European Banks Struggle to Solve Toxic Shipping Debt Problem

Dutch shipowner Vroon is finding talks with banks tough going as it tries to navigate a way out of a long slump in the shipping industry. But it is not an easy time for the lenders either.

Vroon, a 127-year-old family-owned group which operates about 200 vessels and transports livestock, oil and other commodities, wants to extend its credit lines and adjust repayment schedules.

But European banks that lent heavily to the sector when it boomed more than a decade ago have a heavy toxic debt burden following the 2008-09 global financial crisis and a shipping markets crash in 2010.

Shipping firms and banks are caught in a vicious circle of debt, causing a credit crunch that is hindering the industry's recovery. Overcapacity -- a glut of available ships for hire -- is a big concern, and another is a lack of profitability caused by problems such as slower demand and global economic turmoil.

One of the major companies, South Korean container line Hanjin Shipping Co Ltd, has gone under.

"We have difficulty in meeting all repayment obligations that we have and that is what we are in discussion with our banks about. Those discussions are constructive but are not easy -- not for us, or the banks," Herman Marks, the chief financial officer at Vroon, told Reuters.

"It is the lack of profitability for the industry that is causing the lack of availability of finance."

Marks said Vroon was confident of reaching agreements with its financiers soon.

Shipping finance sources say the shipping industry, which transports 90 percent of the world's goods including oil, food and industrial products such as coal and iron ore, has an estimated capital shortfall of $30 billion this year.

Some banks are being driven out of shipping and those that remain are now more conservative in their financing, Marks said.

"It is an industry that requires consolidation," he added.

That consolidation has begun, especially in container shipping. Denmark's Maersk Line, the global leader in the sector, is acquiring German rival Hamburg Sud and China's COSCO Shipping Holdings Co Ltd has bid $6.3 billion for Hong Kong peer Orient Overseas International Ltd.

Germany's Rickmers filed for insolvency in June, and firms that have filed for Chapter 11 bankruptcy protection since March include Singapore's Ezra Holdings Ltd and U.S.-based firms Tidewater, GulfMark Offshore and Montco Offshore.