The liquidity crisis in the United States of America and now Europe is beginning to hit the shipping industry, with a $20 billion (Rs93,800 corer) investment plan by Indian shipowners to replace part of their ageing fleet and expand cargo capacity likely to end up being put on hold.
“Most of the European banks have closed their books for ship financing in 2008. There will be no new business in ship financing for the rest of the year,” said Tobias Konig, managing partner of Hamburg-based shipping investment firm Konig and Cie GmbH, KG. He was speaking at the India Shipping Summit in Mumbai last week.
Barely a week after the US financial system was brought to its knees by the rapid unravelling last month of Lehman Brothers, Merrill Lynch and AIG, the contagion crossed the Atlantic, bringing down Belgian-Dutch bank Fortis NV, which required a three-nation rescue, and UK’s Bradford and Bingley Plc., which had to be nationalized.
Indian shipowners have so far relied heavily on European banks, particularly those located in Scandinavia and the Nordic region, for their financing needs, because funding from these specialist banks was much cheaper than local funds.
“Besides, Indian banks cannot lend money for longer periods. They can lend money only for two-three years, whereas shipping firms typically need money for tenures ranging between eight and 15 years,” said said B.K. Mandal, director, finance, at state-run Shipping Corp. of India Ltd, or SCI, India’s largest shipping firm.
According to Konig, debt will be more expensive for shipowners than ever before because banks are looking to get their money back to get out of risk.
“Banks are extremely nervous and have started asking for more and more covenants from shipowners, including long-term contracts for new ships. Banks are also demanding that creditworthiness of charterers (those hiring the ships) be rated by Standard and Poor’s or Moody’s,” Konig said.
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