The findings are clear and painful at once: The shipping crisis has been dominating the market for eight years now. From its very beginning, banks have been fighting against write-offs, ship owners for their survival, and investors against the loss of their invested capital. When exactly this trend will reverse, is still unclear, since a quick and sustainable market recovery is not visible on the horizon.
Two theses on this subject:
1. Survival only through consolidation
Ship owners who are not able to raise capital from new and alternative sources of funding will not survive. The reason is that not only in light of their negative experiences during the crisis, but as well determined by even stricter capital adequacy regulations according to Basel III, banks will no longer make the necessary amounts of credit available. And the German “KG-market” is said to be “dead”, at least for the time being. Therefore, the remaining sources of capital basically consist of institutional investors (pension funds, family offices, insurances, private equity funds) and the capital market. These types of investors require larger investment volumes and companies of a specific size that meet market standards concerning transparency, reporting and corporate governance. A lot of smaller and medium sized ship owners do not (yet) fulfil these requirements. They should quickly explore all possibilities of consolidation and cooperation and implement a sustainable corporate structure. When we look at the intended joint venture between Germany’s largest liner shipping company, Hapag Lloyd, and United Arab Shipping Company (UASC), or the takeover of American President Lines (APL) by CMA CGM, we can see that leading shipping companies demonstrate how it could work.
This presentation (available in German only) gives an overview of the possibilities at hand.
2. Number of credit sales will increase
Why? Because the current market for so called Non-Performing-Loan (NPL)-transactions is ideal: On the one hand, a couple of ship financing banks are under great pressure to dispose of numerous non-performing shipping loans; others intend to radically reduce their shipping portfolio due to strategic reasons. On the other hand, there are investors who are looking for profitable investment opportunities in the shipping sector. NPL-transactions can be a win-win for both parties:
- Banks can quickly and easily reduce their costs of capital for non-performing loans, reduce the increasing cost-pressure on internal workout-teams, and they can refocus on their core activities.
- Investors can profit from buying ships with potential for recovery at favourable Prices.
Upon request, we are happy to provide you with an overview of the typical process of an NPL-transaction under German law.