* Funding costs likely to rise for ship owners
* Nordic banks to remain lenders to sector
By Jonathan Saul
LONDON, March 29 The global shipping sector is expected to face oversupply pressures until 2014 and a growing credit crunch will continue to hamper bank lending to the industry, Fitch Ratings said on Thursday.
Ship owners went on an ordering spree between 2007 to 2009 bolstered by earnings as rates in the bulk sector for larger capesize vessels, which carry iron ore and coal cargoes, reached a peak of over $230,000 a day in 2008 and over $180,000 a day for crude oil supertankers.
Average capesize earnings have slid to just under $5,000 a day this week, below operating cost levels, while supertankers have hit just over $36,000 a day, above operating costs.
"Combined with subdued growth in global demand, there is now significant overcapacity in the industry," the ratings agency said in a sector report.
"Fitch expects industry overcapacity to continue until 2014, when increased scrapping rates, reduced ship order books and an improvement in global demand should bring the market closer to equilibrium."
Earlier this month Moody's said it expected the global shipping slump to last well into 2013, while Standard & Poor's expected the dry bulk sector to be the last to recover after tanker and container markets.
Shipping firms, especially in dry bulk, already hit by economic turmoil, weak earnings and oversupply now face tighter financing as banks cut their exposure to risky and dollar denominated assets such as ship finance to meet tougher capital rules.
"The shipping industry downturn, combined with a range of factors putting pressure on the banking sector as a whole, has increasingly led to banks pulling back from the industry. Fitch Ratings expects the downturn to continue until at least 2014," it said.
"Fitch expects impaired loans and impairment charges relating to ship finance to remain at heightened levels or increase somewhat in 2012 and 2013."
ASIAN BANKS ACTIVE AT HOME
While European banks have been aiming to scale down their shipping exposure to meet stringent capital requirements, rivals in Asia have been looking to boost their activities.
"The Asian banks are currently mainly active within their home region, and significant global expansion is unlikely in the near term due to the unfavourable market conditions within the segment," Fitch said.
Nevertheless, Fitch said banks not hit by dollar-funding gaps or a need to scale back exposure to heavy industry could enjoy potential opportunities.
"Well-capitalised banks that are in a position to continue providing ship lending will benefit from much lower competitive pressure within the market," it said. "Such banks, which also have more long-standing relationships with the shipping industry and are based particularly in the Nordic region, are benefiting from other banks withdrawing from the sector."
Fitch said tighter bank lending meant financing alternatives were being explored, adding private equity funding remained an expensive option for ship owners due to the higher returns demanded given the tougher market conditions.
"Public equity financing for ship companies is another option that is likely to attract investor interest but is in practice unattractive to ship owners due to the perceived risks in the sector pushing market prices down," Fitch said.
"Bond market funding has grown, particularly due to the variety of available instruments affording the ship companies greater flexibility. As with equity financing, however, bond pricing is affected by the high amount of risk within the market." (Editing by James Jukwey)
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