According to executives, bankers and analysts, Asian shipbuilders face an abrupt downturn in demand that could result in some yards going bankrupt as ship owners cancel or postpone orders.
The problems could be particularly acute in China, which is now challenging South Korea as the world's leading shipbuilding nation but where many of the new yards are privately owned and rely on additional funding for their expansion. The shipbuilders' problems stem from those of both the shipping and banking sectors, as a slowdown in trading is compounded by the inability or reluctance of banks to extend financing for orders.
Mr Arthur Bowring MD of Hong Kong Shipowners' Association said that "We are now seeing banks withdrawing financing options for new ships. To have built up such a large shipyard capacity is quite worrying in such doubtful economic times."
Mr Michael Birley MD of shipbroker Wallem said that "Activity has come off very rapidly right across the board, with the big ships affected most. I am sure that there are orders now which are not being completed."
Bankers said that as many as seven Chinese shipbuilders had earmarked initial public offerings to fund their rapid growth. Some have instead been seeking hundreds of millions of dollars in institutional funds.
However, banks are adding stringent covenants when financing vessels, as well as lowering the advance rate of their financing to about 60% of shipbuilding costs from about 80%. Shares in Korean shipbuilders plunged yesterday, led by Daewoo Shipbuilding & Marine Engineering, amid concern that the downturn could force Korea Development Bank and Korea Asset Management to cancel the sale of their 50.4% stake in Daewoo Shipbuilding.
Analysts also point to an abrupt slump in the second hand market. Second hand ships had been trading at a premium to new buildings because of the long lead time before delivery.
The problems could be particularly acute in China, which is now challenging South Korea as the world's leading shipbuilding nation but where many of the new yards are privately owned and rely on additional funding for their expansion. The shipbuilders' problems stem from those of both the shipping and banking sectors, as a slowdown in trading is compounded by the inability or reluctance of banks to extend financing for orders.
Mr Arthur Bowring MD of Hong Kong Shipowners' Association said that "We are now seeing banks withdrawing financing options for new ships. To have built up such a large shipyard capacity is quite worrying in such doubtful economic times."
Mr Michael Birley MD of shipbroker Wallem said that "Activity has come off very rapidly right across the board, with the big ships affected most. I am sure that there are orders now which are not being completed."
Bankers said that as many as seven Chinese shipbuilders had earmarked initial public offerings to fund their rapid growth. Some have instead been seeking hundreds of millions of dollars in institutional funds.
However, banks are adding stringent covenants when financing vessels, as well as lowering the advance rate of their financing to about 60% of shipbuilding costs from about 80%. Shares in Korean shipbuilders plunged yesterday, led by Daewoo Shipbuilding & Marine Engineering, amid concern that the downturn could force Korea Development Bank and Korea Asset Management to cancel the sale of their 50.4% stake in Daewoo Shipbuilding.
Analysts also point to an abrupt slump in the second hand market. Second hand ships had been trading at a premium to new buildings because of the long lead time before delivery.