Global crisis will transform shipping financing methods

Dubai: The shipping industry should think about ways of changing the way it is financed as it has followed the world financial markets down a deep hollow feeling the pinch of the global financial crisis, a conference at Seatrade Middle East Maritime heard yesterday.

Professor John Tzoannos, secretary-general of the ministry of mercantile marine for the Greek government, said capital requirements for shipping businesses and the liquidity squeeze may force companies to seek new financing alternatives.

"Private equity funds will come to play an increasingly important role, which was not done before. The crisis is a threat but should also be seen as an opportunity by the shipping industry," he said.

It was an opportunity because shipping would continue to be a lifeline for the global community with trade continuing to grow and the demand for water-borne transport.

Tzoannos said the first bankruptcies had already emerged in the industry and the downturn was likely to continue with banks increasingly reassessing the criteria and altering the terms of the loans they are offering. This was causing financing problems for shipping companies resulting in many orders for ships being cancelled.

The financial turmoil has caused the Baltic Dry Index to drop to its lowest since 1997. Bank loans to the industry have declined by 30 per cent in the last nine months, he said.

Culture of prudence

He added that while regional markets were "still enjoying a moment in the sun", they were not immune to the effects of the crisis.

"The Middle East and Asia are not fully immune to the impact of the US-led financial turmoil."

The Middle East may not be a haven away from the crisis but it could benefit from it too.

"The Middle East markets do not rely on the West for trade. In fact intra-Asia trade is among the largest in the world. The region will enjoy the best of both worlds; its markets are globalised to an extent but not completely.

"Regional markets are also not facing the demographic problem of ageing populations as the West is; therefore its financial exhausts would be used more for investments rather than paying out pensions."

Islamic financing is beneficial for the region as it led banks on the "right track," Tzoannos added.

"The mode of operating in Islamic financing is different... there is also a culture of prudence in the region's large banks," he said.

Gulf countries continue to invest in infrastructure and diversifying their economies through the oil revenues generated by a surge in the price of the commodity earlier this year, he pointed out.