MORE than half of the shipping companies with stock exchange listings could slide into bankruptcy or administration proceedings in the next year as their cash drains away, a senior industry figure has warned.
The grim assessment was issued by Paul Slater, chairman and chief executive of First International, who forecast that the next 12 months would be “really painful” for the three main shipping sectors of containerships, dry bulk and tankers.
However, Mr Slater’s views on the fate of the public companies was described as “alarmist” by a leading representative of the financial and shipping industry in New York, where most of the stock market listings of the past decade have taken place.
Mr Slater pointed out that there were now more than 30 public shipping companies on US stock exchanges, about 60% of which were not public at the beginning of this decade.
“The average reduction in market value of the US public companies is somewhere between 60% and 68% in 12 months,” he said. “That is huge in any industrial sector.”
Even more important was the lack of cash-flow, Mr Slater said.
“We’re in a situation where revenue streams are barely covering operating costs,” he said.
“In some cases, such as the medium range product tanker market and the container shipping industry, they’re not even getting close to covering operating costs. At which stage you have a ‘cash burn,’ that is a net outflow of cash.”
Without doubt, Mr Slater said, the container shipping industry had already suffered the most pain and still had the most to endure. That was particularly bad news for the German KG companies and the banks that have supported them.
Mr Slater was also gloomy about over tonnage in the dry bulk market. He said there was much talk about cancellations but on closer examination most of the information was actually about deferrals
“Therefore, the capacity will arrive; it’s a question of when,” Mr Slater said.
Even in some of the bigger tanker companies there was now a “cash burn” happening of “alarming proportions”,” he said.
“I feel that more than half of the public shipping companies will go into either bankruptcy or administration within 12 months,” Mr Slater said.
“For me to say that I think that these companies will run out of cash within a 12-month period is not an outrageous statement given the fact that where the markets are today is far worse than at the end of the 1990s.”
But Peter Shaerf, president of the non-profit New York Maritime and managing director of AMA Capital Partners, said shipping’s presence in New York’s capital markets had remained robust this year.
Trading volumes in shipping companies continued to increase, and $1.4bn had been raised in at-the-market or follow-on offerings this year. Many public companies have re-negotiated their debt and publicly announced covenant waivers, he added.
“Clearly there is a high level of co-operation between banks and shipowners,” Mr Shaerf said.
“How this is to continue remains to be seen, but predicting wholesale bankruptcies at this stage might best be called alarmist.”
Meanwhile, Mr Slater said there was now an opportunity to move to an industrial shipping approach.
“That brings with it secure employment, charter contracts and it brings the opportunity for a different type of financing,” he said.
He added that there was also an opportunity for some shipping companies “to consolidate, to have a better looking balance sheet, to have a better looking business plan and for end-users to get into the shipping business and secure their own freight”.
Tony Gray and Rajesh Joshi
Source: Lloyds List, 21 May