Chinese shipyards are failing to find new work 20 months after Premier Wen Jiabao sought to encourage ordering by pledging $5 billion of loans to Greek vessel owners, who control the world’s biggest merchant fleet.
The move by state-run banks was announced by Wen in October 2010 and they have distributed about $1 billion since then, according to XRTC Business Consultants, the Athens-based adviser to China Development Bank Corp., which is coordinating the lending. Danaos Corp. (DAC), Greece’s largest container-shipping line, was one of the companies to take a loan, said the company’s president, John Coustas.
“It was a time-consuming and painful exercise,” Coustas said in an interview in Athens. The project “was a political statement that was not really matched by the will of the banking system over there to proceed with the actual money,” he said.
Almost 90 percent of China’s shipyards received no orders this year and about 28 percent have secured none since the end of 2009, Clarkson Plc (CKN), the world’s largest shipbroker, said May 16. Shares of China Rongsheng Heavy Industries Group (1101), China’s largest non-state builder, fell 55 percent in the past year, valuing the company at HK$13.6 billion ($1.8 billion).
Owners are refraining from new orders after rates plunged and the combined capacity of oil tankers, container ships and commodity carriers reached a record. Earnings from the industry averaged the lowest since 1999 so far this year, according to the ClarkSea Index, a measure of freight rates for different vessel types published by Clarkson.
European Lenders Retreat
European banks, which provide about 80 percent of the shipping industry’s financing, are retreating because of a lack of dollar funding and stricter EU capital requirements, according to Frankfurt-based DVB Bank SE (DVB), which in March had 450 such loans. Thirteen of the world’s 19 largest shipping banks stopped new lending to the industry, Dagfinn Lunde, a member of DVB’s board of managing directors, said at a March 9 presentation in London.
Banks in China may have another $3 billion to $5 billion to lend and are streamlining the credit procedures improving loan handling and documentation, George Xiradakis, the managing director of Piraeus, Greece-based based XRTC, said in a phone interview June 1. Greek owners have orders for new vessels worth $31 billion, the most by value of any country and about 10 percent of the total, Clarkson data show.
Safe Bulkers Inc. (SB), the Athens-based operator of 20 commodity carriers, didn’t seek Chinese funding because of the costs, said its President Loukas Barmparis. Chinese banks proposed loans at 3.5 percentage points above the London interbank offered rate, about 1 percentage point more than other lenders, he said. Libor is the rate at which banks say they can borrow in dollars from each other.
“It’s the smaller owners that do not have alternatives that would be the ideal candidates to absorb these funds,” Barmparis said in an interview in Athens on May 28.
Greek companies controlled 16 percent of the merchant fleet by capacity at the start of 2011, making it the largest ship- owning nation, according to the United Nations Conference on Trade and Development. Japanese owners controlled almost 16 percent. Ten Greek owners have borrowed from China, according to a May 31 presentation from XRTC.
China Shipbuilding Industry Co. (601989), whose shares slumped 27 percent in the past year, became the first yard to sell convertible bonds in the country. The state-backed supplier of submarines, missile destroyers and merchant vessels sold 8.1 billion yuan ($1.3 billion) of six-year notes with a 0.5 percent initial coupon that convert into equity, according to a stock exchange statement yesterday.
Chinese policy makers are encouraging banks to lend more after earlier seeking to restrict credit. The amount of cash banks must set aside as reserves was reduced for the third time in six months, the central bank said May 12.
New orders for Chinese vessels would add to a glut of capacity and driving down rates, said Nikolas Tsakos, the chief executive officer of Tsakos Energy Navigation Ltd. (TNP) The Athens- based company, which operates tankers hauling crude and refined oil products, hasn’t sought financing from them.
“I was always against this,” Tsakos said in an interview in Athens on May 28. “This is for owners who can’t get Western funds. It was so bureaucratic it has not worked.”