The Damocles Sword that will remain over shipping markets in 2012 will be the debt issue.
Europe’s sovereign debt crisis will accelerate the already tightening situation in the banking sector. Shipping debt will become increasingly harder to source, and a number of well-known providers ultimately will exit the stage. The bigger players will pick up some of the slack, and we expect some of the leading German and Scandinavian banks to take up their cudgels and try to regain lost market share, but there will continue to be large gaps in the capital structure.
We know expensive bonds don’t work for we saw several Chapter 11 filings, often spurred by the issuance of bonds with double-digit interest rate obligations, at the end of 2011. So the looming question will be, how will the industry funds itself going forward?
We expect private equity will continue to play a prominent role, but those participants are watching and waiting for the distress that has only happened in limited situations. More private equity firms than ever are looking at investing in shipping. The cycle appears to be at a point where entry is attractive, but as much as the buzz is there and the electricity is flowing, few people seem willing to turn on the switch.
The public equities in New York have declined in value significantly, and we have gone from a stage where four years ago there were 11 shipping companies with market capitalization of more than $1 billion each to only two such companies today. This doesn’t augur well for the potential investor.
It will be a tough year.