Private equity, bonds to drive ship finance amid credit crunch

Tue Sep 27, 2011 2:43am EDT

* European banks tighten credit lines to shipping firms

* Diversifying funding lines key to survival

* Private equity funding in US likely to be difficult

By Randy Fabi and Harry Suhartono

SINGAPORE, Sept 27 (Reuters) - Global shipping firms must look to private equity funds and corporate bond markets to obtain capital to expand their operations as traditional bank financing dries up in the West, industry executives said on Tuesday.

European banks, traditionally the top lenders to global shipping companies, have tightened credit lines as the region's sovereign debt crisis spills over to financial institutions.

The International Monetary Fund warned last week that the crisis had increased the risk exposure of European banks by 300 billion euros ($404 billion), and they needed to recapitalize to ensure they can weather potential losses.

"The capital market at this moment is shut," said Philip Clausius, chief executive of Singapore-listed First Ship Lease Trust Management , at an industry conference.

"The way forward is funding diversification as the old days of going to your house bank and getting the funding that suits you are over."

The economic gloom in Europe has amplified the pain for shipping companies, already struggling with rock-bottom freight rates and a glut of new vessels that were ordered when times were good.

Banks are more closely scrutinizing the companies they lend to and asking clients to provide higher downpayments in the difficult economic environment.

"In London in 2007, there were probably 18 banks that you could have visited. Today, it is probably nearer to 10 and when you visit those banks now you need a good strategic story," Nigel Anton, head of ship finance for Standard Chartered Bank, told Reuters on the sidelines of the conference.

Shipping firms hoping to protect market share from industry leaders A.P. Moller-Maersk (MAERSKb.CO), Mediterranean Shipping Company and others will need to find financing through alternative sources such as the corporate bond market and hedge funds.

"The weakening of valuations, cheap interest rates and the unavailability of credit has made publicly traded (shipping) companies prime candidates for private money," said the maritime and commodity brokerage firm Poten & Partners.

"The ability of private money to weather the near-term storm could bring salvation to those that are feeling the public pinch."

Ship owners warned, however, that private funding in the United States could prove more difficult due to the region's aversion to maritime investment.

"Most US money-market managers have no idea about shipping and they generally distrust it," said Graham Porter, director and co-founder of Seaspan , a leading containership charter owner.

"It's going to take a long time and a lot of rating agencies and everything else to build up that trust. This is not happening overnight."

($1 = 0.742 euros) (Editing by Matt Driskill)

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