A November survey of ship owners has found their market confidence is the highest it has been since August 2010. Most owners are again optimistic and forecasting improving markets. The World Trade Organisation predicts growth in shipping volumes of 4.5% in 2014. The Baltic Index has pushed past 2000 for the first time since 2011 after bottoming in December 2008 at 663 points. All good news and these factors combined have most industry players feeling like we are in the early stages of a global shipping recovery.
Despite this positive sentiment many European banks are currently selling their shipping loan books to investment funds as the banks see them as problem areas of their portfolio. Admittedly some sectors of the shipping industry remain under extraordinary pressure and some loans are not performing.
Consequently private equity funds are buying loan books at discounts between 15 and 20% off their nominal value and are punting that recovery is finally underway and they can ride the market up and enjoy good returns.
Banks that have sold loan books to strengthen their own balance sheets include; Royal Bank of Scotland, Lloyds Banking Group, Commerzbank and HSH. US based private equity firms are the main buyers.
So what does this mean for shipping?
As confidence and demand returns ship values will rise again and so will freight rates. There are already reports that bulk carriers currently being built have changed hands at up to 25% gains.
On the other hand, if a recovery falters, then ship owners will have a different type of creditor to deal with in an investment fund rather than a bank. Fund managers are typically far less patient to get their returns than the banks have been if payments fall into arrears.
I think the bottom line is that improved confidence and financial returns in shipping is bringing investment back for the first time in about 5 years. That is a really positive thing for everyone in the industry and I think this investment trend is gaining momentum.
All for now,
+Brad Skelton
Despite this positive sentiment many European banks are currently selling their shipping loan books to investment funds as the banks see them as problem areas of their portfolio. Admittedly some sectors of the shipping industry remain under extraordinary pressure and some loans are not performing.
Consequently private equity funds are buying loan books at discounts between 15 and 20% off their nominal value and are punting that recovery is finally underway and they can ride the market up and enjoy good returns.
Banks that have sold loan books to strengthen their own balance sheets include; Royal Bank of Scotland, Lloyds Banking Group, Commerzbank and HSH. US based private equity firms are the main buyers.
So what does this mean for shipping?
As confidence and demand returns ship values will rise again and so will freight rates. There are already reports that bulk carriers currently being built have changed hands at up to 25% gains.
On the other hand, if a recovery falters, then ship owners will have a different type of creditor to deal with in an investment fund rather than a bank. Fund managers are typically far less patient to get their returns than the banks have been if payments fall into arrears.
I think the bottom line is that improved confidence and financial returns in shipping is bringing investment back for the first time in about 5 years. That is a really positive thing for everyone in the industry and I think this investment trend is gaining momentum.
All for now,
+Brad Skelton
No comments:
Post a Comment