Shipping firms face bank debt mutiny

Fri Feb 24, 2012 11:46am EST
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By Jonathan Saul and Sophie Sassard

LONDON (Reuters) - Troubled shipping companies face the threat of seizures of their vessels as banks lose patience with an industry struggling with overcapacity and falling demand, industry players say.

Banks have been fairly supportive until now, providing extensions such as last week's lifeline to Danish shipping company Torm A/S TORM.CO which was given a deferral on $1.8 billion of debt until March 1.

But lenders are under pressure to cut their exposure to risky and dollar-denominated assets such as ship and trade finance to meet tougher capital rules.

"With all the other problems that many European banks have, and the tightening noose of regulatory and capital adequacy rules, they have no choice left other than to face their demons," said Nigel Prentis, head of research, consulting and advisory with HSBC Shipping Services Ltd.

"An increase in arrests, foreclosures and forced asset sales appears inevitable."

An arrest occurs when a ship is detained by a court order to secure a maritime claim. The arrest may ultimately result in a judicial sale of the ship to pay the claim.

John Dalby, chief executive of ship asset recovery firm Marine Risk Management, which was active in arresting ships in the 1980s, said his firm is talking to six financial institutions over repayment options, including arrests.

"Our intel shows that this number will increase as this year goes on. Just like the Greek debt, there's only so much patience and debt accumulation that can be sustained," he said.   Continued...