MUMBAI: Shipping companies will continue to face pressure on margins in the near future because of the substantial additional supplies coming in and only a marginal recovery in freight rates, according to credit rating agency ICRA.
Indian shipping companies have been impacted significantly by the current downturn in the global shipping market, demonstrated by the sharp fall in their profitability and the weakening of their credit metrics.
“As in the global market, in the Indian market too, the near-term outlook for profitability remains weak for the sector participants. However, the extent to which individual companies are impacted will depend on their segmental diversification, fleet quality, chartering philosophy, phasing of induction of new builds, financial policies, and financial flexibility,” ICRA said in a report on Wednesday.
The loan market is drying up for shipping companies, putting further liquidity pressure on highly leveraged firms. “Although the Indian market has not seen bankruptcies as yet, ICRA has come across a few cases of smaller shipping companies opting for loan restructuring, using the Reserve Bank of India’s (RBI) window of restructuring for the Indian banks,” the report said.
As the previous upcycles, during 2004-08 too, ship owners had placed orders for new ships, which started getting employed in the market at a time when exim trade had begun to shrink. This impacted the spot and time charter rates.
While dry bulk and container ships were the first ones to be affected by the crisis in the last quarter of CY 2008, crude oil tankers and product tankers were subsequently impacted.
Besides downturn in the trade, shipping companies have also been impacted negatively by the drying up of the loan market, with lenders turning cautious in disbursing funds to this distressed sector, the report said.
It also said that the sector participants are also struggling with a decline of 20-50% in the market value of their mortgaged ships. “This, in turn, has led to the breach of the loan covenants. With that, the lenders have asked the companies concerned to either offer additional ships as collateral so that the earlier loan-to-value ratio can be maintained, or pre-pay part of the loan,” ICRA said. However, unlike some of the global shipping companies, fleet utilisation of Indian companies remains high because of the government policy of “right of first refusal” for Indian charterers. Further, the share of Indian shipping companies in India’s export-import seaborne trade is low at 14%.
Source : The Economic Times