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Maritime firms to struggle with credit squeeze

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With fears of a recession rising, the maritime industry will find it increasingly difficult to obtain financing for expansion over the next year, with the exception of the offshore-energy sector, industry experts said.

The economic gloom in Europe and the United States 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.

The International Monetary Fund last week warned that the West could slip back into recession next year unless they quickly tackled economic problems that could infect the rest of the world.

"Given the underlying economics of oversupply and current day (freight) rates, the banks are far more cautious," said Gervais Green, head of Asia shipping with law firm Norton Rose.

"If they are going to put money into a project, it is on very particular terms."

Executives from the world's top banks in shipping finance, including DnB NOR, HSH Nordbank and Deutsche Bank, will gather with the maritime community in Singapore on September 27 and 28 to discuss survival, recovery and opportunities in this gloomy economic environment.

CREDIT WOES

The depressed freight market has forced shipping companies to use more of their reserves to buy vessels and expand their operations as banks tighten their credit lines.

Before the economic downturn three years ago, ship owners typically needed to place a down payment of only around 20 percent of the value of a vessel, with banks providing the remainder of the funding.

Today, some medium-sized firms must provide as much as 50 percent down payment to get a loan, leaving many unable to stay competitive against industry leaders such as A.P. Moller-Maersk and Mediterranean Shipping Company (MSC).

Bankrupt shippers Korea Line, The Containership Company, and Omega Navigation Enterprises are the most high-profile casualties so far this year.

"Large projects with strong companies behind it will get financing," said Erik Borgen, Asia director for DnB NOR bank.

"The banks themselves are a bit too exposed today, so there are only a small amount of banks prepared to be involved in the ship-financing side."

Despite the difficult environment for most of the maritime sector, there are some businesses that remain attractive to banks.

With oil prices expected to remain high, the offshore-energy sector is considered one of the rare bright spots in the shipping industry with banks fiercely competing to finance lucrative projects.

"In the offshore sector, there are some very large deals still being done. We are working on several right now and there is appetite to do more," said Green of Norton Rose.

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