Credit Market Outlook


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Credit Market Outlook

  1. 1. By John Darkow - Columbia Daily Tribune, Missouri Credit Market Outlook Rodricks Wong, Marine Money Asia 05 March 2008
  2. 2. Worldwide “credit crunch” started to unfold since August 2007 - Loan crisis was largely caused by mortgage lenders who financed borrowers with bad credit and quickly sold these subprime mortgages to third party investors. - As home values declined and interest rates rose, these borrowers started to default which led to a sharp increase in the rate subprime mortgage foreclosures. - A wave of bankrupt lenders followed. - Surprised by the extent of their exposure to the sub-prime sector, investors such as banks and hedge funds found their investments near valueless. Credit market tightens on lenders. - Analysts say subprime losses may reach a total of USD 400 billion and could force financial institutions to cut lending by USD 2 trillion.
  3. 3. What about the subprime effects on shipping? - So far, the barrage of defaults has not spread to shipping. - Fundamentals of the shipping industry remain sound. - Shipping companies particularly those in the dry bulk arena are expected to continue making profits well into 2009. But as the global credit market liquidity tightens, shipping is not immune from the wider financial difficulties.
  4. 4. Marine Money carried out a survey entitled, “Shipping Finance and the Credit Crunch” to understand the outlook for the shipping and capital markets better. - The survey received a highly representative sample of 121 responses globally.
  5. 5. Marine Money’s Survey on Shipping Finance and the Credit Crunch Q1: Will the credit tightening have any impact on equity raising? 21% 79% Yes No
  6. 6. Postponement of IPOs - Ripples from US subprime lending fiasco sparked off a heavy sell-down on global stock markets. - Upcoming IPO aspirants are forced to reevaluate their plans or lower their price expectations. After the crash, every IPO appears overpriced against its listed peers. Case 1: Yantai Raffles - “We remain committed to seeking a main board listing, but recent market developments make that exercise impractical immediately.” Case 2: NOR Offshore - “NOR has decided, given the current market conditions, to delay the registration of the final prospectus of NOR with the Monetary Authority of Singapore and the launch of the initial public offering of NOR, until the market conditions are more conducive.”
  7. 7. Case 3: North China Shipping - The company said its planned share offering will be postponed indefinitely due to the uncertainties in the shipping and stock markets. Case 4: HSH Nordbank - The German lender is considering a postponement of its earlier plans to list by the end of this year.
  8. 8. Marine Money’s Survey on Shipping Finance and the Credit Crunch Q2: What actions might you and your institution have taken or take because of the recent credit concerns? 73% of the respondents said they had adjusted or are in the process of adjusting their pricing or terms to currently in the market transactions. Only 10% said they are avoiding lending in the near term. Q3: What advice are you giving clients at the moment? 80% are telling their clients to be ready to pay more for debt.
  9. 9. Signs of more rigorous checks and higher pricing - Prior to the liquidity crunch, ship financiers have been facing falling margins especially in Asia but this is expected to change as risk premiums rise. Case 5: Indonesia’s Samudera Shipping on securing financing for its newbuildings at the moment - “In terms of margins, there is room for improvement… While we see changes in the margin expectations from some ship finance focused banks, others are able to find ways to work around it by being more creative in coming up with attractive financing structures.” - Mr. Dhrubajyoti Das, Executive Director of Samudera Shipping
  10. 10. Marine Money’s Survey on Shipping Finance and the Credit Crunch Q4: What has been more affected by the credit market turmoil? 9% 91% Bilaterals Large syndicated loans
  11. 11. Shipping loan issuance hits USD 94 billion in 2007 - 4Q07 issuance was up 36 percent. - But is the market as healthy as it seems?
  12. 12. Marine Money’s Survey on Shipping Finance and the Credit Crunch Q5: Will LIBOR based funding be more difficult to come by? 36% 64% Yes No
  13. 13. Marine Money’s Survey on Shipping Finance and the Credit Crunch Q6: Is it difficult to justify financing second hand ships relative to newbuildings? 38% 62% Yes No
  14. 14. Marine Money’s Survey on Shipping Finance and the Credit Crunch Q7: With asset prices at all time highs, are shipping banks facing capacity constraints? 29% 71% Yes No
  15. 15. Other sources of funding: - Japanese banks? - Chinese banks? - Shipping funds? - Shariah-compliant instruments?
  16. 16. Marine Money’s Survey on Shipping Finance and the Credit Crunch Q8: The shipping boom will end: 3% 32% 65% Never Softly In a Bloodbath
  17. 17. Thank You! The information and data in this presentation relating to the international ship finance industry are taken from Marine Money International’s databases and other sources available in the public domain. Marine Money International’s methodologies for collecting information and data, and therefore the information discussed in this section, may differ from those of other sources, and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the ship finance and maritime industry.
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