Credit crunch hurting Malaysian shipping industry

THE financial crisis and global recession have resulted in slumping trade, loss of consumer buying power as well as credit squeeze; in turn contributing to a slowdown in maritime financing.

Nazery Khalid

Maritime Institute of Malaysia (MIMA) senior fellow Nazery Khalid said the Wall Street meltdown and the resulting global economic panic had an adverse impact on trade-facilitating businesses – shipping, port operations as well as offshore oil and gas exploration and production.

“However, it should be noted that 90% of the global trade volume is carried by ships and facilitated by seaports while oil and gas found offshore remain critical sources of energy to power the world economy.

“As such, financial institutions and investors must not lose sight of the opportunities and potential in the maritime industry, amid the doom and gloom of the global financial crisis,” he said at the MIMA-OCBC Bank Maritime Financing Seminar 2009 recently.

Nazery said there was concern among maritime industry players over the impact of the credit crunch on the development of maritime activities, which depended heavily on the availability of competitive, sizeable funds and the fluid, trans-boundary flow of capital.

“Despite the fact that several maritime sectors, such as offshore oil and gas and offshore support vessels, have weathered the storm well, players will inevitably feel the pinch of the tightening of lending and cutback in investments should the economic crisis prolong,” said Nazery.

He expects the impending credit squeeze following the crisis will make banks more cautious in lending.

“Traditional players in maritime financing will no doubt continue lending but will do so more conservatively and prudently,” he said.

However, banks that are not familiar with the maritime sector might stay on the sideline altogether and concentrate on their mainstay areas of lending.

“As less debt financing becomes available, the terms of lending will also become more stringent, hence making it more expensive to raise funds from the banks,” Nazery said.

This can be off-putting to companies looking to embark on ambitious expansion plans that require huge borrowings and capital raising.

“As a direct result of the reduction in debt financing, the maritime industry players will have to seek financing from alternative sources,” he said.

However, Nazery said the underlying sentiment towards activities such as port operations and shipping – crucial facilitators of global trade – and offshore oil and gas exploration and production should remain positive as long as the global economy did not collapse.

He expressed confidence that once the financial market woes subsided, financial institutions, capital providers and investors would re-focus on the fundamentals of the maritime industry to consider their involvement in this crucial sector.

“No doubt, the slump in the world economy has affected many activities, including the maritime sector, but a sense of perspective is needed to assess the value and potential of the industry,” he said.

Source: Star Online