FINANCIAL institutions in Malaysia are still willing to offer credit facilities to finance shipping companies’ expansion despite the global economic crisis.
This could be because a majority of local shipping players support the oil and gas (O&G) industry and are seen to be somewhat sheltered by the downtrend in the global liner and dry bulk markets.
The international container shipping market is hardest hit by the trade slowdown and the looming over-capacity that have slashed freight rates by more than 60%.
The Dry Baltic Index, the barometer of dry bulk shipping rates, plunged 87.2% to 1,506 points on Oct 16 - the lowest in almost six years - from 11, 793 points on May 20.
In Malaysia, only a handful of companies are hit by the effects of the credit crisis: MISC Bhd and Halim Mazmin Bhd, which are involved in container shipping as well as Malaysian Bulk Carriers Bhd and Hubline Bhd, both are in the dry bulk market.
This is because almost 90% of our consumer goods for import and export as well as most of our palm oil are carried on foreign vessels.
The credit squeeze emanating from the US to date has not caused traditional lenders in the country to restrict financing to the local shipping industry.
They are still issuing credit to the industry but they are doing so prudently.
Bank Pembangunan Malaysia Bhd president and group managing director Datuk Tajuddin Atan said the bank was not limiting its credit to the shipping sector at the moment.
“In fact, under Budget 2009, Bank Pembangunan was entrusted to manage an additional RM2bil Maritime Fund that will benefit shipping companies and shipyards.
“Application for financing under the said fund will be subject to a credit evaluation process and is dependent on the merits of each case,’’ he told Starbiz.
Providing financing to the maritime industry, Tajuddin added, was one of the bank’s mandated roles and it would continue to provide financing to the sector for vessels’ acquisitions.
Over the years, Bank Pembangunan had financed more than 300 vessels including tugs, barges, general cargo vessels, tankers, container vessels and other offshore support vessels.
He said the bank’s loan portfolio over the past three years (2005 to September 2008) had recorded a cumulative average growth rate of 51%.
Asian Finance Bank Bhd has also not cut down lending facilities to shippers.
Chief executive Datuk Mohamed Azahari Kamil said: “As shipping is a capital intensive industry, we have been prudent in extending financing. We conduct due diligence with respect to the terms of the charterer, valuation of the vessel, credibility and track record of the shipping operator to ensure ability of repayment.”
Azahari said the bank, via its RM1bil Safeena Islamic Marine Fund, practised risk management and high level corporate governance for its funding exercises.
The Fund, launched in June, is the first syariah-compliant marine fund in Malaysia and Southeast Asia. It provides a sale and lease back arrangement whereby the fund will own the vessel and lease it back to the vendors with a medium to long term contract.
Maritime Institute of Malaysia’s senior fellow Nazery Khalid said despite the fact that the industry appeared to have weathered the financial storm well, the industry would inevitably feel the pinch of the credit crunch if it continued.
Traditional and seasoned players in ship financing would no doubt still lend albeit cautiously but newcomers of ship financing on the ther hand would be apprehensive to enter the fray.
On the outlook of the shipping sector, Tajuddin said: “The sector has grown steadily since 2003 and Bank Pembangunan remains bullish especially on local and intra regional trade as well as offshore support activities.
“At the same time, we are mindful of the current global economic situation, which will inadvertently affect international trade and hence the sector.”
O&G support services player Tanjung Offshore Bhd will still continue with its expansion plans despite expectations that banks will be more cautious in lending due to the financial turmoil.
According to managing director Omar Khalid, the company planned to either draw down its loans or issue bonds to expand the business.
“We hedged our financing rates two months ago. We are comfortable with issuing bonds to expand our fleet,” he told StarBiz.
Despite the global financial crisis, Omar said the offshore support services industry would remain robust as oil majors continued with exploration and production activities even at prevailing oil prices.
Product and chemical tanker operator E.A. Technique (M) Sdn Bhd did not face any difficulties acquiring loans for fleet expansion and shipyard operations.
Managing director Datuk Abdul Hak Mohd Amin said the company had just received approval from banks for the loans it applied two months ago.
“So far, we have no problem in getting loans from banks,” he said.
Abdul Hak did not see any signs of a slowdown in the company’s business activities even though crude oil price currently stood at around US$73 per barrel.
“Most of our tankers are in long-term charter contracts and when we signed the agreement, oil price was at US$55 to US$65 per barrel,” he said.
According to an analyst, O&G service providers are not directly affected by the swings in oil price.
“Operationally, they are ‘more sheltered’ considering that a majority of their operations are in Malaysia and spearheaded by Petroliam Nasional Bhd.
“Most of their contracts are on a long term basis and the need for local-flagged vessels are still healthy,” he said.
According to several market experts, some international shipping players had cancelled and delayed their orders and this had affected shipyards that are largely located in Asia.
The demand in the Asian shipbuilding industry has been slowing down and this could adversely affect the business of some industry players.
Shipbuilders are also facing problems securing credit facilities as banks are tightening lending or reducing exposure to the shipbuilding industry.
Due to the pressing situation, affected shipyards will have difficulties delivering their orders, especially if they are involved in building ultra-sized ships.
The problems are apparent in China as it is striving to take over South Korea’s position as the largest shipbuilder in the world.
Furthermore, a lot of new shipbuilding companies in China are private limited companies and need funds for expansion.
Source: Star Online