Banks to shun shipping post-Covid: banking and maritime industry veteran
FOR all the talk that shipping will escape 2020 as one of very few industries to have had an improved year financially, 'do not expect banks to fall back in love with our industry any time soon - they're scarred from previous exposure to shipping and have far greater debt concerns to worry about,' says Dagfinn Lunde of Singapore's Splash 247
22 October 2020 - 19:00
Mr Lunde, with 40 years' experience in the banking and maritime industry adds: 'As we go to print shipping looks set to be on course for improved average earnings by as much as 25 per cent year on year, a tremendous achievement, but one that will receive scant attention from the biggest names in banking.'
A former CFO of the Klaveness Group in Oslo, Norway, Mr Lunde explained that ship finance post-Covid will start by an enormous reduction among banks because they are incurring losses in their overall businesses. Shipping is a small industry that banks care little about in the grand scheme of things.
He noted that the situation is not helped by the fact that the cruise sector is posting stunning losses, as is the offshore segment. An offshore support vessel (OSV), which originally cost US$40 million, is typically on the market for $3 million or $4 million these days, 'that is a worse situation than the horror show I remember all too vividly from the mid-1980s,' he adds.
Whatever argument shipowners have for shipping, bankers are unlikely to buy in because of the industry's notorious volatility. Only smaller banks still have an appetite for the industry, led by Greek, Cypriot and some Norwegian names.
'We have to be realistic. Newbuilds are no more a problem to finance as that comes from readily available export credit as has been the case for the last 10 years. But ship orders are increasingly rare with these uncertain times for future incomes as well as the very high risk that today's shiny new vessel could become obsolete tomorrow,' Mr Lunde says.
Credit where it is due - the Greeks have been buying second-hand tonnage on a grand scale this year, which to my mind are working out as fantastic buys. Bear in mind break evens in shipping are so low these days that pretty much any vessel acquisition this year has proved profitable. Loan levels are so low, as is LIBOR; owners are only paying the margin, it's next to nothing.
'Combine that with the extraordinary low orderbook today and you would think that the markets are nicely poised for those who have been brave enough to expand their fleets during the pandemic, not that the banking community will appreciate this astute play,' Mr Lunde adds.
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