| FRANKFURT, March 25
FRANKFURT, March 25 Banks lending to the
shipping sector will have a tougher time making money as more
creditors are entering the market in the search for yield, an
executive of German transport finance specialist DVB said.
"We expect credit margins for ship loans to continue to
shrink", Ralf Bedranowsky told Reuters on Tuesday.
"Some banks are pushing into the market trying to put the
cheap U.S. dollar funding on their books to work. That will
continue to put pressure on margins", said the manager, who
served as Deutsche Bank's head of shipping until changing to DVB
After years of anaemic economic growth and record low
interest rates, banks are scrambling for asset classes that
promise higher returns.
That has pushed interest rates on new ship loans to historic
lows. DVB is charging its best clients less than 200 basis
points above the Libor interbank lending rate, while the
majority of its clients still faces coupons of 250-350 basis
points above Libor.
Private equity investors, too, are increasingly turning to
the sector, scooping up ships or buying into ship loans often
with a view to taking control of the asset through a subsequent
debt for equity swap.
Many buyout firms team up with shipping groups to access
sector expertise. Among others, private equity group Apollo and
Germany's Rickmers group recently set up a joint venture to buy
"Currently, we are seeing a peak in private equity
investments in the shipping sector. They not only buy used ships
but also acquire contracts for the delivery of new ships from
shipping companies not taking delivery of the vessels",
Earlier this month, ship investor Scorpio said it made $50
million on a sale of seven oil tankers that are still under
construction at Korean shipyards.
According to media reports, the vessels were bought by
General Maritime, which is backed by Oaktree Capital. General
Maritime and Oaktree were not immediately available for comment
Investments in shipping assets do not come without risks.
The sector is still struggling to recover from the worst slump
on record, in which a weak global economy and an oversupply of
vessels have pushed dozens of shipping firms into default or
Despite a recent uptick of ship charter rates, the fees that
shipping groups get to put their vessels to work still often do
not suffice to pay for their costs and loans.
Little change is expected in the short term, Bedranowsky
said. "Charter rates have bottomed out. But the current low
rates are likely to be the new reality. I do not expect a return
of charter rates to pre-crisis levels."
Despite overcapacities, companies continue to order new
vessels, while taking too few old ones out of service.
"The worldwide order book for large container ships accounts
for 54 percent of the existing fleet. That is way too much to
allow any kind of sustainable rebound," Bedranowsky said.
(Editing by Mark Potter)