High And Dry In Dry Bulk
Ruthie Ackerman, 10.27.08, 9:58 PM ET
Private dry bulk shipping companies are anchoring their ships as spot rates for the largest Cape-size vessels plunge. If prices continue to head south, it’s only a matter of time before the public shipping companies follow suit. With net asset values plummeting and new ships set to be delivered, some dry bulk shipping companies’ balance sheets may be vulnerable if the downturn in the global economy continues unabated.
Reports are circulating that Sammy Ofer’s Zodiac Maritime Agencies is anchoring up to 20 ships. The rumor among ship brokers is that over 2,300 ships in Greece are sitting idle, unable to make their operating costs given the plunge in day rates.
On average, the public companies have older fleets than private companies, which means the spot rates they get are discounted even more. Eighty percent of the dry bulk fleet is in private hands.
If spot rates remain weak for Cape-size ships--they ended last week at a six-year low below $8,500 per day--Oppenheimer analyst Scott Burk said the industry will see anchoring within a few months and significant scrapping.
Edit. Earlier this year, rates were close to $200k per day.
Burk said that net asset values could also be a problem. If NAVs drop below 50.0%, he said, bond covenants could begin to be breached, resulting in foreclosures. Burk said modern vessels, which are five to nine years old, are selling for 55.0% of what they were going for six months ago, at around $80 million last week, down from $155 million at the end of 2007.
Maxim Group analyst Charles Rupinski agrees. “At this point net asset values and debt covenants are on the eyes of investors,” he said. “Ship brokers are still trying to get a bead on potential 'post crash' asset values.” Rupinski says he is hearing that the value of the oldest vessels, which are those from 20 to 25 years old, are expected to be hit the hardest.
Read more.....if you are not already depressed....
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