 2009 crisis,' said the lawyer. 'There are not as many firms going under. Even from this year to the middle of next year, I expect half the number of firms to be in trouble, compared to 2008 and 2009.'
Supreme Court filings show that there are six ships placed under arrest. The titles of these suits indicate that these are actions being taken by financiers to enforce unpaid mortgages, noted Mr Leong Kah Wah, partner of Admiralty and Shipping Practice at Rajah & Tann.
There has been one vessel sale this year to pay off loans, court filings show. There were 19 ships sold last year - when the crisis was already raging - and six sales in 2010, when rising freight rates and trade recovery brought some respite.
The worst recent year was 2009, when 24 ships were sold. In the boom years between 2006 and 2008, only five were sold in total.
'It is always difficult to say whether financiers will start arresting ships and putting them up for auction,' said Mr Leong. It is the last resort as most financiers will not want to have the debts on their balance sheet and the resale market is 'not exactly bullish as well'.
He said creditors consider other options like restructuring loans or even 'laying up' the ships - putting them out of service - to wait for the market to turn.
A director of the local unit of a large owner and operator of ships said all operators have been forced to cut costs, including crewing and ship maintenance, and some voyages have had to be cancelled but the firm has not missed payments. The director, who declined to be named, said it is 'more the smaller shipowners that are under the most pressure'.
Besides having their vessels impounded, shipping companies can also be forced out of business. The US firm General Maritime Corp, which owns oil tankers, filed for bankruptcy last November after losing money for about two years.
'Most shipowners have reported losses, some very heavy losses, for the past year,' said Mr Leong.
'The large owners and more sophisticated operators have diversified their business, hedged their business risks, and these players will be strong enough to withstand the tough market conditions.
'I'm afraid the weaker players will be forced out of the market and it is happening everywhere, including in this region.'
High-profile company failures during the 2009 crisis include Armada (Singapore), a dry bulk operator that is now under judicial management.
The crisis is most evident in the area of freight rates, which are so low that operating costs cannot be covered at times.
Owners also ordered too many ships in the boom times, while weaker economies in Europe and the US affected the key trade routes of Asia to these places. Bunker fuel prices are also near all-time highs.
Many shipping firms buy their vessels via bank loans, with the ships mortgaged as collateral. This mean they can be impounded if payments fall behind.
Even then, because ship values have dropped by as much as 50 per cent in three years, their market value will be less than the amount owed to the bank.
Even after giving up the ships, owners still owe cash to the creditors for the 'underwater' mortgages.
jonkwok@sph.com.sg
Mar 24, 2012
Choppy seas: Banks seize more ships
Trade slump, spike in fuel cost and low freight rates spell trouble for operators
By Jonathan Kwok
THE crisis in the maritime sector is driving more shipowners into the red and forcing banks to seize their vessels and sell them off to raise cash to clear debts.
Corporate lawyers here expect more firms to default on loan repayments as the industry is caught in a perfect storm of slumping global trade, plunging freight rates and huge loans taken to order ships during the good times. Fuel costs have gone through the roof as well.
The crisis in the sector, which is known for its wild cycles of booms and busts, was brought home by the case of Singapore-listed PT Berlian Laju Tanker.
The Indonesian carrier of liquid cargo, which is also listed in Jakarta, defaulted on debts of about US$2 billion (S$2.5 billion) earlier this year and is in talks with creditors about restructuring its loans.
Berlian Laju has won court orders in Singapore and the United States to protect its ships from being seized.
Mr P. Jeya Putra, director at law firm AsiaLegal, said there has been 'an increase in mortgagee actions in Singapore'. 'In fact, I got instructed on Sunday on a group of European banks wanting to enforce their actions on ships within Singapore,' he said.
Another lawyer, who declined to be named, said he is giving advice in 'quite a few' situations where shipping firms are looking to undergo orderly debt defaults.
'This is not a similar scale to the 2008 and 2009 crisis,' said the lawyer. 'There are not as many firms going under. Even from this year to the middle of next year, I expect half the number of firms to be in trouble, compared to 2008 and 2009.'
Supreme Court filings show that there are six ships placed under arrest. The titles of these suits indicate that these are actions being taken by financiers to enforce unpaid mortgages, noted Mr Leong Kah Wah, partner of Admiralty and Shipping Practice at Rajah & Tann.
There has been one vessel sale this year to pay off loans, court filings show. There were 19 ships sold last year - when the crisis was already raging - and six sales in 2010, when rising freight rates and trade recovery brought some respite.
The worst recent year was 2009, when 24 ships were sold. In the boom years between 2006 and 2008, only five were sold in total.
'It is always difficult to say whether financiers will start arresting ships and putting them up for auction,' said Mr Leong. It is the last resort as most financiers will not want to have the debts on their balance sheet and the resale market is 'not exactly bullish as well'.
He said creditors consider other options like restructuring loans or even 'laying up' the ships - putting them out of service - to wait for the market to turn.
A director of the local unit of a large owner and operator of ships said all operators have been forced to cut costs, including crewing and ship maintenance, and some voyages have had to be cancelled but the firm has not missed payments. The director, who declined to be named, said it is 'more the smaller shipowners that are under the most pressure'.
Besides having their vessels impounded, shipping companies can also be forced out of business. The US firm General Maritime Corp, which owns oil tankers, filed for bankruptcy last November after losing money for about two years.
'Most shipowners have reported losses, some very heavy losses, for the past year,' said Mr Leong.
'The large owners and more sophisticated operators have diversified their business, hedged their business risks, and these players will be strong enough to withstand the tough market conditions.
'I'm afraid the weaker players will be forced out of the market and it is happening everywhere, including in this region.'
High-profile company failures during the 2009 crisis include Armada (Singapore), a dry bulk operator that is now under judicial management.
The crisis is most evident in the area of freight rates, which are so low that operating costs cannot be covered at times.
Owners also ordered too many ships in the boom times, while weaker economies in Europe and the US affected the key trade routes of Asia to these places. Bunker fuel prices are also near all-time highs.
Many shipping firms buy their vessels via bank loans, with the ships mortgaged as collateral. This mean they can be impounded if payments fall behind.
Even then, because ship values have dropped by as much as 50 per cent in three years, their market value will be less than the amount owed to the bank.
Even after giving up the ships, owners still owe cash to the creditors for the 'underwater' mortgages.
jonkwok@sph.com.sg
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