Modern secondhand ship values could fall a further 30% as newbuilding deliveries flood the market over the next two to three years and freight rates slide. The potential drop in asset values will continue to put pressure on the amount of cash shipping companies can borrow from private equity funds and banks, US panelists told a Capital Link Webinar.

“We have significant erosion to go on modern tonnage in terms of secondhand values, which has been anticipated by a lot of private equity firms and other funds eyeing the sector. They are still looking at that and are hesitant to enter into a sector where they would have to warehouse ships with simply no return,” Seabury head of marine Randee Day said.

“Secondhand prices, and I am talking five-year-old ships, have potentially another 30% to go.”

Secondhand values had risen 200% between 2002 and 2008 against freight rates that could not justify these escalating asset prices, Ms Day said. This had resulted in “potentially one of the biggest asset bubbles in modern global economics”.

Despite this, she advised that some “very lucrative lending business” could emerge later in 2010.

“I think there is going to be an excellent opportunity for those banks that consider themselves to be traditional commercial banks when you start to see further asset erosion,” she said.

But plenty of banks are suffering just as much as shipowners, which Ms Day expected was one of the reasons why 2009 did not see as many shipping companies collapse as analysts had predicted.

“The banks were not prepared to mark the asset values and loans they had and run their losses through their financial statements,” she said.

The panel agreed that bank lending would continue to be restricted as asset values found bottom, which was completely dependent on the pace and number of newbuildings delivered.

source: asiasi

TrackBack URI for this entry

Comments (0)

Subscribe to this comment's feed

Show/hide comments