First International

RBS nationalisation makes owners and yards edgy

21-10-2008

HOW THE mighty have fallen. Last December, Royal Bank of Scotland announced it had won the prestigious Shipping House of the Year award at the 2007 Jane’s Transport Finance Gala Awards. Lambros Varnavides, head of shipping at the UK-based bank, responded that the award was “testament to the success we have enjoyed this year and the skills of our dedicated shipping staff”.

 

This week the UK government has had to step in to take a majority stake in RBS, in essence nationalising one of the world’s biggest ship financiers. The bank’s shares have plunged as investors turned their backs on the heavily indebted bank. The resignation of chief executive Fred Goodwin and chairman Tom McKillop came as UK prime minister Gordon Brown gave his approval for a £20Bn ($34.5Bn) bailout.

 

Former RBS chairman Sir George Mathewson commented that Monday 13 October was the “direst and worst day for a long time … I obviously welcome the stability introduced to the banking system but it is deeply regrettable that we have, effectively, government ownership of a large part of the banking system.”

 

He added: “I am confident the banks will pick up eventually but we are looking at a dire economic situation just now.”

 

RBS has been at the forefront of the newbuilding boom over the past two years, building up strong links with Greek interests. Perhaps it was ironic that RBS’s shipping team was awarded the Shipping Debt Deal Asia award at the same 2007 Jane’s ceremony for the CSC Tanker deal executed in conjunction with Bank of China. The bank claimed this contract “cemented the shipping team’s presence in Asia”.

 

Greek interests will be in shock at the RBS announcement as it throws serious concern over the newbuilding portfolio. At the Financial Times-sponsored World Shipping Congress in Athens last week, there were strongly divergent views on the current financial crisis, but advice from speakers was that owners must take control of their own destiny by dramatically cutting back on the number of newbuildings ordered.

 

Ted Petropoulos of Petrofin said it would probably take 18 months to overcome the present crisis. Paul Slater of First International Capital said four years was more realistic. BIMCO president Philip Embiricos told Fairplay the situation is even more depressing than had been feared.

 

Greek shipping was praised for the prudence it has shown, leaving it less hard hit by what the Greek minister of shipping, Anastasis Papaligouras, called in his opening speech “this fluid globalised financial environment”.

 

Nevertheless, one Greek owner admitted that the younger generation is feeling edgy. They have yet to live through a downturn, and find it hard to cling on to the more pragmatic sentiment that believes all clouds have silver linings.

 

Once again last week there were less than a handful of firm newbuilding orders, and the securing of a loan is important and reassuring. North China Shipping, a subsidiary of Hebei Ocean Shipping, secured funding from a group of European banks to build a two 298,000dwt VLCCs. The agreement was made with Swedish bank SEB and German banks DVB Bank and HypoVereinsbank. Delivery is scheduled from Dalian Shipbuilding in 2010 and 2011.

 

Some observers pondered whether concentration on high-tech specialist vessels would lead to shipyard closures, so a reported order for multi-purpose carriers in China appeared to offer a way through the mire. Hudong Zhonghua Shipbuilding was linked with Beluga Shipping in the four ship order; the vessels would be delivered in November 2011 and February/April/June 2012. If confirmed, Beluga would have 14 multi-purpose ships on order at the yard.

 

Elsewhere, reports of new orders have almost ground to a halt. Torm has gone to Guangzhou for a series of six 52,300dwt chemical tankers, for delivery in 2001, and Japanese owner Nissen Kaiun has stayed with a known builder for four Capesize bulkers. These are scheduled for delivery in 2012 from Tsuneishi’s Cebu yard in the Philippines. Given the current state of the ore market, they will need a cast-iron contract in place if the owner is not to regret his thinking.

 

Leaving aside a small diving maintenance vessel and a pending order for a handy bulk carrier at Korea’s SPP Shipbuilding, the outlook is bleak. Korean shipyards told Fairplay recently they are seeking to win close to one order a day if the backlog is to be maintained. Given the uninterrupted flow of deliveries onto a punch-drunk freight market, pressure on rates will intensify.

Source: Fairtrade online, October 2008.

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