Liquidity crisis affecting many shipping companies demands resolute action

Wolfgang Topp discusses the shipping crisis at the Hansa Treuhand Schiffahrts-Symposium

Hamburg/Kiel, September 12, 2013 - The shipping industry will find a lasting solution to its crisis only if the ship owners and banks in Germany tackle the huge challenges together and have the courage to adopt unconventional solutions. So concluded Wolfgang Topp, head of the Restructuring Unit of HSH Nordbank, at the Hansa Treuhand Schifffahrts-Symposium.

"Ship owners failed to make preparations during the years of economic success to ensure the future viability of their companies. As things progressed, the duration and intensity of the crisis were consistently underestimated. Many companies are thus today facing a liquidity crisis which forces them to take resolute action," said Wolfgang Topp, Generalbevollmächtigter at HSH Nordbank.

As the restructuring expert sees it, the banks must also add a few points to their to-do list. For example, important financing principles were ignored during shipping's boom phase. In future, the banks will need to focus more on the expertise of the management team, access to equity and full deployment of the ships.

Shipping companies should, in the opinion of Topp, restructure themselves in the light of some key strategic issues, unless this has already been done. In his view, the focus should be on the professionalization of business management processes in the shipping companies. While the technical management of ships is usually very good, there is often considerable potential for improvement when it comes to the business management of the shipping companies themselves. Moreover, it is today vital to align the fleet to contemporary standards - in particular, with regard to energy efficiency and environmental provisions - if it is to assert itself in the marketplace on a sustained basis. Furthermore, it is important for companies to reach a size that enables them to generate economies of scale. Topp considers consolidation within the sector to be unavoidable. "In the long term, there will be a substantially reduced number of larger shipping companies together with a small number of niche players in Germany," said Wolfgang Topp.

Generally speaking, according to Topp it is the joint task of banks and shipping companies to tap new financing channels and options. He advocated the creation of a joint competence centre for the ongoing monitoring of market trends and technical developments. Moreover, uniform criteria need to be established to assess operational excellence, and the ship owners should allow themselves to be measured by these criteria. They could then be included in an assessment of creditworthiness. "For many years the shipping industry relied too much on sight while sailing. There is an urgent need to reach an agreement on where the sector is heading in the long term and what expectations are placed on its participants," said Topp.

HSH Nordbank remains a reliable partner for the shipping industry. However, the ship owners and shipping companies themselves must be willing to support their beleaguered companies. "There can be no restructuring and realignment exclusively at the cost of the banks. If you help yourself, others will help you," said Topp. At the same time, the regulatory setting for restructuring has intensified considerably in recent years. The banks simply have less scope and more restricted time windows for restructurings. This is one of the main reasons why restructurings in future should be tackled in good time or losses be taken earlier in the case of hopeless realignments.

HSH Nordbank - like other ship-financing banks - is working on new restructuring solu-tions. They are to be used for ships the current owners of which cannot be expected to provide more support, either through the injection of fresh capital or in operating the ship. In the spring HSH Nordbank presented a finance model in conjunction with the Navios shipping company. Other solutions are being developed. "For us as a bank, the focus is on raising capital from new investors, on reducing the bank's risks while at the same time ensuring the opportunity for us to participate in the market's recovery," said Topp.

Wolfgang Topp is Generalbevollmächtigter at HSH Nordbank. In this role he is responsi-ble for the Restructuring Unit, established in December 2009, in which non-strategic business areas and portfolios of HSH Nordbank are wound down in a manner that safeguards their value and causes minimum disruption to the market. The Restructuring Unit has total assets of EUR 50 billion (as at 30 June 2013), of which around EUR 9 billion in the shipping sector. According to the EU's state aid ruling dated 2011, the Restructuring Unit's total assets will have to be reduced to EUR 38 billion by the end of 2014.