Credit squeeze adds to pressures on shipyards

Amid concerns over excess capacity, banks want to see higher upfront payments on contracts

PUBLISHED : Thursday, 25 July, 2013, 12:00am
UPDATED : Thursday, 25 July, 2013, 3:57am

Banks have tightened lending to mainland shipyards, putting more pressure on an industry that is already suffering from sluggish demand and a supply glut, as Beijing tries to cut excess capacity across a range of sectors.

The financing squeeze is set to hit less-established yards, but could strengthen bigger players such as Yangzijiang Shipbuilding Holdings and South Korean rivals.

Some banks had started asking for more prudent ship construction contracts before they granted loans and had withdrawn loan approval rights given previously to branches, industry and banking sources said.

They were asking the yards to get clients to make upfront payments of at least 15 per cent now in order to get loans, said an executive at a large mainland shipyard, who did not want to be identified as he was not authorised to speak to the media.

Some yards had offered generous terms to shippers, requiring payments upfront of as low as 1 per cent.

In some cases the banks were also cutting credit lines and moving to recover outstanding loans, the China Association of the National Shipbuilding Industry said.

Financial [firms] have listed shipbuilding as a key industry for credit control
shipbuilders' association

"As the shipbuilding market remains depressed, banks and other financial institutions have listed shipbuilding as a key industry for credit control," the association said in a comment on its website posted on July 18.

An executive at a private shipyard in eastern China said banks had demanded yards charge as much as 30 per cent in upfront payments from their clients. State-owned shipbuilders, though, could get easier credit terms, the executive added.

The bank measures come as the State Council said this month it would cut off credit to force consolidation in industries plagued with overcapacity.

This was shortly after China Rongsheng Heavy Industries Group, the country's largest private shipbuilder, fell into financial turmoil.

Although Beijing did not specify then the industries it had in mind, in 2009 it named nine, including shipbuilding. Industry sources said neither the banking regulator nor any central government agency had issued new rules on tightening lending to shipyards or other industries.

China rivals South Korea as the world's top shipbuilder, though the ships built on the mainland are mostly of lower value and less complex technologically.

This has forced Chinese yards to compete on price and financing terms for orders that have slowed to a trickle since the global financial crisis.

At the end of May, the order book of mainland yards stood at US$68.5 billion, second to South Korea's US$102.5 billion, even though the mainland's order book in tonnage terms exceeded South Korea's, data from Clarkson Research Services showed.