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Business News/ Companies / Credit crunch in US, Europe could hit new shipbuilding contracts
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Credit crunch in US, Europe could hit new shipbuilding contracts

Credit crunch in US, Europe could hit new shipbuilding contracts

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Mumbai: The global head of one of the world’s two biggest shipping banks is predicting that the cost of financing ship purchases will go up due to the ongoing credit crunch in the US and Europe.

Hans Petter Aas, executive vice-president and head of global shipping, offshore and logistics of Oslo, Norway-based DnB NOR Bank ASA, also said that a lot of new shipbuilding contracts that have not secured funding so far would have to be scrapped.

“The slowdown in the world economy and the troubles in the financial sector will force banks to charge higher margins to recover the cost of funds," he told Mint. “This will push up the cost of ship financing as the finances would have to be priced higher than before."

This, he said, would hit shipowners scouting the market for finances to buy ships. Typically, 80% of the cost of building a ship is borrowed from banks and financial institutions, while the balance 20% is pitched in by the shipping firm placing the order.

“I think, over the next 6-8 months, we are most likely to see more shipowners cancelling new shipbuilding orders, particularly those who are yet to secure funding for their projects," said Aas.

“They will find it difficult to get funds at the right price. The credit crunch in US and Europe will be a big challenge for ship financing in 2008."

Though, the cost of building ships are ruling at a high level, there was a good mix between the vessel price and the rates for renting a ship that transports dry bulk cargo. “The charter rates for bulkers are extremely high," he said. “The pay down period for such vessels is typically 7-8 years. This is good for a ship that lasts over 25 years."

But, there was a discrimination in the rates and the vessel prices in the case of tankers that carry crude, petroleum products, chemicals and other liquid cargo.

“There is a mismatch in the tanker market where the short-term rates are low, while the new ship prices are high. This represents a challenge for financing a tanker on a non-recourse basis," he noted.

Despite this not-so-rosy scenario, Norway’s biggest bank, will open a representative office in Mumbai later this year, Aas said. “There are tremendous opportunities in Indian shipping, offshore and logistics, ports and terminal infrastructure."

HSH Nordbank AG, the world’s largest ship financier, is also looking to start operations in India.

Both, DnB NOR and HSH Nordbank are currently awaiting approval from the country’s central bank, the Reserve Bank of India, to open offices here.

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Published: 14 Feb 2008, 11:29 PM IST
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