Shipping firms run aground

April 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

2014 was a tumultuous year for the shipping industry, with a number of firms filing for bankruptcy throughout the course of the year.

Unfortunately, 2015 picked up where last year left off. Three private shipping companies in China alone have experienced financial crisis already this year, with analysts citing overcapacity and a weak demand for commodities. Indeed, China’s imports have fallen 19.9 percent compared to a year earlier, partly due to the country’s decelerating economic growth, which is at its slowest rate in 24 years.

The volatile nature of the commodities industry has meant that the current freight rate for carrying a cargo of coal in a panamax ship from Indonesia to southern China is around $3000 per day. In early 2014, the rate was $6000 per day. Equally, the Baltic dry index has fallen by around two-thirds over the last 18 months.

The most notable firm to file for bankruptcy protection in 2015 to date was Dalian based dry bulk shipping company Winland Group Co Ltd. The firm, founded in 1993, and five of its subsidiaries filed for Chapter 11 bankruptcy protection in Texas on 13 February. Winland, which has a fleet of vessels including 18 bulk cargo ships and three container ships, has seen low charter rates and volatile market conditions reduce its fleet of container ships down from 11. Two of the company’s remaining vessels, the Rui Lee and the Winland Dalian, were arrested in Asia late last year on charges believed to be related to outstanding payments for services. 2014 saw the company post a net loss of around $8m on operating revenues of around $12.6m. Winland and its affiliated subsidiaries listed outstanding debts of $25.9m to China Merchants Bank, $3.2m to Grand Capital International Ltd, $19.6m to China CITIC, $3m to Sea Carrier Shipping Co, $5.4m to Rich Forth Investment, and $5.3m to Jiangsu Hangtong Ship Heavy Industry.

In the firm’s Chapter 11 documentation, Winland, which employs around 166 people, noted that “Due to current market conditions, the financial position of the company and its subsidiaries has deteriorated, leading to immediate difficulties”. As a result, the firm stated that it had no option but to file for Chapter 11 protection. The company’s Texas-based chief restructuring officer, Robert Ogle, said that Winland’s Chapter 11 application was necessary in order “to preserve the value of the vessels for the benefit of all of the debtors’ creditors and avoid the piecemeal dismemberment of the debtors’ business”. The company is hopeful that it will be able restructure existing debt during the Chapter 11 process, however should this not be possible Winland will “pursue an orderly and organised liquidation of the vessels to maximise the recovery to creditors”. In addition to the debt restructuring process, a key to the potential revival of the company’s fortunes, according to Winland’s filing, will be the release of its two arrested vessels.

Away from Winland, the head of the Shanghai Hong Sheng Gang Tai Shipping Co Ltd went missing on 9 February leaving the company saddled with significant number of unpaid debts. Also, in January, Xia Hanren, the owner of Zhejiang Xiazhiyuan Ship Management Company Ltd, left China for Singapore in an attempt to escape his company’s mounting debts, which are believed to be around $200m.

However, Chinese firms aren’t the only shipping companies to encounter financial difficulty in early 2015. Privately-owned Danish shipping company Copenship A/S also filed for bankruptcy in February. The firm filed in Copenhagen citing substantial losses in the dry bulk market for its financial difficulties. Per Astrup Madsen, a partner at law firm Lett, which was appointed Copenship’s trustee, has been inundated with claims against Copenship since the company filed for bankruptcy. The firm is believed to have creditors across the globe.

Another Copenhagen based shipping firm, D/S Norden, has posted considerable losses over the last few years. The company reported net losses of $326m across 2012 and 2013 and expects a full-year EBITDA of between $290m and $230m.

The last few years have been difficult for the shipping industry. With the number of bankruptcy filings increasing steadily of late, the prospect of calmer waters ahead seems unlikely.

Richard Summerfield