While the mood of Middle East maritime industry is upbeat compared with many other regions in the world, the next few years will be a case of survival of the fittest, according to the global head of a bank specialising in shipping finance.
“The majority of Middle East companies will see a satisfactory 2009 but 2010 is far more uncertain,” said Geir Sjurseth, Managing Director and Global Head of Offshore for DVB Bank. “The well-established players that survive will have a fantastic future,” he said today (6 October 2009) on the sideline of the Middle East Workboats conference taking place at the Abu Dhabi National Exhibition Centre.
“The strong companies, and there are many in the Middle East, will preserve capital, cut costs and the smartest guys are planning how to benefit in the longer term. When the dust finally settles, the outlook is favourable but before that we will likely see defaults and consolidation among highly leveraged, recent entrants in the market.”
Headquartered in Germany, DVB Bank has a 15 billion euro (US$22 billion) shipping loan book and more than 500 clients active in the transport sector worldwide. Sjurseth is playing a leading role in the debate on the challenges facing maritime financing in the new global economic climate at the Middle East Workboats conference and at the Middle East Money and Ships conference opening tomorrow (7 October 2009) at the Grand Hyatt Hotel, Dubai, both organised by Seatrade.
“The end of this year and into 2010 is expected to see record shipping losses hit banks,” said Sjurseth. “While stock markets have bounced and there signs of an economic upturn visible, the banks are still underwater and are likely to remain so for another two or three years..
“The offshore support vessel market in the Middle East has been less impacted and probably has the best outlook of all shipping sectors. It nevertheless suffers from valuation distress and financing shortage, predominantly affecting new entrants through yard delays, cost overruns, undervalued volatile assets and lack of bank financing.”
Internationally in the offshore support vessel market, oil and gas companies have cut back on their exploration and production plans and spending; there have been delays in tenders for rigs and supply vessels; and cancellations of speculative building programmes by yards.
“The Middle East is seeing lengthening negotiations and pressure on charter rates,” Sjurseth added. “In addition, more yards in China and India are building offshore vessels as their way out of crisis and providing tough competition.
“With banks on the sidelines, however, there are more opportunities for non-bank investors who can get equity returns with downside protection. But equity investors still wanting 25% return on investment with 75% leverage need to adopt a new mindset for today’s world.”
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